Uber Stock (UBER) are starting to regain their legs after jumping 45% from their lows in June 2022. Undoubtedly, the company faces a lot of pressure as rising interest rates push investors to spin off companies unprofitable growth. Although Uber has been racking up losses lately, the company is poised for a strong push towards GAAP profitability at some point in 2024. If Uber can meet its profitability targets, the stock is bound to be rewarded with Investors. I’m bullish on Uber stocks.
Uber Stock: on the verge of becoming profitable
Uber has the history of growth, but it also has the wherewithal to become a profitable company as management continues to fix inefficiencies while environmental headwinds finally dissipate. While Uber’s stock may be lumped in with the broader basket of unprofitable tech games, it may be more of an early-stage Amazon (AMZN), which was criticized for its lack of profitability until its big push.
Like Amazon, Uber is looking to expand its total addressable market. The ride-sharing company wants to have the one super app that consumers go to if they need to get someone or something from point A to point B. With ride services that go beyond beyond its traditional carpooling or food delivery service, Uber is poised to dominate the world of shared transportation.
While a recession could reduce supply, the mobility powerhouse seems unlikely to fall below GAAP profitability within two years. As labor issues ease, Uber can get supply and demand in the right place. Plus, Uber One could be a profitability accelerator that many investors might overlook.
The Uber One subscription offer – a service that gives subscribers discounts on rides, food delivery and other perks – has more than 10 million users. Such a subscription could improve margins and demand if it proves to be sticky. Uber One is an intriguing offering that could propel top and bottom results as it proves its value to consumers.
Uber reports positive free cash flow for the first time
In the second quarter, Uber posted a loss of $1.33 per share, higher than the expected loss of $0.27 per share. The shortfall was forgiven by investors who applauded the company’s $8.1 billion in revenue and its first-ever move towards positive free cash flow. Uber’s free cash flow was $382 million for the second quarter, and the management team expects more free cash flow positivity as it seeks to improve its outlook profitability.
Mobility demand has remained incredibly robust, with no signs of an impending economic downturn. Undoubtedly, it will be interesting to see how demand evolves as we get closer to a recession. Uber’s service could be much more recession-proof than many investors think, given the lack of money-saving alternatives. Indeed, Uber saves a lot of time compared to traveling by public transport.
Additionally, if the upcoming recession proves to be mild or short-lived, Uber might be able to trend higher while the rest of the market crashes. Until there is evidence of a rapid decline in demand, I think investors should give Uber the benefit of the doubt as it kicks into high gear with its surge in profitability.
Uber is well equipped to take part
Even if a recession slightly reduces demand, Uber looks well positioned to add to its lead over rivals like Lyft (LYFT) on the move and DoorDash (DASH) in food delivery. With such a strong network, the Uber One service could lock users into its ecosystem and cause some to remove competing apps.
While 5% savings on rides and food delivery (zero delivery on some orders) might not seem like a perk for subscribing, I think many members will stick around after seeing how much they save in a given month.
Current Uber users get one month of free access to the service. During such a trial month, many will likely close other offers for Uber’s mobility and delivery services. Indeed, more frequent users will find Uber One’s savings attractive.
While the additional savings for Uber One members is money coming out of Uber’s pockets, the positive effect on demand and greater certainty in challenging environments could prove more than helpful for Uber. .
I see Uber One as a margin and sales engine that could be the secret sauce to putting competitors in their place. Ultimately, Uber has a strong network. With a service like Uber One, it leverages its network incredibly well to cross-sell in its mobility and food delivery divisions.
Is Uber stock a buy, hold or sell?
Uber stock has a strong buy consensus rating based on 25 buys, two holds and no sells assigned over the past three months. The average Uber stock price target of $47.35 implies 65.4% upside potential. Analyst price targets range from a low of $32.00 per share to a high of $75.00 per share.
Key takeaway: Profitability could propel Uber Stock to new heights
Uber stock is on a mission, and its Uber One could help it move sustainably toward profitability much sooner than most realize. There are rivals, but Uber is more than capable of outperforming them in a downturn.