Uber Technologies (UBER) stock has been relatively stagnant over the past year, falling short of the broader market’s strong performance. However, in my view, this seemingly uneventful period hints at a brewing turnaround story. The global transportation tech giant’s investment case has improved notably recently, with falling capital expenditure and stock-based compensation, surging free cash flow (FCF), and an attractive valuation all converging to create a compelling opportunity for investors. Considering these factors, I am bullish on UBER stock.
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Leaner Operations and Controlled Stock-Based Compensation
One of the most compelling bullish factors for Uber’s investment case today seems to be its streamlined operational structure and the moderation in stock-based compensation (SBC). You may remember that during its early years as a public company, Uber faced criticism for its excessive spending and dilutive SBC plans, which startled many investors. I was, in fact, one of them. Yet, the narrative has shifted.
Management has worked diligently to control costs while still growing revenues, achieving economies of scale that reflect a more mature and disciplined company. Evidently, in its latest Q3 results, Uber achieved an all-time high EBITDA margin of 11.2%, marking a major expansion from last year’s 6.5%.
Additionally, SBC as a percentage of revenue has dropped significantly to 4.4% over the last 12 months, a stark improvement from the alarming 30%+ levels seen back in 2019. In the earnings call, CEO Dara Khosrowshahi emphasized Uber’s focus on long-term value creation, stressing disciplined capital allocation and cost efficiency. This area is clearly a priority for management, suggesting that the focus on operational discipline will likely continue, driving further margin improvements.
Uber’s Surging Free Cash Flow
Uber’s transformation into a free cash flow machine is another strong driver for my bullish outlook on the stock as we head toward 2025. The company’s expanding margins and gradually declining capex have significantly bolstered Uber’s cash-generating ability. For context, the company’s capex as a percentage of revenue has fallen from 5.5% in FY 2020 to a mere 0.6% over the past 12 months. Again, this transition is the direct result of management’s focus on optimizing operations and reducing non-core investments.
Accordingly, in Q3 2024, Uber generated $2.1 billion in free cash flow, marking a remarkable 133% spike year-over-year. During the earnings call, management reiterated its dedication to prioritizing FCF growth while maintaining disciplined investments in future opportunities. With excellent FCF growth projected for the coming years, I believe that Uber is solidifying its capacity to self-fund its operations, reduce debt, and reward shareholders. Indeed, Uber’s net debt position has gone from $5.23 billion in Q4 2022 to a net cash position of $253 million in Q3 2024.
UBER Stock Trades at Attractive Valuation
Finally, Uber’s lagging stock price and its rather thrilling FCF outlook combine to create a highly attractive valuation. Consensus estimates forecast Uber will generate $6.5 billion in FCF this year, climbing to $7.7 billion in FY 2025 and $9.9 billion in FY 2026 as its operations scale further. This aligns with management’s comments, as I mentioned earlier. Therefore, the stock trades at just 17x next year’s expected free cash flow today, an attractive multiple given the free cash flow’s anticipated trajectory. It essentially implies that shares are trading at only 13x FY2026’s expected free cash flow.
Looking at these multiples, I believe there is a significant disconnect between Uber’s intrinsic value and the market’s somewhat gloomy mood. I think this setup forms an opportunity for investors to acquire a high-quality growth asset at a discount. Some might say Uber should trade at a discount because of the potential competition from Tesla’s (TSLA) robotaxi service and Alphabet’s (GOOGL) Waymo. However, with Uber being practically synonymous with on-demand mobility, I think those concerns are overblown.
Is UBER Stock a Buy, According to Analysts?
Wall Street analysts appear quite optimistic about Uber’s outlook from its current levels too. Specifically, UBER stock features a Strong Buy, with analyst ratings now consisting of 33 Buy and two Hold ratings over the past three months. At $93.35, the average UBER stock forecast implies an upside potential of 51.3% from its current levels.
For the best guidance on buying and selling UBER stock, look to RBC Capital’s Brad Erickson. He is the most accurate analyst covering the stock (on a one-year timeframe), boasting an average return of 31.45% per rating and a success rate of 68%.
Conclusion
In conclusion, Uber’s transformation into a leaner, more disciplined company marks a pivotal moment in its growth story. With surging free cash flow, falling capex, and controlled stock-based compensation, Uber appears to have shifted from a high-spending disruptor to a mature, efficient business focused on long-term value creation. Combined with an attractive valuation, it looks like the stars have aligned for a rebound in 2025.
These headways position the stock as a compelling opportunity for investors seeking growth at a reasonable price. No doubt, any possible competition from Tesla and Waymo raises questions about the future mobility landscape. Nevertheless, Uber dominates the market with an unmatched scale, which should provide a strong competitive moat.
