Key Points
Uber's fundamentals are improving, but the stock is underperforming.
Delivery services are driving the majority of Uber's growth, and its top competitor, DoorDash, carries a much higher valuation.
If Uber continues to deliver solid financial growth, the market should eventually notice and re-rate the stock.
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Amid a rising stock market, Uber (NYSE: UBER) is down by about 8% year to date, but the company's fundamentals reflect a different reality. It is the leader in the ride-hailing industry, and it continues to gain market share. Furthermore, its valuation has become more compelling due to the prolonged slide it has been experiencing since last autumn.
A stock's price should not continue to drop as the company's underlying fundamentals improve. Eventually, a rally should take shape, and Uber has a few catalysts that could bring it back into the green this year.
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New users are flocking to Uber
In the press release announcing Uber's Q2 results, CEO Dara Khosrowshahi said that the platform had "added more first-time users over the past 12 months than in any period over the past five years." More users translated into higher revenue growth rates, but good retention rates can give the company's recent revenue gains a solid foundation.
The company's monthly active platform consumers rose by 16% year over year, which means people who use the app are requesting rides throughout the year. That growth also came with an 18% year-over-year increase in trips.
Although Uber got its start with ride-hailing services, its food delivery business has become a major catalyst. In fact, the delivery segment drove most of the revenue growth. It was up by 28% year over year in the second quarter, while the transportation component of the app only posted 1% growth. Deliveries now make up more than one-third of total sales.
Rising profits and a falling stock price translate into a low valuation
The revenue growth has also come with rising profit margins. After being unprofitable for more than a decade, Uber started to turn a profit in 2023, and its net income has continued to climb.
Its non-GAAP (adjusted) net income, which does not reflect gains from its equity investments, was up by 29% in Q2. Its $1.6 billion in non-GAAP net income resulted in an 11.6% profit margin.
To top it all off, Uber trades at a P/E ratio of just under 17 today. Its food delivery competitor DoorDash (NASDAQ: DASH) commands a P/E ratio of around 110. Although DoorDash is growing at a faster rate than Uber, the latter is delivering higher margins. Uber may also see a long-term revenue boost once autonomous vehicles become more common on its platform.
Although Uber doesn't deserve a 110 P/E ratio, and investors can make an argument about DoorDash being overvalued, the stock's current valuation suggests that a rally may be imminent. Uber is riding long-term tailwinds that should support elevated revenue and net income in future quarters.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
