Uber Deep Dive: UBER Stock Analysis

Hi, I'm Jimmy. In this video, we're looking at Uber, ticker symbol UBER. So, in this video, we're going to go through the basics of Uber's business, we're going to run through some of the numbers, and then finally, we're going to try to come up with a fair value for Uber's stock to see if it's worth investing in today. Now, we jump over and look at a chart of Uber over the past 5 years, well, we could see the stock has done fairly well, right? It's up a little over 40 some odd percent. But, on an annualized base, it's it's okay, right? Not great, but okay. Now, if we compare that to one of its competitors in Lyft, well, it's smoking Lyft over the past 5 years. We'll come back to this in a minute when we look at some of the numbers. And if we're curious, if we were to compare Uber stock to, let's say, the S&P 500, well, for a while, on a 5-year chart basis, Uber was beating the S&P 500, but just recently, the S&P 500 kept climbing, while Uber stock pulled back, and the S&P 500 took the lead. Okay, now, with that being said, let's jump over and look at some of the basics of Uber's business. So, their largest segment they call mobility. This is exactly what you think it is. This is like Uber, like taxis, they have ride-sharing, things like that. Basically, anything that gets us around, you can meet to go to the airport, that's mobility. All that revenue falls into their mobility segment. Their next largest segment Their next largest segment is what they call delivery. This is things like Uber Eats, or if they're delivering products, packages, things like that. That's where this falls. And then, their smallest segment coming in at about 10% of total revenue last year is freight. This is a smaller piece of their business, but it has been growing in recent years. So, it is something we want to pay attention to. This is one of those segments that are exposed to the trucking cycle. So, where you have might have something like ga- uh diesel fuel prices that have been much higher recently, well, that's hurt that hurts trucking, that makes it more expensive. So, in theory, that could add some pressure to this piece of the business. Okay, now, with that in the back of our mind, here's a chart that I think presents some important data for how Uber how Uber's financials really work. So, this is gross bookings and Uber gives us the numbers based off of mobility and delivery. So, ride sharing and think Uber Eats, right? And gross bookings is how much, you know, if you were to order food and it's a $50 order, well, uh not all of that money goes in as revenue for Uber. Just Uber's cut of that comes in as revenue. Now, we can actually combine these numbers into total gross bookings and then I think it's helpful to overlay a chart of revenue on top of it just so we can visually see the difference. We can see here that gross bookings is significantly larger than revenue. In fact, low 20% range of gross bookings is what ends up, give or take, is what ends up in Uber's revenue. Now, before we leave this slide, I actually want to bring up a piece of news that I saw the other day for Uber and how they're accounting for some of the revenue relative to gross bookings. So, you might have seen in the news that the United Kingdom recently changed the rules for how they account for revenue. So, for example, pretend somebody was booking a ride share, right? It's going to and that ride share is going to cost $50. The way it was working in the United Kingdom is the entire $50 would be land on Uber's books as revenue. They changed that. So, now just what Uber keeps, so let's pretend Uber was going to keep $10 out of the 50. Well, just the 10 will land in revenue. The 40 that goes to the driver would actually end up uh it would be like net revenue. That number would go into gross bookings, the entire 50 stays in gross bookings, but only 10 would be applied to revenue. That's actually more in line with how they do do it in the United States. The United States only counts what goes to Uber, which is why there's such a difference between gross bookings and revenue. Now, I'm using a hypothetical example of $40 to the driver and $10 to Uber. That's actually not fair. Uh it's actually closer like 65% of of the average booking based on studies that I've seen about 65% of the average ride goes to the driver. The other remaining 35% ends up on Uber. So, I'm giving a little bit generous with Uber with that 80/20 split. But hypothetically, I just wanted to point that out. So, if you've seen that news, that's what it means. Okay, now let's jump over and look at some of the numbers. So, another interesting number that Uber gives us is the number of trips that they take. And these numbers actually in billions. Now, we could get into the nuances from quarter to quarter, but I think better it's I like looking at this stuff from a longer-term standpoint. Broadly speaking, they're doing fairly consistent at growing the number of trips that they're doing. And that translates fairly well into quarterly numbers. So, we can see that largely speaking, the trend is higher. Now, I will point out, see this second to last bar here where we had a meaningful drop or somewhat of a drop in revenue in the first quarter of 2026. That's when that new UK accounting rule changed. So, while that's not the only explanation for why it dropped, it is a large part of it. So, yeah, I just wanted to bring that up. That's why I probably shouldn't have brought up the UK thing here, but I just wanted to bring out why that happened. Okay, that being said, when we jump over and switch this chart to an annual chart, well, again, on an annual basis, the the the chart looks fantastic. It is growing fast on an annual basis. Now, this is a fairly young company. We can see here it has really accelerated in the past few years as they've expanded their business beyond just ride share. They also got rid of when they first started, they had real discounted prices to try to get customers in and to experience it. They've been able to jack up those prices a reasonable amount or well, a decent amount. I don't know if it's reasonable. I think they're a little bit expensive, but still they've done it, the market has accepted it, and revenue's taking off because of it. And if we move a bit further down the income statement over to operating income, we can see that operating income, well, they just recently started to go brought operating income positive. Now, this isn't