Today shares of Uber are hitting a new 52-week high. They report earnings tomorrow (Tuesday) before the opening bell. The stock has doubled this year and has now become my single largest holding personally. And if it should fall tomorrow, because of fund manager short-sightedness or daytrader idiocy, I will buy even more, likely raising my average cost (currently mid-30’s after three years worth of adding to my position) in the process.
My personal opinion (not prediction, opinion) is that this is a stock that could trade to $100 per share over the next two to three years. And the reason why I think this is possible is not a stretch to imagine today. While Elon Musk fantasizes about the possibility of Twitter users turning over their financial information to his demented fighting pit circus, Uber has already laid the groundwork to actually become the “Everything App” that “X” will never be. Uber has a ten year head start technologically, a massive user base (that is actually paying money) and a revenue base across which to spread the cost of this vision.
Uber is a verb. It’s how people get places. Not just on short notice like the original black town car-hailing service it started out as. You can book a car days or hours in advance now. You can be picked up by a professional driver in a Cadillac Escalade or an amateur driver in a Kia Sorento, depending on how much you want to spend. This business was crippled during the pandemic, which is why the stock fell into the 20’s. It’s come back with a vengeance. Every kind of user – business travelers, work commuters, vacationers, drinkers, partiers, urbanites without cars, teens, the elderly, you name it, they’re riding again.
Additionally, Uber has become a verb describing not just how people get places but also how they get things. The Uber Eats business now has more regular users than the Uber Rides business. Before the pandemic, Eats looked like a loser and many in the investment community were exhorting the company to wind it down or sell it off. When the plague came, Eats literally saved this company’s life. It’s now in a hyper-scaling phase with new users and drivers flocking to the platform as other, less reliable services fade away. This business has not slowed down during the reopening, like so many lockdown businesses have (Zoom, Docusign, Peloton, Zillow). If anything, it has accelerated.
Finally, Uber has been adding even more services now that its logistics and payments have been built out and proven. They’re delivering groceries. They’re bringing people items from the convenience store. Their Drizzly app delivers wine, beer and liquor all day and night. They’re bringing customers prescriptions from the pharmacy. They launched a freight business to help companies ship items by truck.
If any company today has the chance of becoming the “everything app”, it’s this one. Unlike legacy Twitter (I refuse to call it X), which barely knows anything about its users (hence the failure to build a profitable advertising business), Uber knows quite a bit about the people who use its app. For starters, they use it to pay for things. They’re using it in their own name with a credit card on file, not anonymously or pseudonymously. Most importantly, people don’t open the Uber app to argue over abortion rights or Ukraine or to casually join outrage mobs and accuse random strangers of racism. They open it because they have better things to do. They want to go somewhere or get something. Twitter is for people who have nothing to do, so they scroll it looking for a laugh or a fight.
I should point out that almost no one uses Twitter. It’s got an outsized voice in our culture because journalists and people in the media are obsessed with it and constantly talking about it. Twitter is the stock market for reporters – it’s how they can see what takes are rising and falling in popularity and what (or whom) they should be covering. In the real world, only the weirdest people you know (maybe yourself included) are on it. Only 23% of US adults use Twitter (Facebook is 69%, YouTube is 81%). In a survey this past spring, 60% of people who had used Twitter told Pew they were taking a break from it. Some 25% of current users said they were unlikely to still be using it in a year. With the name change and unintentional (intentional?) destruction of the product, 25% might be low. The odds of this platform evolving to provide financial services, rides, deliveries, video chat, gaming, etc like the super-apps in China do is very low.
Uber had a formidable competitor in Lyft in the United States but they’ve basically beaten it into submission. They need Lyft to stay alive so that they can’t be seen as a monopolist but, in practice, that’s what they are becoming on the Rides side. Lyft needs an activist to step in. It’s not big enough to compete with Uber and might make more sense as a part of someone else’s larger business. If anyone wants it. The CEO of Uber, Dara Khosrowshahi, who had taken over when the founder, Travis Kalanick, was pushed out a decade ago, rightfully saw that a robust driver ecosystem was the key to winning the category. Offering a more generous take-rate for the drivers meant a fully-stocked supply side so that users would always have cars ready to get them. This became habit-forming as people began to check Uber first. It was expensive but it paid off. Dara won the user experience game by simultaneously winning the drivers game. They’ll be writing about this in business school textbooks someday.
Uber has fiercer competitors in Eats but as you can see below it’s a horserace and they’re very much in it to win:
Uber owns Postmates (acquired in 2020) so their share is about 25%. Uber Eats has 81 million US users. This market is growing and will probably not become winner-take-all on a national basis. New entrants are not going to be a threat going forward, however, given how expensive it’s been to build out these networks and attract the millions of participants (restaurants, drivers, consumers) necessary to turn it into a business. Uber Eats and DoorDash basically own this market and probably will forever. What else can they deliver down the same pipes? Anything? Everything?
