Uber (NYSE:UBER) stock is up 70.7% over 12 months, and it has demonstrated considerable volatility in recent years, especially for a company of its size. While some analysts point to strong earnings growth throughout the medium term, I believe investors should pay close attention to disruptive technologies, like Tesla’s (NASDAQ:TSLA) robotaxi — set to be unveiled in August — which could be a threat to Uber. Thus, I’m neutral on Uber.
Uber Dominance Under Threat
Uber is a dominant force in the ride-hailing space. The company had 25% of the global market share of ride-hailing in 2022. Several analysts have suggested this is why it deserves its rather expensive valuation. North America is key to the company’s success. Revenue from North America made up 61% of Uber’s global revenue in 2022.
However, there’s a potential disruptive force in the market. Tesla is set to unveil its robotaxi on August 8. While it’s not clear what Elon Musk actually has in store for us — a concept car or a ready-to-deploy robotaxi — the prospect of robotaxis could represent a significant concern for Uber.
According to Cathie Wood, one of Tesla’s most vocal backers, Tesla could generate between $503 billion and $951 billion in revenue from autonomous ride-hailing in 2029 alone. For context, the global ride-hailing market was expected to be worth $165.6 billion in 2024, rising at a CAGR of 6.83%, reaching $215.7 billion by 2028.
Several analysts have discounted Wood’s rather optimistic forecasts. Wood’s bear-case scenario for 2029 suggests Tesla’s ride-hailing revenue will be more than double the expected global market size in 2028. However, even if Tesla achieves just 10% of Wood’s forecast, it’s easy to see how Uber could lose significant market share unless it manages to cooperate with Tesla.
Uber’s Cost Headwinds
On another note, one of Uber’s primary costs is driver compensation, which constitutes a significant portion of the company’s overall expenditures. After all, Uber is primarily a technology platform connecting drivers and ride hailers. This cost factor is now under increased scrutiny as legislative measures across the U.S. seek to improve driver compensation and protection.
Recently, Minnesota lawmakers struck a deal with Uber and its peer Lyft (NASDAQ:LYFT) to set minimum wage standards for drivers. The deal is expected to keep the ride-sharing companies operational in the state while also addressing concerns about driver remuneration.
The agreement establishes a statewide minimum wage rate for rideshare drivers at $1.28 per mile and $0.31 per minute. According to Democratic House Majority Leader Jamie Long, this blended rate translates to a 20% pay increase for drivers, although some have hailed it a victory for big tech.
This legislation in Minnesota could set a precedent for other states — or even elsewhere in the world — potentially leading to a wave of similar regulations across the country. Uber will, in turn, have to decide whether to pass these costs on to customers. If it does, this could impact customer retention, especially given the inflationary environment of the last two years.
Moreover, Uber recently lost an appeal to retain drivers as contractors and not employees in California and has reportedly been locking drivers out of the platform during periods of low demand in response to New York City’s minimum pay rule. These developments are also illustrative of the company’s driver cost concerns.
What Do the Forecasts Say About Uber?
Uber’s earnings trajectory is very positive. While the consensus is for earnings per share (EPS) to come in at $0.90 in 2024, this figure rises to $2.12 in 2025 and eventually pushes up to $5.60 in 2029. So, while Uber is trading at 35.6x non-GAAP forward earnings, the price-to-earnings-to-growth (PEG) ratio is a very attractive 0.78x.
While the majority of Tesla forecasts don’t take into account the potential impact of a functioning and ready-to-deploy robotaxi — quite rightly, as we really don’t know what Musk has in store — I don’t believe Uber’s earnings projections take this disruptor into account, either.
Is UBER Stock a Buy, According to Analysts?
On TipRanks, UBER comes in as a Strong Buy based on 30 Buys, one Hold, and zero Sell ratings assigned by analysts in the past three months. The average UBER stock price target is $87.87, implying a 20.9% upside potential.
The Bottom Line on UBER Stock
Uber’s earnings forecasts are certainly very strong, with EPS set to increase 5x over the next five years, according to the consensus. However, I believe there are cautionary factors that need to be taken into account. The first of these is the recent developments in driver remuneration. These developments could set a precedent for driver pay, driving up costs throughout the medium term.
While I’m always cautious regarding Tesla, if Musk does deliver a functional robotaxi on August 8, it could spell danger for Uber. It’s hard to imagine conventional taxis being able to compete with autonomous vehicles. Given this potential risk, I’m neutral.
