Summary
- Uber Technologies (UBER) is an American company () that provides mobility as a service.
- In this post we provide a simulation-based (sim-based) valuation () of UBER.
- Our results suggest the following fair values – stock price: $106.99, and price-to-earnings ratio: 130.65.
- At the time of this writing, UBER trades at $45.12, so it appears to be undervalued, with a potential upside of 137.12%.
Uber Technologies (UBER)
Uber Technologies (UBER) is an American company () that provides logistics services of a genre that is sometimes called “mobility as a service”. It does not own any transportation assets (e.g., cars, or trucks), and is headquartered in San Francisco, California.
Its services are constantly expanding, and currently include: ride-hailing, food delivery, package delivery, freight transportation, electric bicycle and motorized scooter rental, and ferry transport. UBER receives a commission on fares, often of 25%. These fares are quoted to each customer in advance, using a dynamic pricing model.
Estimating a fair value for the stock
In this post we provide a simulation-based (sim-based) valuation () of UBER.
At the time of this writing, the company had a negative net profit margin of -17% and a price-to-sales ratio of 5.51. UBER’s estimated earnings growth rate for the next 5 years is 59.34%. We used 10% for net profit margin in our sim-based analysis; this is the margin of Avis, a car rental company.
Note that we assumed a positive net profit margin for a company that actually has a negative margin; we explained the rationale for this, in the context of our sim-based analyses, earlier in this blog ().
The table below summarize our sim-based results.
Since our sim-based analysis uses a S&P 500 return as a basis, our results summarized on the table above suggest the following fair values – stock price: $106.99, and price-to-earnings ratio: 130.65. At the time of this writing, UBER trades at $45.12, so it appears to be undervalued, with a potential upside of 137.12%.
Final thoughts
UBER has the potential to become a one-stop shop for all transportation needs, which makes its total addressable market quite large. Pressures to provide benefits to drivers will probably continue, but these may in fact create barriers for smaller competitors, further solidifying UBER’s leadership position.
One could argue that the development of autonomous vehicles could significantly increase UBER’s profit margins, but it is also possible that the developers of the technologies enabling autonomous vehicles will provide logistics services that could drive UBER out of business.
Disclosure
The author owns UBER shares at the time of this writing.