necessarily a bad thing. I mean, the fact that it was as negative as it was is not necessarily a bad thing, especially with this type of company where you've got a you're kind of starting a new thing, and it cost a ton of money to get that rolling, and it would be illogical to think that they could, you know, have positive operating income or positive profit coming out of the gate. So, oftentimes you'll see a chart that looks like this, that it'll go way negative, and then ramp itself up until it goes positive, and then hopefully for investors continues to trend higher. Now, you might ask, why am I focusing on operating income and not net income? Well, it's because if we were to add net income to this chart, well, we can see that net income gets real sloppy real fast. So, operating income on I think is a cleaner number to use. Now, one of the reasons it gets so sloppy is that Uber has investments in some other companies. So, for example, in 2022, we can see net income went way negative, and that's because they had taken unrealized loss in their investment with Aurora. They they also have an investment with Didi. They had taken unrealized loss there. Then that reverted into a gain the following year. They had another gain, not last year, but the year before that. So, the number is kind of end up looking wild and pretty skewed because of these unrealized losses and gains, and then I thought it made more sense just to focus on either operating income, which is kind of a clean number to look at for how they're operating their business, but also free cash flow, which takes operating cash flow and subtracts capital expenditures. So, this is another clean number. You can see this looks very similar to operating income. I think these are the better numbers for us to focus on if we're trying to effectively understand Uber's business. So, we can see here with free cash flow, just like we saw with operating income, for a while it was negative and then it gradually began to ramp up and we've had a nice trend for a while where it has moved higher. Now, this is likely to be a good thing when we go to value the stock using something like discounted free cash flow, but I like to have sometimes zoom in and look a bit closer at the quarterly numbers and we can see we're seeing a very similar trend with quarterly free cash flow. Okay, so free cash flow looks pretty good. Now, one more number before we jump over and look at fair value. Let's just look real quick at shares outstanding. Now, again, because this is a younger company, I'm going to forgive the fact that for a while shares outstanding were ramping up. So, instead of buying back stock, they were actually issuing shares to raise money. Again, with smaller younger companies, this makes sense. Now, we can see in the most recent year, their shares outstanding did in fact tick a little bit lower, so that's probably some early signs that this could shake out to be a good thing for them, but broadly speaking, I would say that this is a neutral point. I don't I don't think that this necessarily hurts them or helps them. Okay, now let's jump over and look at the fair value for Uber stock. So, on the Investors Go website, the Investors Go website will recommend two valuation methods that have historically worked fairly well for this company. We can see the first recommended valuation method here is forward price to earnings multiple. So, today's price relative to the next 12 months of earnings. Now, we can see here, this is our value zones chart. Basically, how far are we currently and have we been historically relative to the rolling, in this case a rolling three-year average. We're using a three-year average instead of five-year average because it's a younger company. Rolling three-year average, how does it stack up relative to its own history? And we can see right now it's in the green zone, so it does in fact look undervalued. Now, if you're curious how well this works, well, if we bought it when it was in the green zone, if we look at these numbers up here, we could see we would have returned a positive 24% versus if we bought it when it was in the red zone, we'd be down 12%. Right now, it is in the green zone and it does look a bit undervalued. Now, to double-check that, when we look at discounted free cash flow, and in this case we're going out just the next 3 years. I'm being fairly conservative here, so the assumption is we grow free cash flow according to analyst estimates, then we go out we grow after that by 2 and 1/2%. About the rate of inflation or the target rate of inflation. Well, from a fair value perspective, does this stock with these numbers, does it look over undervalued? Well, using the discounted cash flow calculator from the Investor's Growth website, well, we could see we get a fair value of about $111 per share. Compared to the current price of about 70 bucks per share, it looks fairly good. There's a This is almost a 13% expected return. Again, assuming analyst estimates play out something like this, and then the stock continues to grow at about 2 and 1/2%. If we think it's going to grow faster than that, this could be fairly conservative. So, Uber looks like an interesting one. Now, I personally just recently dipped my toe in the water with the company Sprouts. I'll leave a link in the description below for that video if you're curious. So, I'll be buying uh uh just buying Sprouts now. I'd like to watch Uber. I'm adding Uber to my watch list. But, I don't know if the capital jumping to buy Uber. But, it does look real interesting. If it pulls back a bit more, maybe this one's right on the fence for me. It looks like it could be undervalued. And depending on their growth, think be a good long-term buy and hold. But I'm right in the middle. I'm in the wait and see the way this plays out, particularly if we end up in a recession. How well does this company do in a recessionary environment? We haven't really tested that yet. That's my primary concern with this company here. So overall, I think it looks fairly interesting and I'm going to add it to my watch list, but let me know what you think in the comments below. And if you want to sign up to get access to the Investors Go website where we try to make it quick and easy to analyze and value companies. We'll leave a link right here. Link in the description below. Thank you so much for sticking with me all the way to the end of the video. I really do appreciate it. Thank you and I'll see you in the next video.