It says a lot when a company’s name becomes a verb.
Seriously! Are there any readers who haven’t yet ubered?
(My failure to capitalize the “u” is intentional. We don’t do that for ordinary verbs.)
Even my late mother ubered regularly.
That says a heck of a lot. We’re a New York City taxi “Medallion” family.
In the mid-1950s, my late father bought an individual license to operate a “yellow” cab. He drove it all his working years. And he made a darn good living, enough to educate me and my sister and provide a great life for all of us.
I even drove his cab during summers while in law school. I always believed one couldn’t learn automobile negligence through books. One had to get out there and learn by doing.
We kept the medallion after my father passed away. We licensed its use to other drivers. And we got a nice monthly cash flow… until Uber (NYSE:UBER) came along. That once-great asset was quickly gutted.
You know the much-written-about story. Uber essentially disrupted and largely destroyed the traditional taxi industry.
You’d think, though, my late mother would have been one of the last anti-Uber holdouts. But actually, she was an early adopter.
Let me explain.
During her latter years, she suffered from severe macular degeneration. That meant she was legally blind.
One day, my niece accompanied her to a specialized medical appointment.
The assisted living facility in which she lived was in the southernmost part of Brooklyn. She had to get to midtown Manhattan. That was a long trip.
They had no problem getting to midtown by taxi. But coming home was a different matter.
They hailed several cabs. All of the drivers refused to take her to Brooklyn.
My niece had an idea. She hailed a cab. Without telling the driver where they wanted to go, my mother got in. My niece folded her wheelchair, and the driver helped her put it in the trunk.
Then, my niece got into the cab. She told the driver where they were going.
The driver refused to go. He got out and retrieved the wheelchair from the trunk. Her told my mother and sister to get out of the vehicle. After they did, he drove away.
That happened twice more with different cabs.
Finally, my nice called for an Uber. That’s how they got back to Brooklyn.
My mother never again got into a regular taxi.
Uber is Flat-Out Better
There are many other reasons why many others took to and still are taking to Uber.
- In cities where cabs can cruise for fares, riders need not stand in the street for who knows how long waiting for an empty taxi to come by.
- In places where one calls to have a cab dispatched, one need not guess which company will get a car there faster.
- Passengers who prefer not to use cash don’t face driver hostility.
- Rides can be pre-scheduled in advance. (I once called for an Uber to LAX airport in Los Angeles at 5 am. I eventually got a car. But in retrospect, I wish I had reserved one in advance!)
- While waiting, you can look at the app to see exactly where the driver is.
- Fares are set algorithmically, so you don’t have to negotiate with drivers.
- You can get a ride even in busy times. (Passengers don’t love higher surge busy-time prices. But it’s better than being left stranded because you can’t get a car at any price.)
- If you arrange transportation for a vulnerable person, you know who the driver is and exactly where the car is at all times.
- Uber offers various vehicle pricing, comfort and speed options for passengers with differing needs and preferences.
- Uber can arrange for rental car reservations, and even to have the car delivered to you.
Uber didn’t steal business from the taxi industry. The taxi industry handed it to Uber on a silver platter.
Still…
Uber Hasn’t Been and Isn’t All Hearts and Flowers
Uber and controversy often go hand in hand. Wikipedia narrates the basics here. In 2019, author Mike Isaac went further in Super Pumped: The Battle for Uber.
To briefly summarize…
Founder and first C.E.O Travis Kalanick became a widely infamous corporate bad boy.
Uber bullied its way past local regulators into many markets. (Such battles continue in many parts of the world.)
Many accuse Uber of setting very low (predatory) prices to drive taxis out of business. Critics say once they do that, they’ll boost prices up to monopolistic levels.
Will they or have they done that? It may eventually take many antitrust lawyer billable hours to sort that out.
Uber also seems to be enhancing the careers of labor lawyers. Ditto regulatory and legislative staffers who specialize in these issues.
It takes a lot of busy work to keep track of where Uber stands in different markets as to whether drivers are independent contracts or employees. (The former get no minimum wage or benefits.) That’s like trying to smooth a waterbed. One controversy settles down, but another one rises up.
Does Uber recruit too many drivers? On the one hand, more drivers mean better service for passengers. passengers. On the other hand, excess driver supply depresses driver earnings.
Nobody ever said market economics was easy. Look how many decades (generations?) it took to tame basic industry.
Think robber barons, company goons beating up strikers, unsafe working conditions, sweatshops, child labor, shameless pollution, no responsibility for product safety, etc. And many say that job remains incomplete.
With respect to Uber, Travis Kalanick exited in 2017. Since then, Uber has been led by Dara Khosrowshani.
But the world continues to march on. Uber along with the rest of the growing gig economy, still has a lot of evolution ahead of it.
