Uber UBER released its fourth-quarter earnings report on Feb. 5. Here’s Morningstar’s take on Uber’s earnings and stock.
Key Morningstar Metrics for Uber
- Fair Value Estimate: $79.00
- Morningstar Rating: ★★★
- Economic Moat: Narrow
- Morningstar Uncertainty Rating: Very High
What We Thought of Uber’s Q4 Earnings
Uber reported earnings that exceeded management guidance while maintaining respectable growth in key network effect metrics, including trips, monthly active platform consumers, or MAPCs, engagement (trips/MAPC), and monetization per user. Despite this, shares are currently trading down in the mid-$60 range due to somewhat weak guidance for 2025, primarily driven by expected currency headwinds. However, we are maintaining our fair value estimate of $79 per share and view the current pricing as an attractive entry point to this narrow-moat company.
Uber’s gross bookings for the quarter were $44.1 billion, representing 17.6% year-over-year growth. However, stripping out the effects of exchange rate fluctuations, growth was closer to 21% year over year. Our positive outlook is justified by progress on the most important measurables for network health. Quarterly trips surpassed 3 billion for the first time during the quarter, growing at an accelerating rate relative to the previous quarter. Monthly active platform consumers, the demand side of the marketplace, is larger than ever, and engagement is at an all-time high.
Impressively, Uber’s engagement level is now twice as great as Lyft’s LYFT. All these network effect metrics show that the virtuous cycle is intact, and they solidify Uber’s place as the premier demand aggregator in the ride-hailing market.
Uber Stock Price
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Fair Value Estimate for Uber
With its 3-star rating, we believe Uber’s stock is fairly valued compared with our long-term fair value estimate of $79 per share, which represents an enterprise value of 3.3 times our 2025 revenue estimate. We project that Uber’s revenue will grow 13% annually on average over the next five years.
We expect revenue to grow faster than portions of Uber’s cost of revenue—including hosting, transaction processing, and insurance costs—which will result in gross margin expansion. With its network effect, we think Uber should also be able to increase revenue more quickly than selling, general, and administrative costs (especially in the sales and marketing lines) while spending relatively less on operations and support.
Read more about Uber’s fair value estimate.
Uber Stock vs. Morningstar Fair Value Estimate
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Economic Moat Rating
In our view, Uber’s core business—its ride-hailing platform—benefits from network effects and valuable intangible assets in the form of user data. We think these maintainable competitive advantages will help Uber become profitable and generate excess returns on invested capital. For this reason, we assign the company a narrow moat.
Uber’s network effects benefit drivers and riders, creating a continuous virtuous cycle. As a first mover in this market, Uber began to attract riders mainly via word of mouth. Growth in demand and further word-of-mouth marketing drew in drivers, increasing Uber’s supply of vehicles. As the number of drivers has increased, the timeliness and reliability of the service has improved, attracting additional users, which in turn attracts more drivers, all of which indicates a network effect. Uber was able to accelerate this network effect by focusing on smaller areas like San Francisco before expanding into more cities.
Read more about Uber’s economic moat.
Financial Strength
As of December 2024, Uber had approximately $6 billion of cash and $9 billion of debt on its balance sheet, of which $500 million is near-term debt tied to the partial redemption of 2027 senior notes. The debt obligation includes a mix of senior unsecured notes, convertible notes, and refinanced term loans, with staggered maturities extending as far as 2054.
There is a total of $2.9 billion in convertible debt that carries a low average rate of 0.74%. $1.15 billion of the convertible debt is due in 2025. As of September 2024, none of the conditions permitting holders of the 2025 convertible notes to convert the notes early had been met. The conversion rate is 12.37 shares per $1,000 in principal amount of notes, equivalent to a conversion price of $80.84 per share of common stock. We believe the rate profile reflects favorable terms that balance Uber’s cost of capital with shareholder dilution risks.
Read more about Uber’s financial strength.
Risk and Uncertainty
We assign Uber a Very High Morningstar Uncertainty Rating. The main uncertainty and cause of near-term volatility is the potential impact of autonomous vehicles, or AVs, on the ride-hailing industry.
AVs present both an opportunity and a risk. A partnership between Uber and an AV firm like Waymo or Tesla TSLA could allow for the removal of some human drivers and massive margin expansion for Uber. The risk, however, is that AV companies encroach on Uber’s value proposition by quickly rolling out the AVs while simultaneously designing additional exclusive demand aggregation applications, effectively cutting Uber out.
Read more about Uber’s risk and uncertainty.
UBER Bulls Say
- Uber’s role as the premier ride-hailing and delivery demand aggregator positions it as the perfect partner for autonomous vehicle companies looking to scale AV fleets and achieve high utilization rates.
- Strong core user base growth reinforces Uber’s network effect, generating a virtuous cycle wherein more riders on the platform encourage more drivers to join the platform and vice versa.
- Uber’s large user base provides rich data for further improvement to supply demand matching algorithms, enhancing its proprietary fleet management software and value proposition to AV companies.
UBER Bears Say
- AV companies have a superior cost structure because AV companies do not need to pay drivers. AV companies will develop exclusive applications and effectively cut Uber out of the market.
- Uber’s value proposition to AV companies is fragile and concentrated on lower-margin fleet management services like charging and cleaning.
- Ride-hailing is still a relatively new industry, which leaves plenty of room for increasing regulations. The mandatory classification of gig workers as full-time employees could compress margins and hurt the company.
This article was compiled by Gautami Thombare.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
