The past year has been a rollercoaster for Uber Technologies (UBER) and its shareholders. Despite delivering stellar quarterly reports, the stock has lagged behind the broader market. However, Uber’s recent Q4 earnings have reignited investor interest, pushing shares 18% higher in the last five days and 30% year-to-date, highlighting the company’s undervaluation.
If you wish to read more about UBER’s transformation, I recommend reading what our analyst at Tipranks, Nikolaos Sismanis, had to say about the stock right here.
Uber’s Commitment to Cost Control
Uber’s transformation is nothing short of remarkable. The company got rid of its reputation for excessive spending and is now operating leaner than ever. Free cash flow is up, and Uber looks incredibly cheap relative to its future potential. As mentioned, one of the company’s most glaring weaknesses was its heavy spending, particularly on stock-based compensation (SBC). In 2019, SBC accounted for a staggering 30% of revenue, raising red flags among investors. Today, that figure has dropped to just 3.5% in Q4, compared to 4.7% in the prior year. This is a clear sign of Uber’s commitment to cost control.
The CFO’s comments on the earnings call underscored this narrative, emphasizing careful spending and strategic growth investments. Uber’s EBITDA margin as a percentage of gross bookings reached a record 4.2% in Q4, up from 3.4% in the same period last year. This improvement is significant in the ridesharing and delivery industry, where margins are razor-thin.
Free Cash Flow on the Rise
Uber’s free cash flow (FCF) rise is another critical puzzle piece. The company’s capital expenditures have dropped from 5.5% of revenue in FY2020 to just 0.55% in FY2024. With operating cash flows soaring and capex falling, Uber achieved $1.7 billion in FCF in Q4, bringing its annual total to $6.9 billion, a 105% increase from 2023 levels. UBER’s management has clarified that FCF growth remains a top priority, and Uber’s capital-light business model is proving highly lucrative.
Despite these positive developments, Uber’s stock price was slow to react. This is a bit confusing, given the company’s encouraging outlook. Wall Street estimates suggest Uber will generate $7.7 billion in FCF this year and nearly $10 billion by FY2026. The stock trades at around 17.6x this year’s estimated FCF and 13.5x next year’s—depressed multiples for a company with Uber’s dominant market position and growth rates. In strengthening this train of thought, Uber recently announced a $1.5 billion accelerated share repurchase program, signaling management’s belief that the stock is fundamentally mispriced.
What’s the Price Target for UBER?
On Wall Street, Uber is considered a Strong Buy. The average price target for UBER stock is $91.03, implying a 15.77% upside potential.
