Uber Technologies(NYSE:UBER) operates the world’s largest ride-hailing platform, but is also home to the food delivery service and commercial logistics network Uber Freight.
Uber’s stock price is currently down 8% from its all-time high set last month, and Donald Trump’s recent election victory could be a major reason. However, that could be the biggest financial opportunity in the company’s history.
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I think the recent dip could be a buying opportunity. The vast majority of analysts followed suit The Wall Street Journal seem to agree. They have given the stock the highest possible Buy rating, with none recommending Sell. This is why investors may want to buy a piece of Uber before the new year.
During the third quarter of 2024 (ended September 30), Uber had a record 161 million customers using its platform every month. They completed more than 2.8 billion trips this quarter, resulting in $40.9 billion in gross bookings.
A gross booking is the total amount a customer spends on the Uber app. A rideshare includes the driver’s earnings, and a food delivery order includes the cost of the food, even though Uber doesn’t keep that money.
Once these costs are taken out, Uber is left with a revenue figure. This was $11.2 billion during the third quarter, which was an increase of 20% from the same period a year ago.
However, the mobility industry is about to undergo a major shift thanks to autonomous technologies. Uber already offers driverless rides and food delivery to a limited extent on its platform, but its availability will only increase.
Uber drivers across all segments earned a combined $18 billion in the third quarter alone. That number is included in its $40.9 billion in gross bookings, and it is by far the company’s largest expense.
If autonomous vehicles completely eliminate those costs, Uber will keep a significantly larger share of each trip, so this shift has the potential to completely transform the company’s economics.
Image source: Getty Images.
These three are intertwined. The Trump administration is likely to take a relatively light regulatory approach to business, and rumors are swirling that it will accelerate self-driving technologies. Tesla CEO Elon Musk was one of the Trump campaign’s biggest supporters and the company plans to build its own taxi network for its autonomous vehicles.
Investors speculate that a shift in regulation will benefit Tesla while increasing competition for Uber, which is one reason why the latter company’s shares recently fell 8%. I disagree: Since Uber operates the world’s largest ride-sharing network, companies developing autonomous cars will have to join the platform if they want to gain access to the largest audience. In other words, Uber’s greatest asset is its user base.
In fact, the company already has partnerships with fourteen leading autonomous vehicle companies. Alphabet‘s Waymo is one of them, and consumers can already hail one of the fully autonomous cars in Phoenix via the Uber app. Austin, Texas and Atlanta will be added to that list in early 2025 as part of an exclusive deal with Uber.
Unlike Tesla – which has no formal approval to offer full self-driving in any state in the country – Waymo already completes more than 100,000 autonomous trips per week. As a result, Uber and its partner network are already miles ahead.
Widespread adoption of autonomous vehicles will take years. Even as the Trump administration cuts red tape, platforms like Uber still need to convince the public that jumping into a self-driving car is a safer and more convenient alternative to using a human driver. That said, the industry will likely move towards autonomy in the long term based solely on cost savings.
Uber stock is cheap right now after the recent dip, so this could be a good time for investors to take a long-term position. The shares are currently trading at a price-to-sales ratio (P/S) of 3.6, which is less than half their peak P/S of around 10. But it’s also a 15% discount to the average P /S of 4.3. back to when the company went public in 2019.
UBER PS ratio data according to YCharts.
Moreover, Wall Street is extremely bullish. The Wall Street Journal follows 56 analysts who study Uber, and 45 of them have given Uber the highest possible Buy rating. Five others are in the overweight (bullish) camp, and the remaining six recommend holding.
They have an average price target of $91.16 for the next 12 to 18 months, which represents an upside of 27% from the price at the time of writing. However, the Street high target of $120 implies a potential upside of 67%.
Investors who believe in the potential of autonomous driving may want to consider adding Uber to their portfolios before the new year. If the Trump administration starts working to deregulate this sector once it takes office in January, the current discount to Uber’s price-to-earnings ratio could evaporate very quickly as investors start to see long-term tailwinds.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Tesla and Uber Technologies. The Motley Fool has a disclosure policy.
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