Is Uber investable?

Published on 08/01/23 | The Buylyst Team | 817 Words

The BuyGist:

  • We send out The Buy Scan at least once a week.
  • We cover the most pertinent (and trending) topics in investing.
  • We rely heavily on our primary valuation tool - The Buycaster - to get actionable insights.
  • We hope that each Buy Scan provides at least one salient insight.

Why Uber?

2 reasons:

  1. We’ve held the stock in our portfolio for a couple of years.
  2. They report earnings today, so this is a nice primer.

Uber is one of those ultra-techy names that feels a bit like “Waiting for Godot” – promises of profits…at some point…in the future…when it dominates the world…yada…yada…but no sustainable profits yet. The wait continues…

Last time we did a deep dive on Uber, we had estimated their total addressable market to triangulate the upside left in its revenue and free cash flow. By the way, Uber’s free cash flow is still negative, as you’ll see below. So, the obvious question is, “what needs to happen for Uber to finally turn a profit?” For us investors, the real question is “what needs to happen in the business for us to – rationally – expect a decent return?” That’s what the Buycaster quantifies.

Let’s leave the subjective analysis about Uber out for a minute. Let’s see how the numbers pan out. The Buycaster is not human, so it doesn’t do subjective, qualitative analysis. But it does crunch numbers in (what we believe) the right way, so it makes it significantly easier to confirm or contextualize any sort of subjective analysis. If you read on, you’ll be primed to ask the right questions in Uber’s earnings call later today.

In the next few sections, we’ve literally pasted screenshots of the Buycaster’s Uber analysis. It’s not elegant but it does the job for now. For a more elegant presentation, we’d encourage you to open up the actual dashboard. However, we’ve done this here for 3 reasons:

  1. This gives you a sense of what the Buycaster does, and how (it does this sort of analysis for over 3,000 stocks).
  2. We’ve recently refined its look and flow. Let us know what you think!
  3. Hopefully, the next few sections leave you with at least one salient insight.

The following analysis doesn’t include the latest quarterly numbers to be reported today.

OK. Over to the Buycaster…

What’s your Uber Rating?

We consider buying stocks with ratings of 9 and above. UBER's rating looks great! The HIGH Buycaster Rating tells us that the stock price is low enough for us to  – rationally  – expect UBER to deliver 80% cumulative return in 5 years (12.5% CAGR), given the business economics of the company. However, before hitting the 'Buy Button', we'd need to believe: 1) the Ground Transportation industry will not structurally decline over the next 5 years, 2) Uber Technologies Inc. can hang on to its competitive advantage, and 3) the management team has a believable strategy to maintain or expand that competitive advantage. Just to reiterate, this analysis does not make an absolute statement like "UBER is not a good buy"; instead it quantifies the likelihood of UBER delivering 80% cumulative return in 5 years (12.5% CAGR).

Everything starts with that Desired Return. Keeping that in mind, we back-solve towards "what needs to happen in the business" to - RATIONALLY - expect our desired return. Over the next few charts, we'll see in detail how we got to UBER's HIGH Buycaster Rating. 

Warm up the engine.

OK. What needs to happen?

How believable is this story?

The only Risk that matters…

Final score…

What would Warren Buffett think?

The Extra Mile: Uber’s Capex

This surprised us! Uber's done a commendable job to reigning in its growth expenditure. 

Many Happy Returns.

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