Now, I want you to keep in mind that this is a global business and it is a large one, despite the fact that Uber is not yet mentioned in the same breath as the Googles, the Apples and the Amazons. It’s not yet as profitable as the Magnificent Seven companies and it is a much younger company (founded in 2008, public since the spring of 2019). But it is huge and growing fast.
On the Eats and deliveries side, we’re talking about a platform enabling thousands of businesses to serve millions of customers they would not ordinarily be able to. These numbers come directly from the company…
Globally:
- 780,000+ total active merchants on the platform in more than 9,000 cities across 6 continents
- Over 60% are small or medium sized businesses
- 3M+ consumers are getting their grocery and convenience items delivered each month through Uber Eats
- 1.7+ billion orders were facilitated by the Uber Eats platform in the last year directly pumping:
- $28+ billion into local economies in the last year (in sales facilitated by Uber Eats in the past year)
In the US:
- 400K+ total active merchants on the platform, across all 50 states
- More than half a billion orders in the last year were facilitated by the Uber Eats platform, directly pumping:
- $11+ billion into local economies in the last year (in sales facilitated by Uber Eats in the past year)
According to a US merchant survey, single, local, independently-owned businesses report:
- Uber Eats is an important part of SMB success in driving higher revenue.
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- 95% report that working with Uber Eats has had a positive impact on their business in the last year, during the pandemic.
- 86% say that Uber Eats has been beneficial to their bottom line.
- 84% report that offering delivery or pickup with Uber Eats has increased their revenue, and by an average of 15%.
- Uber Eats helps SMBs to achieve their two biggest priorities: growth and new customer acquisition.
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- 94% believe that Uber Eats helps to expose their business to new customers.
- 90% feel that Uber Eats helps them serve a larger community than they could serve on their own.
- 88% feel that Uber Eats has driven more sales than they would have otherwise had.
- Uber Eats is an important part of SMB success for minority-owned SMBs in particular.
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- 94% say that working with Uber Eats had a positive impact on their business during the pandemic.
- 86% say that Uber Eats has been beneficial to their bottom line.
- 84% say that Uber Eats has helped them increase revenue.
On the Rides side of the business, the company is now incredibly dominant with no real challenger to speak of anymore, just a shell of a former competitor (Lyft) and a ragtag group of Taxi lobbyists in a handful of municipalities desperately clinging to the 1970’s.
During calendar 2022, Uber had 72% of the global market share for rides with over 7.6 billion trips. Uber has 131 million users in 72 countries being served by 5.4 million drivers in over 10,000 cities. This probably cannot be replicated, by anyone, for any amount of money. That network and user base is a one of a kind asset.
In the latest quarter they reported (back in May), Uber saw the platform’s gross bookings rise 19% to $31.4 billion while its revenues jumped 29% to $8.8 billion. The company claimed that during the first quarter, the 5.7 million drivers and couriers who use its app had been paid $13.7 billion collectively, an all-time record high. The company’s ecosystem has become the lifeblood for many businesses, full-time entrepreneurs and part-time workers. Providing these opportunities to so many helps the company cement its market share and leading position. This has been under-appreciated until recently.
As I write this, Uber has not yet broken above a $100 billion market cap, but I think that’s coming very soon. If they can report their first full year of operating profit (which is their guidance for 2023), I think this will result in Uber being added to the S&P 500 index, which historically has meant a wave of buying by managers who both track and / or compete with the benchmark. As a fast-growing, profitable technology giant with a defensible moat around its businesses and a charismatic, accomplished CEO, Uber has the ability to shake off the stigma of its underwhelming 2019 IPO and join the most successful companies in today’s growth stock pantheon. That’s what I think will happen, which should mean a significantly higher stock price if I am right. Uber is a platform upon which a million businesses can be built. This puts it on a par, from an enterprise standpoint, with companies like Microsoft, Amazon, Alphabet and Meta. And, similar to those companies, the larger it grows, the harder it becomes to work around. Uber is not there yet, but it’s one of a very few companies that has the ability to get there. It is also one of the few public companies that has actually seen the benefits of its AI investments and can translate them to increased customer satisfaction and profitability. Every time you call for a car or a cheeseburger, Uber’s AI is deciding how best to serve that up to you.
If I am wrong, it will probably be because of one of the following risks, in order of how likely I think they are to materialize:
- Execution risk: Profitability continues to elude Dara & Co as driver costs rise or consumers pull back because of higher fees.
- Pandemic 2.0: This is a big risk to Uber but also to everyone else. Can’t do anything about it.
