Uber Technologies: one of my best stock ideas for the next decade
It's going to be a bumpy ride, but this stock could go places
Taking a long-term, buy-and-hold approach can pay off when investing in the stock market. Get your stock picks right, and it’s possible to generate exponential returns. Just ask anyone who bought shares in Amazon (+1,150%) or Nvidia (+19,700%) a decade ago.
In light of this, today I’m going to highlight one of my best stock ideas for the next 10 years – Uber Technologies (NYSE:UBER). Listed on the New York Stock Exchange, it’s the world’s largest rideshare company. Here’s why I believe this stock has the potential to be a huge winner over the next decade.
Uber could be a lucrative long-term investment
Let me start by saying that Uber is not the highest ‘quality’ stock out there. It doesn’t have a track record of consistent earnings or a high return on capital.
Looking at the business today, however, I think it has a lot going for it from an investment perspective. This is a company that has:
A powerful brand – Uber is a very well known company and its name has become a verb. This is a major competitive advantage as it’s typically the first company people think of when they need a ride somewhere.
Pretty much a monopoly in the rideshare market – Uber does have some competition in the rideshare market today (Lyft, Bolt, etc.) but in most cases the other players are not heavy hitters. In the US, for example, Uber has a market share of around 75%. It’s worth pointing out that a little bit of competition is good as it may keep the antitrust regulators away.
Multiple revenue streams – Today, Uber generates revenues from rideshare, food delivery, freight, train and plane bookings, and digital advertising (with 150 million active monthly users worldwide and a huge amount of data on these users it has the perfect platform for advertising).
Strong growth – In Q1, gross bookings rose 20% year on year while revenue and EBITDA increased 15% and 82% year on year respectively. For 2024, Wall Street expects revenue to increase 16% and earnings per share to rise 29%. One reason the company is doing well right now is that consumers are spending their money on experiences.
A top CEO – When Dara Khosrowshahi took the helm back in 2017, he said that he was going to turn Uber (which was a bit of a mess at the time) into a profitable, cash generative company. And he did. So, Wall Street loves him.
Share buybacks – Back in February, Uber announced a $7 billion buyback. This should help to boost earnings per share.
A place in the S&P 500 – In December last year, Uber was added to the S&P 500 index. This means that a lot more institutional investors can now buy the stock. Note that Uber has been classified as an Industrial stock. This is a big plus. If you’re a fund manager and you need exposure to the Industrial sector, would you rather invest in a machinery company or Uber?
Now, if we take the 2024 earnings per share (EPS) forecast of $1.07, the stock does look quite expensive today. At Uber’s current share price, its P/E ratio is around 63.
However, using next year’s EPS forecast of $2.17, the multiple comes down to around 31. That seems quite reasonable to me, given the level of growth.
It’s worth noting that analysts at Jefferies have a price target of $100 for Uber. That’s about 50% higher than today’s share price.
Putting this all together, I think the stock has the potential to generate attractive returns in the years ahead.
The future of mobility
Looking further out though, this is where things get really exciting.
In 10 years’ time, self-driving ‘robotaxis’ could be a widespread transportation option.
If they are, I think there’s a pretty good chance that Uber is going to be a major player.
Today, it already has robotaxis on the road in some US cities in partnership with Alphabet’s Waymo, so it has the first-mover advantage here.
If it is a major player in the robotaxi market, I’d expect the group’s level of profitability to be significantly higher than it is today. With no human drivers, its profits could potentially explode.
Of course, with no human drivers, Uber would have to source its own vehicles. What it could potentially do here though is rent/borrow self-driving vehicles directly from individual owners. After all, the average car is parked around 95% of the time. This setup could be a win-win for both the company and vehicle owners.
Obviously, the big risk on the robotaxi front is Tesla. Recently, Tesla CEO Elon Musk has been talking up self-driving taxis. This is one reason Uber stock has pulled back in the last few weeks.
However, Tesla’s robotaxi aspirations might actually represent an opportunity, not a threat, for Uber. Just imagine the potential if we combined Uber’s global platform with Tesla’s Full-Self Driving (FSD) technology.
In a recent interview with Bloomberg (see below), CEO Dara Khosrowshahi said that Uber was open to working with Tesla. He also noted that the company could potentially borrow vehicles from Tesla owners in the future.
Even if robotaxis do not become a big thing, I still expect Uber’s profits to be significantly higher in 10 years’ time. Given the company’s recent move into train and plane bookings, I believe that Uber has the potential to be a travel ‘super-app’. Its recent move into digital advertising – a very profitable industry – should help to boost earnings over time.
A higher-risk stock
Now, I’ll point out that I expect Uber stock to be volatile over the next decade.
Looking ahead, there are likely to be all kinds of road bumps (lawsuits, settlements, regulatory action, etc.) that cause volatility in the share price.
Earnings are likely to fluctuate too. In Q1, the company generated a net loss due to losses from its equity investments.
Compared to a lot of my other holdings, it’s higher risk.
But the stocks that provide the highest returns often are higher up on the risk spectrum.
How I’m playing Uber
I first invested in Uber in June 2023 when it was trading in the low $40s. So, I have seen some decent gains already.
However, after the stock’s recent pullback below $70, I have been building up my position.
After my recent purchases, Uber is just outside my top 10 individual stock holdings. That’s the right position size for me given the stock’s risk level. I expect a bumpy ride here.
With a market cap of just $140 billion today, however, I think this stock has significant long-term potential.
Ultimately, Uber strikes me as the kind of company that people will be looking back on in 10 years’ time and wondering how they didn’t see the enormous amount of investment potential… like an Amazon or Nvidia today.
Edward Sheldon owns shares in Uber Technologies, Amazon, Nvidia, and Alphabet. The information in this article is for general informational purposes only and should not be considered financial advice. Please consult a qualified financial professional before making any investment decisions.