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Uber’s Run Out of Gas, but Is It Still in the Race?

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Shares of Uber Technologies (NYSE: UBER) have not been a good investment since the company’s initial public offering (IPO) in 2019.

While the S&P 500 is up almost 40% since then, Uber’s stock is down more than 25%.

A $10,000 investment in Uber at IPO is now worth $7,430. That does not look good against the $13,800 that a $10,000 investment in an S&P 500 index fund could have produced over the same time…

Chart: Uber Runs Out of gas - Growth of a $10,000 initial investment

This chart doesn’t look too good. Let’s just say that if you invested too heavily at the start, you might actually have to drive an Uber in retirement (but not if bestselling author Marc Lichtenfeld has anything to say about it).

But operationally, Uber has been starting to post some exciting numbers. Revenue, specifically, has been burning rubber.

For the first nine months of 2022, Uber put up $23.2 billion in revenue. That is exactly double the $11.6 billion in revenue that the company generated in the first nine months of 2021. Impressive stuff!

Now, despite this big jump in revenue, Uber’s operations still didn’t turn a profit over the first nine months of 2022.

Not even close, actually…

Chart: Uber's Loss From Operations

Uber posted an operational loss of nearly $1.7 billion for the nine months ended September 30, 2022.

That’s better than the $3.3 billion loss for the same period in 2021, but it is still a major loss.

It seems like losses are the only thing that Uber’s operations have created since inception.

But, hey, this is a growth business. There is nothing wrong with posting losses in the early years as you grow to become the 800-pound gorilla that dominates your industry.

Currently, that’s what Uber is. The company owns more than 70% of the ride-hailing market, with competitor Lyft (Nasdaq: LYFT) occupying most of the remainder.

Uber’s revenue growth is expected to continue.

When the company reports full-year 2022 numbers, analysts will be expecting revenue of $31.7 billion. For 2023, the consensus analyst expectation is for revenue to hit $36.8 billion – a 16% year-over-year increase.

Given that the entire U.S. ride-hailing market is also projected to grow at an annualized rate of 16% per year through 2026, Uber’s strong revenue growth should continue.

What I don’t like, though, is that this same analyst group is still expecting Uber to lose money again in 2023.

The loss is expected to shrink, but Uber still won’t be profitable.

As I said, I’m not opposed to owning a growth company that has yet to hit profitability. But the problem with Uber is that it isn’t clear just how profitable this business can ever be, even with continued revenue growth.

Uber dominates the market, but there is obviously plenty of competition out there to keep heavy pressure on margins. There is no guarantee that this company is ever going to generate significant profits.

Plus, it isn’t like the market is giving away this stock for nothing. Uber’s current market capitalization is still more than $60 billion.

With that kind of valuation, there’s already a lot of future profitability built into the stock. Profitability that may or may not emerge.

My take on Uber is simple…

There are plenty of other more attractive stocks out there for us to own. We don’t need to try to figure out whether Uber will eventually start cranking out major profits.

There is just too much risk in speculating on such a thing.

I wish the company nothing but success, but there isn’t enough value in Uber shares for me to take a ride.

The Value Meter rates Uber as “Slightly Overvalued.”

The Value Meter

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