Shares of ride-hailing and delivery behemoth Uber Technologies (NYSE:UBER) are near their 2021 all-time high of $64.05, triggered by the news that UBER stock will soon join the S&P 500 Index (SPX). Since I posed the question a year ago – "Should You Hop in This Uber?" – the stock has more than doubled. Now, the question resurfaces. Nevertheless, the response remains consistent: I'm inclined to embark on the Uber ride again because its margins and free cash flow are improving, and the long-term outlook appears robust.
Q3 EPS Beat with Improved Margins & Cash Flow
On November 7, Uber reported mixed Q3 results. Earnings per share of $0.10 handily beat the street’s expectations of $0.07 per share and was superior to the loss of $0.61 per share reported in the prior year period. At the same time, revenues grew 11% year-over-year to $9.3 billion but fell short of analysts’ expectations of $9.5 billion.
Positively, Q3 gross bookings jumped 21% year-over-year to an all-time high of $35.3 billion, driven by a 15% rise in monthly active users to 142 million. Consistent double-digit year-over-year growth in bookings reflects strong acceleration, hinting at robust demand and growth momentum, especially in the Mobility segment, which is expected to grow for years to come. Mobility bookings grew 31% year-over-year, while trips increased 25% year-over-year to 2.4 billion.
The biggest Q3 highlight was the fast-paced growth in EBITDA profitability and free cash flow. The company reported an all-time high adjusted EBITDA of $1.1 billion that more than doubled year-over-year, driven by operational efficiency and disciplined expense management.
Its adjusted EBITDA margin also reached an all-time high at 3.1% (as a percentage of Gross Bookings), up from 1.8% in the prior-year quarter. Free cash flow grew 153% year-over-year to $905 million compared to $358 million reported a year ago.
Notably, Uber gave out an impressive Q4 outlook. For Q4, gross bookings are expected to grow by 18-21% and be in the range of $36.5 billion - $37.5 billion. Adjusted EBITDA is projected to range between $1.18 billion - $1.24 billion.
S&P 500 Inclusion to Boost Uber Stock
Effective December 18, Uber shares will be included in the S&P 500 index. On an average basis, the last 10 companies added to the S&P 500 saw their shares gain 5% on the first trading day, followed by further gains over the coming weeks.
Inclusion in the S&P 500 means higher allocation by funds towards UBER, especially for those passive portfolios that mirror the holdings of the index. In fact, index mutual funds and ETFs tracking the S&P 500 will add shares of UBER stock to their portfolios. These funds represent a significant value as a percentage of the U.S. equity markets. Therefore, Uber’s inclusion in the S&P 500 should drive the stock price higher.
In fact, analyst firm Oppenheimer expects UBER stock to aim for higher growth and more buybacks following its inclusion in the prestigious S&P 500.
Multiple Growth Drivers to Boost Long-Term Profitability
After having invested huge amounts of capital and reported losses for many years, Uber has finally turned to consistent profitability. Uber has a strong global presence, with operations in more than 60 countries, and has used its advantage of scale, which has given it a clear edge over its competitors.
The turnaround has been driven by all three of its segments, not just the flagship Mobility segment. Delivery (including Uber Eats) and Freight revenues have also grown significantly over the past few years. Importantly, Uber has a huge pricing advantage as a result of its superior bargaining power. Its take rate has grown to around 28%. It's no wonder, then, why Uber’s revenues have exploded, having more than doubled since 2021 and up almost 3x since the pre-pandemic period of 2019.
Uber is on the verge of grabbing yet another source of long-term revenues -- self-driving vehicles. It has already entered into meaningful partnerships with major developers, including Alphabet’s (NASDAQ:GOOGL) self-driving vehicle subsidiary, Waymo. Uber's payments to its drivers are one of the company's major costs. Autonomous vehicles will help bring down that cost drastically, thereby boosting its profitability.
Considering all the factors above, Uber looks more and more set to meet its EBITDA target of $7.7 billion by 2025.
Is UBER Stock a Buy, According to Analysts?
As per TipRanks, the Wall Street community is clearly optimistic about UBER stock. Overall, Uber commands a Strong Buy consensus rating based on 34 unanimous Buys. UBER stock’s average price forecast of $63.52 implies 2.5% upside potential from current levels.
In terms of its valuation, UBER is trading at an EV/sales ratio of 3.7x, significantly higher than the peer group average of 1.7x. Nonetheless, I believe the premium is justified, given its favorable industry-leading position and larger total addressable market or TAM. Also, it is trading at much lower levels compared to the peak 11x EV/sales ratio seen in the last 36 months.
Conclusion: Consider Buying UBER Stock for the Long Term
Uber stock has surged, more than tripling from its June 2022 lows of $20. Nonetheless, Uber's competitive advantage, or "moat," is on the rise, propelled by its unique platform-specific strengths. The stock has consistently navigated toward profitability over the past four consecutive quarters, and its impending inclusion in the S&P suggests an additional boost, reinstating investors' confidence in Uber's growth prospects.
Uber's multi-product product platform guarantees heightened growth and earnings in the years ahead. Uber has demonstrated resilience, and its enhanced cost control and increased free cash flow are the proverbial cherry on the cake. The multitude of growth drivers at Uber's disposal continues to fuel my optimism regarding the long-term return potential of the stock.