- Federal legislation against business model: In my personal opinion, that ship has sailed. Uber’s lawyers and lobbyists are winning everywhere it counts. They’re winning because this is what the consumer wants. No mayor or governor is getting themself elected by being the guy or gal who chased the ride sharing apps out of town. And, contrary to the far left side of the Democratic party, it turns out that the drivers do not want to be classified as full-time employees of Uber. The flexibility of the platform is why they’re attracted to it in the first place. When Proposition 22 in California passed this March, voters had made it clear that working for Uber or Lyft as an independent contractor is a perfectly valid status and the way most people seem to like it. If California doesn’t want to eradicate Uber’s business model, it’s unlikely another state would even try.
I think one of those three “big risks” will be the reason I end up wrong on the stock, if I end up wrong. And then, of course, there is always the potential for a broader bear market that takes down all stocks – especially high multiple stocks like this one – when and if it should arise.
Now, a little bit about me, for context. I don’t not invest in things because there might be a bear market. That would be like never leaving the house because it might rain. I invest despite these risks because I know bear markets are never permanent. And if I really believe in an investment, the bear market merely gives me a chance to own more of the company at even lower prices. Any attitude contrary to this would represent a trader’s mindset and not an investor’s. I’m not a trader. I don’t engage in non-meaningful financial transactions in my spare time because I have no spare time. I’m only interested in situations where I can make a lot over a long period of time and I don’t have to be glued to a screen all day or worried about the latest analyst ratings or opinions.
I’ve held stocks like Apple and Nvidia for literally hundreds and thousands of percentage points over years and years, through bull markets, bear markets, flat markets, economic crises, rate cuts, rate hikes, etc. At any given time I’ve been in deep drawdowns with these stocks, but I’m not afraid of drawdowns. I don’t react just because other people are. I’ve been doing this for 25 years and have learned better. Long-term winners like Alphabet, Apple, Nvidia, Berkshire Hathaway, JPMorgan and other stocks I’ve held onto more than offset the losers because they grow in proportion to an overall portfolio while the losers fade in both size and impact. I have my share of stock investments that have failed miserably, just like anyone else. Matterport, ChargePoint, Roblox, Carlisle Group, etc. Some I’ve sold and some I’ve held but they get smaller and smaller as the rest of my holdings rise and, eventually, they don’t matter at all. Holding stocks like Uber is the whole point of what I do, but most stocks do not become what Uber has become, and this is part of the risk of investing in growth companies.
Risk is necessary, not something to be hedged away entirely. We’re here to win, not to show.
Sometimes you win, sometimes you learn. Sometimes there is nothing to learn, because random shit happens that makes an investment not work out. It’s okay, we keep going. Only the unemployed, maladjusted brain donors on internet message boards think batting average is important and that being wrong on a stock is some kind of an insurmountable error that can’t be overcome. You’re supposed to have losing investments. It means you’re actually trying.
Everyone has losing investments except the bullshit artists on social media. In the real world, professional money managers don’t make fun of each other for being wrong because professionals all live in glass houses. For every bad trade someone else has done publicly, I’ve got one equally bad I wouldn’t want brought up either. We don’t behave that way because losing is part of the game if you’re actually in the game. The easiest way to identify a piker who doesn’t manage real money is to observe someone who spends their days criticizing the investments of others. The average person only has 6,000 hours per year during which they are awake (look it up). Imagine spending any fraction of them worried about someone else’s stock picks.
I have no edge whatsoever on what Uber will report tomorrow. My game plan for earnings is always to trade the reaction and not trade ahead of the event.
If the company impresses The Street with their second quarter numbers and full-year guidance, I think it could be enough to establish a new trading range in the high 40’s and low-50’s for the second half of the year.
If, for some reason, they disappoint, I would expect a large drawdown simply because of how much hot money has come into the stock due to its recent momentum (Relative Strength or RSI is now 67, anything over 70 would be considered “overbought” by the technicians). Hot money will flee at the slightest hint of weakness, thus exacerbating that weakness and producing a gap-down open. It could happen, and if it does, I will use the opportunity to buy more. If the stock should fall into the 30’s (entirely possible), I may add to my holdings substantially, depending on the circumstances. I have to use the potential short-term volatility to my advantage because as a long-term holder I am forced to endure it.
Over the last several quarters, Dara has appeared on CNBC’s Squawk Box program immediately following the earnings call, which is typically held at 8am EST. Sometime before the opening bell, Wall Street will have already read the company’s release, heard the conference call, read the transcript and watched the TV appearance. If the stock is down more than 10% following this, I will probably be out there adding to my position. My timeframe is likely to be longer than the timeframe of those who would sell the stock after a single earnings report.
I’ve written this piece in order to flesh out my own thoughts on the opportunity and to relay a little bit about how I think about my own investments. I hope this has been interesting for you. Please remember, it’s not advice or a solicitation for you to place any trades. Nothing I write on this site should be considered financial advice for any reason. I get absolutely nothing from you trading on anything I say. I don’t want it, I don’t need it. Always do your own research and only take the risks that are appropriate for your own situation. This post is for informational / educational purposes only.
Thanks for reading.
