Uber is a technology company in the business of transporting people, food, and freight. Their proprietary platform connects customers with independent drivers who fulfill these services.
It’s no secret Uber has an extremely strong brand. In fact, it is so strong you probably didn’t need a summary of what the company does, considering most reading this have used at least one segment that the company provides. The word “Uber” is mostly used as a verb today. Similar to “Google it”, people refer to going somewhere as “Ubered.” Having your company’s name become a verb is the highest level of brand loyalty and acknowledgment a company can have. Similar to how Apple started as a PC company and is now mostly known for its phones, having a strong brand allows you to move around into new market places. This is exactly what Uber has done with Uber Eats, and to a smaller degree with Uber Freight. With transportation being transformed by innovation, its seems Uber is perfectly poised to become even more integrated into the transportation of food, people, and freight than ever before.
As you can imagine, this segment has taken a hard hit with the effects of COVID-19. People stopped going out resulting in revenues being down 61% year over year. Once the main segment for Uber, it now comes second to Uber Eats. Once society gets back to normal, this segment will bounce back for Uber. People will go out again, drink, travel, live their lives, and Uber will become a part of that, again. And with Uber and Lyft making up 90% of the ride-share business, I can say that quite confidently. I personally know people living in big cities who have opted out of car ownership completely, in exchange for Uber. For these people, using Uber pool is a cheaper way to commute to work. When you factor in a car’s initial cost, insurance, gas, maintenance, and in big cities, having to pay for parking, it is cheaper to use Uber pool to commute rather than owning your own car. With a service like this so integrated into peoples’ lives, you begin to realize why Uber is a verb. Not to mention all the drivers who enjoy working on their own time without a boss. I know people who will get off work, drive for Uber for a few hours while waiting for traffic to die down, and then commute home once traffic clears. The flexibility and usefulness for both the drivers and riders, is an extremely valuable service that Uber provides.
With everyone eating at home, this segment performed exceptionally well during the pandemic. Revenues for Eats/Delivery surged 125% year over year. I do expect this segment to cool off a bit, but long-term I still believe this segment is a winner. People were ordering in with apps such as Uber, DoorDash, and Postmates (recently acquired by Uber) long before the pandemic hit. This is a trend with the under 35 crowd that I don’t see going away. People are cooking less and less, and with tons of available options and deals through the app, delivery is the new takeout. Uber and DoorDash make up roughly 76% of all food deliveries and are the two main competitors in the industry. This segment also offers drivers an option to work without having people in their car. Drivers can play the music they want, listen to their favorite podcast, and get paid while doing so.
I find this segment pretty interesting and was unaware of its operations before becoming an investor in Uber. This segment was up 32% year over year, but represents a pretty small percent of Uber’s revenues, roughly 9%. This segment operates exactly like the “Rides/mobility” segment, only the driver is behind the wheel of a semi-truck, and is picking up freight. Drivers are able to pick up long trips crossing multiple state lines to pickup and deliver freight. Again, you work on your own time, and have no boss to report to. If you feel like taking a few days off after a couple long delivers, you can do so. No more long and grueling hours that most truck drivers are subjected to courtesy of their employers’ schedule. The only real drawback is you need to own a truck, and need to be licensed to drive one. Beyond that financial obligation, I don’t see why truck drivers won’t migrate over in the same fashion taxi drivers did.
ATG & Other technology Programs
This segment is a bit avant-garde to put it mildly. It includes flying cars, helicopters, self driving cars, and other future looking projects. I don’t have much of an opinion here as long as Uber does a good job of mitigating how much money they throw at these projects. The reality of the future is it takes time for society to become comfortable with the changes that will happen. Will people take Uber helicopter rides? Yes, I think so. What about self driving cars? I think that still has quite a few years ahead of itself before it’s accepted by the public. It’s always good to look forward and develop new ideas to keep up with our innovative world, but for the time being this segment is a very small portion in regards to Uber’s total business.
In the above chart, you can see the big rounded base Uber put in post IPO. It then began to put in an inverted head and shoulders pattern before breaking out of that base. I believe we are witnessing the beginning of an uptrend for this stock, out of a healthy post IPO base. Chart courtesy of trading view.com
Something else to consider is Uber’s strength in comparison to LYFT (red). Directly after the fall caused by the COVID panic, you can see how Uber trended up and held its gains before breaking out, while LYFT began to trade back down. Uber has recently broken out to new all time highs, while LYFT still has a long way to go before reaching its IPO price. The relative strength in the price action indicates Uber as a leader between the two competitors. Chart courtesy of trading view.com
I constructed a simple DCF for Uber to gain a rough understanding of the cash the company can generate over the next 10 years. This is a forward looking projection, so please take it with a grain of salt. At Uber’s current price, I believe the stock is selling at a reasonable price.
In the chart below courtesy of Uber’s S1, you can see a steady quarterly increase of bookings leading to a steep drop-off caused by COVID in Q2 2020. With a vaccine on the way, and Uber’s food delivery growing in popularity, I believe the stock price will continue to reflect calmer seas on the horizon. Note the decline in rides and expansion in eats. If Uber is able to maintain its growth in the Eats category while returning to its rides numbers pre-COVID, expect to see some nice numbers posted in 2021.
In conclusion, the main reason I believe Uber will be a long-term winner is simply due to brand strength and its competitive position in the market. In order for society to operate, people and things need to move from point A to point B. Uber provides a modern answer to that simple and needed task. Investing in simple no-brainers won’t impress your peers, but then again, that isn’t the point of investing.
This blog is based on my own personal opinions and views, and should not be taken as professional investment advice. Market speculation is very risky, and you should do your own research before deploying capital. Any action you take upon the information provided on this website is strictly at your own risk.
I am long UBER.