Ideally, investors would probably want to wait to invest in the finished product. But doing so can and has produced huge opportunity losses. (These are profits one doesn’t get because one didn’t invest.)
That prompts us to ask…
Is Uber, Imperfect as It Is and Likely to Remain for A while, Investable Today?
A big part of me wants to say “yes — maybe.” But it hasn’t been easy to get even here.
Uber’s May 10, 2019 Wall Street debut flopped. The stock closed on May 13th, the first full trading day after the IPO, 11.7% below its initial open.
Commentators emphasized the dollar loss, rather than the percent change. So Vanity Fair headlined a May 13, 2019 article Uber’s Colossal I.P.O. Flop May Be the Worst Ever on Wall Street.
It wasn’t just bad market sentiment. Forbes, in a May 16, 2019 article, slammed every aspect of Uber’s business and concluded:
Uber’s slowing growth and mounting losses reaffirms my belief that this stock has no viable path to justifying its valuation. Even after the stock’s post-IPO decline (author’s note: 25% decline as of the article date), it remains significantly overvalued.
I did not publish anything on Uber back then. But I have to admit I agreed with the post-IPO bears.
Was my stance influenced by Uber’s having blown up my family’s taxi Medallion? Maybe. (We’re all human. Emotions aren’t completely irrelevant.)
But Uber’s numbers were truly frightening. I understand net losses. But I get very fearful about companies with negative EBITDA (also known as operating Profits).
Back in 2022 at my old job, I wrote an article describing them as basement dwellers.
I compared young companies need the capital markets to kids needing their parents. Sooner or later, kids have to grow up and stand on their own. But Uber seemed like an aging child holed up in the parents’ basement. I referred to such companies as “the equivalent of a video-gameplaying grown-up living in your portfolio rent-free.”
That was the logical justification for my original bearish stance.
Eventually, though, as with Amazon.com (AMZN), which I wrote about on July 13, 2024, Uber moved out of the basement and into the world.
And by now, Uber has clawed its way into the black…
And looking at it today, we can see that Uber followed a pretty standard emerging company script. I described it in my June 30, 2024 article on micro-cap Mama’s Creations (MAMA). It’s about improved coverage of fixed costs as revenues grow.
We see this below as operating expenses (as tolerable a proxy for fixed costs as we have considering GAAP accounting rules don’t mandate disclosure of these).
Gross profit (revenues minus cost of sales, a tolerable proxy for variable business costs) stayed in line with sales. The operating expense percentages shark over time.
That’s about as classic as it gets.
So fundamentally speaking, I’m fine with where Uber now stands.
But the valuation ratios assume Uber will keep progressing over the next three to five years.
(I prefer medians since these aren’t impacted by wild distortions often caused by unusual data items, even in big companies that can dominate weighted averages. That’s especially so for Uber’s very small 8-company Passenger and Ground Transportation Industry.)
It would be great if UBER could meet the 45.90% “Proj. 3-5Y EPS Gr” target. But it’s not do or die.
UBER’s “PEG FWD” is very low. If the growth rate comes in at 20%, the PEG would be 1.87. That would still be below that of SPY.
So, to this point, based only on the number, it looks like Uber is investable. But we can’t take the plunge until we consider the future…
The Company’s Capabilities and Strategy Looks Great
Uber never liked being called a transportation, taxi-like of ride-share company. Citing its platform, it wanted to be seen as a technology company.
Back in my early skeptic days, I dismissed that as tech-bro arrogance.
Lately, however, I’ve been coming around. It’s like I did with Amazon.com (AMZN). On June 13th, I characterized the latter as a retail-distribution tech company. (And that didn’t come from AMZN management. It was all me. It)
Uber reports its results based on three segments… Mobility, Delivery and Freight.
Mobility is the now ubiquitous ride-share business. But as described above, it’s much better than traditional call-for-a-ride “livery” services.
Delivery is Uber Eats. Uber drivers compete with Seamless, DoorDash (DASH), etc. to deliver food. But it’s not just restaurant fare. Check the Eats section of your own Uber app. You’ll notice it covers much more than just meals. You can order from grocery stores, convenience stores, pharmacies, etc.
Freight is a service in which drivers deliver parcels.
Customers can access all services from the standard Uber app.
According to an Uber driver with whom I recently rode, drivers can go back and forth choosing which kind of job they want. (I don’t recall if it was all on the same driver’s app or if they had separate apps. But either way, the driver make it clear it was pretty easy to manage.)
So, it’s looking like Uber’s early tech-bro claim is for real.
Page 4 of the latest 10-K introduces Uber as “a technology platform that uses a massive network, leading technology, operational excellence and product expertise to power movement from point A to point B.”
From what I can see through real-life observation, I now believe that.
As we see, the platform is quite scalable.
So, it’s easy to envision Uber coming up with new services for each of its segments. And Uber may add new segments in the future.
And the platform can do other things. It can handle advertising, for example.
