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Is It Too Late to Buy Uber Stock?

Motley Fool - Mon Feb 12, 9:00AM CST

Uber Technologies (NYSE: UBER) seems to have turned the corner. After years of struggle following its 2019 initial public offering, the stock has reached record highs and the company has achieved its first-ever annual profit. But does that mean shares can continue to move higher, or have investors already missed the opportunity? Let's take a look.

The state of Uber

Reaching profitability after its struggles is a huge milestone for the company. Investors had already begun to write off Uber when the pandemic sent its stock plummeting to all-time lows. Moreover, Uber would retest those lows after the 2022 bear market reversed a surge in the stock that took it to record highs at the time.

One factor appears to have boosted the company's prospects: economies of scale. Uber holds an advantage over rival Lyft in that it operates in over 70 countries; Lyft serves U.S. customers only. Moreover, it does not limit itself to serving passengers. In the most recent quarter, about 44% of Uber's revenue came from delivery and freight services.

Mobility (ride-sharing) is Uber's fastest-growing segment by far, and freight revenue declined in the fourth quarter. Still, the added income from the delivery and freight segments seems to have boosted the company. And Uber continues to explore options for autonomous driving. It has partnered with a subsidiary of Daimler Truck Holding to deploy autonomous trucks.

In past years, many analysts had hypothesized that Uber's labor costs were such that profitability was unlikely without autonomous vehicles. The company has now disproven that view although competition from Tesla's self-driving platform could reduce Uber's competitive advantage over time. Nonetheless, with the lower labor costs it offers, succeeding with that technology could still boost the stock.

Uber's financials

Even without autonomous vehicles, the company managed to ring up more than $37 billion in revenue in 2023, a yearly increase of 17%, brought about primarily by more customers turning to Uber for more trips. The company also slowed the growth in operating costs, allowing it to turn a profit.

Most of Uber's income came from non-core operations such as unrealized gains on equity securities. Still, its 2023 net income of $1.9 billion is a vast improvement from the $9.1 billion loss in 2022.

Management did not offer revenue guidance, though it expects between $37 billion and $38.5 billion in gross bookings for the first quarter. If that forecast holds, it will mean that Uber books 20% more business than it did one year ago.

Such improvements have led the stock to more than double over the past year, rising to all-time highs.

UBER Chart

UBER data by YCharts.

Despite that gain, investors are likely not too late. The company's price-to-sales (P/S) ratio stands at just 4. Also, despite its first annual profit, it sells at a forward price-to-earnings ratio of 37. Since analysts expect earnings to nearly triple in 2024, both measurements might imply some undervaluation in the stock.

Consider Uber stock

The recent growth and profitability numbers indicate the company has turned the corner. Its stock sells near all-time highs as rapid revenue growth continues, and it now earns a profit on a yearly basis. With the forecast of a substantial increase in bookings for the beginning of 2024, this trend should continue.

Economies of scale and controlling costs seemed to help Uber's bottom line. Assuming the company stays the course and monitors the autonomous driving space, that trend should continue.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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