Ride-sharing giant Uber (NYSE:UBER) has experienced an extraordinary surge, with its stock soaring by 150% this year, significantly outpacing the S&P 500 Index’s 21% gain. What factors are driving this remarkable growth, and should investors ride the Uber stock rally?
Diversifying Beyond Ridesharing
Founded in 2009, Uber initially disrupted the transportation sector with its innovative app connecting riders and drivers. Over the years, it expanded its services globally, covering 70 countries and 10,500 cities. Beyond traditional ridesharing, Uber diversified into delivery and freight with services like UberX, Uber Pool, Uber Freight, and Uber Eats. This strategic move has proven successful, with the company reporting impressive third-quarter results.
Financial Highlights
Despite falling slightly short of Wall Street expectations in Q3, Uber marked its second consecutive profitable quarter, with net earnings of $0.10 per share, a significant improvement from the year-ago quarter’s loss of $0.61. The company’s Q3 revenue surged 11% YoY to $9.3 billion, with total trips increasing by 25% to 2.4 billion. Notably, mobility and delivery revenue accounted for 96% of total revenue, reaching $8 billion.
Through Uber One, a subscription service with 15 million members, Uber is leveraging membership growth as a catalyst for future expansion. Additionally, the company reported a substantial increase in free cash flow, reaching $905 million in Q3.
Outlook and Analysts’ Perspective
Looking ahead, Uber management projects gross bookings between $36.5 billion and $37.5 billion in Q4, with adjusted EBITDA ranging from $1.18 billion to $1.24 billion. Analysts are optimistic about the company’s future profitability, estimating earnings per share of $0.16 on $9.77 billion in revenue for the upcoming fourth quarter.
Analysts project Uber to maintain its profit streak into 2024, with earnings potentially growing by 204.6% to $1.15 per share and revenue increasing by 15.6% to $42.93 billion. At a price-to-sales ratio of 3.0, below its historical average of 4.5, Uber appears reasonably valued as a growth stock.
Analysts’ Endorsement and Potential Challenges
Following its robust Q3 earnings, Uber’s eligibility for inclusion in the S&P 500 Index has strengthened its position as a high-quality growth stock. Analysts, such as William Blair’s Ralph Schackart, anticipate this inclusion to drive further investment. However, potential challenges, including regulatory issues, disagreements with traditional taxi services, and concerns about driver classification and safety, pose ongoing tests for the company.
Despite these challenges, Uber’s resilience and adaptability remain notable, and its ambitions extend beyond transportation. With plans for autonomous vehicles, delivery partnerships, and investments in innovative technologies, Uber aims to showcase its broader vision.
Conclusion
As Uber continues to innovate and diversify its services, there is substantial potential for growth in the coming years. The company’s ability to maintain profitability and meet analysts’ target price of $75 suggests a 21% upside potential over the next 12 months. However, investors should remain vigilant, considering the potential challenges that may impact Uber’s trajectory in the evolving landscape of the ride-sharing and delivery industry.
Featured Image: Pexels
Author Faith Yakubu 