It also lets delivery vendors offer special promotions.
And it includes Uber’s own emerging Uber One subscription/loyalty service. This is a great way to generate repeat business. And it incentivizes customers to use multiple Uber offerings.
You can see more in Uber’s February 2024 Investor Update.
On paper, this is terrific stuff…
But I’m Not (Yet) Seeing the Money
I’m feeling a sense of déjà vu.
I criticized Alphabet (GOOGL) on June 13, 2024 and Apple (AAPL) on July 8, 2024 for similar reasons. In both cases, financial results weren’t meshing with their respective corporate personas.
I see that with Uber too.
Take a look at Uber’s segment-based financial results.
Mobility is doing great. That’s clearly Uber’s financial engine.
But look at the roles Eating and Delivery are playing. They amount to next to nothing from a profit-loss standpoint.
As recently as 2019, the 10-K reported described two additional business segments (i.e., beyond Mobility, Eating, and Freight).
Other Bets
The Other Bets segment consists of multiple investment stage offerings. The largest investment within the segment is our New Mobility offering that refers to products that provide consumers with access to rides through a variety of modes, including dockless e-bikes and e-scooters (“New Mobility”). New Mobility also includes Transit, UberWorks and our Platform Incubator group, which is responsible for innovating new services and use cases on our platform to drive long-term growth and cross-platform customer engagement.
We are investing in new modes of transportation that enable us to address a wider range of consumer use cases and represent a significant opportunity to bring additional trips onto our platform. We believe that dockless e-bikes and e-scooters address many of these use cases and will replace a portion of these vehicle trips over time, particularly in urban environments that suffer from substantial traffic during peak commuting hours.
ATG and Other Technology Programs
The ATG and Other Technology Programs segment is primarily responsible for the development and commercialization of autonomous vehicle and ridesharing technologies, as well as Uber Elevate.
ATG focuses on developing autonomous vehicle technologies, which we believe have the long-term potential to provide safer and more efficient rides and deliveries to consumers, as well as lower prices. Along the way to a potential future autonomous vehicle world, we believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while Drivers continue to serve most consumer demand.
I’m all for looking forward. On July 13th, I praised Amazon.com (AMZN) for having consistently invested heavily to do that.
But AMZN is a heck of a lot more profitable in its basics than Uber now is. And the core GOOGL and AAPL businesses are so extremely successful, taking their respective eyes off the ball won’t blow them up.
Uber may get there too. But it isn’t there yet.
Some of the visionary ideas, mainly around alternative transportation, are now part of Mobility. And I’m glad that in the second quarter of 2020, the company folded these two categories into “Other.” That sends, at least to me, a good message. (Management is getting more publicly serious about what the company is and isn’t.)
I respect the heck out of what Uber is doing. And I believe it will succeed. But committing to its stock right now is another matter. (See below.)
Risk
With a company that’s doing so much to build new businesses atop its platform, the risk of failure is ever present.
In particular, there’s risk that Uber won’t be able to seriously grow Delivery and Freight. It isn’t yet in a position to absorb anything like the 10-year $10-billion failure AAPL experienced with its ill- fated auto venture.
What to do About UBER Stock
Uber has to do a lot of growing to make its stock valuation work.
Wall street forecasts a 45.90% long-term EPS growth rate. As discussed above, it need not hit that target… 20% would be fine. But at least analysts haven’t been slashing the big projection lately.
Still, I’m hesitant to pull the trigger and say “Buy.” I want to see some indication that UBER can actually make money from Delivery and Freight. I’m looking for evidence the company isn’t just throwing money away.
But I haven’t forgotten that I, and many others, were too distrustful of Uber early on. So I’m waiting, but not sneering.
The price chart shows that the Street doesn’t hate UBER.
The 10-day exponential moving average (EMA) just crossed modestly above the 50-day EMA. And both are moving sideways.
The Chaikin Oscillator (CO) looks neutral. It measures which party to trades are more motivated. Buyers being more motivated than sellers puts upward pressure on stock prices.
Chaikin Money Flow (CMF) measures the same thing, but with a focus on institutional investors. This indicator is actually bullish.
For now, my preference is to watch (hopefully) and wait.
As I’ve said before, my investment stance depends mainly on whether I think a stock will be better than, in line with, or worse than market.
Here’s how I apply that to the Seeking Alpha rating system:
- “Strong Buy” means I see the stock as being better than the market and I’m bullish about the direction of the market.
- “Buy” means I see the stock as being better than the market but am not confident about the market’s near-term direction.
- “Hold” means I see the stock as moving in line with the market.
- “Sell” means I see the stock as being worse than the market but am not confident about the market’s near-term direction.
- “Strong Sell” means I see the stock as being worse than the market and I’m bearish about the direction of the market.
Based on this scale, I’m rating UBER as a “Hold.”
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