Considering a 27% decrease, Could Uber's Shares Present a Noteworthy Purchase Prospect Before 2024's Conclusion?
Since its initial public offering in May 2019, Uber (UBER 2.25%) has offered its investors a wild ride. Although the company saw improvements during the first nine months of this year, shares are currently trading 28% below their October record high. With the current dip, some investors are wondering if this is an excellent opportunity to purchase the transportation-as-a-service stock before 2024 comes to an end. Let's examine the situation.
Recent developments
The past couple of months, a period that has seen the stock's decline, have brought some important news related to Uber. On October 10, Tesla held its much-anticipated robotaxi event, with founder and CEO Elon Musk suggesting that the company could introduce unsupervised driving in Texas and California by next year. As a result, Uber shares saw a brief increase, but by the end of October, they had fallen 17% from the day after the Tesla event.
Negative sentiment persisted even after Uber reported its Q3 2024 financial results in late September. For the three-month period ending September 30, the company surpassed analyst expectations, recording revenue of $11.2 billion and earnings per share of $1.20. Despite this impressive performance, the stock fell 9% following the announcement. Perhaps the market was disappointed by a less optimistic outlook on gross bookings.
Positive attributes
Despite its recent struggles, investors would do well to keep a broader perspective. Focusing on the long-term is crucial if one aims to make profitable investments.
Uber possesses several strengths that could work in its favor. For instance, it boasts powerful network effects. In the past three months, the company handled nearly 2.9 billion trips with a booking value of $21 billion, while serving 161 million monthly active users. As the number of users increases, the platform becomes more valuable to drivers and, conversely, more attractive to riders. This positive feedback loop enhances the value for all stakeholders as the platform grows.
Uber's network effects have helped its competitive position. However, the arrival of fully autonomous driving capabilities may pose a threat to its business model. If major tech companies like Tesla or Alphabet's Waymo can develop successful ride-hailing apps, they could potentially bypass Uber. Regardless of one's view on the future of this technology, it is a factor that Uber bulls should take into account.
Despite these challenges, Uber continues to post strong profitability, demonstrating that it has reached a scale where it can better manage costs such as product development and marketing. Operating income increased by 169% year over year to $1.1 billion in the third quarter, showcasing the company's growing financial strength.
Uber's growth has also been impressive. Over the past five years, the company has seen its revenue grow by 193%, while its monthly active user base has expanded by 56%. Executives view the long-term potential as significant, with opportunities to boost brand awareness in core mobility and delivery activities, as well as in areas like corporate travel and advertising. This leaves ample room for continued sales growth.
Uber's valuation
While investors may be wary about the future impact of self-driving technology, Uber's strong qualities and growth prospects should not be overlooked. Today, the stock trades at a forward P/E ratio of 22.2. Compared to the broader market, this is a moderately attractive valuation. The S&P 500's P/E multiple is currently 22.5, making a compelling case for Uber being a better investment than average businesses within the index.
Whether you decide to invest in Uber before 2025 is ultimately up to you and your investment strategy. However, it may be worth considering if the transportation giant's current valuation and impressive performance merit further exploration.
In light of the Q3 2024 financial results, where Uber surpassed analyst expectations, some investors might consider the current dip as an opportunity for investing in the transportation-as-a-service stock, given its moderately attractive forward P/E ratio of 22.2 compared to the S&P 500's P/E multiple of 22.5. Furthermore, Uber's strong network effects, growing financial strength, and continuous growth in revenue and monthly active users may make it an attractive investment option for those with a long-term perspective.
