Ride-hailing company Uber (UBER) has become a profitable business and continues to gain market share, leading me to feel bullish about the stock. While the valuation is high, Uber’s rapidly expanding profit margins can alleviate any concerns that investors might have. An increase in bookings and partnership with tech giant Alphabet’s (GOOGL) self-driving vehicle subsidiary Waymo are other reasons to feel confident about this security.
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Bookings and Partnerships
A big reason I’m bullish on Uber is that the company reported a 19% year-over-year increase in gross bookings in the second quarter. An increase in bookings almost always translates into higher revenue, and Uber didn’t disappoint in that regard either. The ride-sharing firm delivered 16% year-over-year revenue growth for its shareholders.
Delivery revenue increased by an annualized 8% in Q2. Uber’s Mobility segment represents more than 60% of total revenue and was up by 25% from a year ago, while Freight revenue was flat. These business segments complement each other and should continue to increase Uber’s overall gross bookings.
The company is also expanding its partnerships. A new collaboration with Instacart (CART) allows people to order from thousands of restaurants using an Uber Eats interface. Also, Uber has expanded its partnership with Costco Wholesale (COST), which offers Costco members a 20% discount on an annual Uber One membership.
A Glimpse into the Future
Driverless technology is another reason to be bullish on UBER stock. Investors have heard about driverless cars for years. Elon Musk has talked about Tesla (TSLA) building an autonomous taxi fleet. But it looks like Uber is ready to pounce on the opportunity.
The ride-sharing company has announced a new partnership with Waymo, a subsidiary of Alphabet that is focused on self-driving technology. Uber customers in Texas and Georgia will be able to book self-driving Waymo cars beginning in 2025. This partnership should help Uber serve more customers and boost its profits.
Driverless technology still has a long way to go before it can replace humans behind the wheel. Right now, Uber and Waymo are testing the technology and gradually rolling it out across the U.S. Still, these initial tests are the critical first steps of what could potentially be a long-term growth opportunity for the firm and its shareholders.
Profit Margins on the Rise
A final reason to be enthusiastic about UBER stock is that its profit margins are expanding. As mentioned, the valuation of the company’s shares is extremely high right now. Uber’s shares are trading at nearly 80 times future earnings estimates. That’s a lot higher than the average price-to-earnings ratio of 27 among stocks listed on the benchmark S&P 500 index. However, it’s important to remember that Uber is growing at a faster rate than most companies listed in the S&P 500, warranting a higher valuation.
While the valuation might seem intimidating to some, Uber is gaining a lot of ground with its profit margins. The firm ended the second quarter with a 9.5% net profit margin. That resulted in $1 billion of net income attributable to Uber in the quarter. The company finished Q2 with $6.3 billion of cash on hand. The profits and cash enabled Uber to initiate a $325 million share repurchase program.
Is Uber Stock a Buy?
Uber Technologies is currently rated a Strong Buy among 32 Wall Street analysts. There are 31 Buy ratings and one Hold rating on the stock. There are no Sell ratings. The average price target on UBER stock of $87.93 implies 19.4% upside from current levels.
Read more analyst ratings on UBER stock
Conclusion
Uber is fulfilling its promise and presents a long-term opportunity for investors who are bullish on the ride-hailing industry. The firm’s profit margins are growing. While Uber continues to earn most of its revenue from ride-sharing, the delivery and freight segments are gaining ground. The new Waymo partnership could make autonomous vehicles a future growth driver at the company. For all of these reasons, I remain bullish on UBER stock.
