Uber (UBER -1.81%) has become so successful since its founding in 2009 that its name is used interchangeably as a verb when taking a ride somewhere. This demonstrates the incredible mindshare it has developed with consumers, thanks to the company’s ability to create an entirely new category within the transportation sector.
At the time of this writing, shares of Uber trade 20% off their peak, but they have soared 134% in the past 24 months, crushing the overall market. Is this growth stock a no-brainer buy in 2025? Investors will obtain a better understanding by considering both Uber’s bear and bull cases.
Technological disruption
Since Oct. 10 of last year, this stock has dipped 21%. That’s the date Tesla held its highly anticipated robotaxi event, introducing a small two-seater model, as well as a 20-passenger van. I believe this is a clear indication that the market is rightfully worried about the threat of fully autonomous vehicles.
Looking at Uber at a high level, I think this is the most pronounced risk the business faces, defining the key bear case. Tesla, as well as Alphabet‘s Waymo, are working on this technology. If the capabilities are developed, and adoption grows, then the financial windfall could be massive. That’s because transportation is such a large industry globally.
The thinking is that with full self-driving, Tesla and Waymo could bring their ride-hailing apps to the masses. Because there would be no driver, typically the biggest cost component of a trip, the price for the rider should go down.
But it’s not all bad news for Uber. In fact, Waymo will partner with it in Atlanta and Austin, Texas. This highlights how important Uber’s direct relationship with consumers is.
And it goes back to that mindshare I mentioned before. The Uber brand has tremendous value, which might be able to help it successfully navigate potential technological changes in the industry.
Uber is a quality company
Investors won’t struggle to find compelling bull arguments for Uber. The first point has to do with network effects, which create the company’s economic moat.
The company counted 161 million monthly active users in its third quarter (ended Sept. 30). Such a massive customer base makes the platform incredibly valuable to both drivers and restaurants.
And as the latter two groups grow in size, consumers find more utility from the Uber app. It’s a positive feedback loop that results in a stronger offering over time.
The company is now becoming financially sound. It generated operating income and free cash flow of $1.1 billion and $2.1 billion, respectively, in the third quarter. These figures were much better than in the same period the year before.
The company is able to benefit from scale by leveraging some of its largest expenses. Wall Street believes earnings per share will rise 74% between 2024 and 2026, further supporting this point.
Growth is another compelling trait. The ride-hailing service is offered in some 10,000 cities across the world. And management says that there is significant runway to bring on more of the adult population in different countries as customers. In the U.S., the company counts only 10% of adults as users.
Uber’s valuation
Shares have rocketed 134% higher since mid-January 2023. After such a fantastic gain, investors might be worried about it being too late to get in on the action.
But that’s certainly not the case here. As of this writing, the stock can be bought for a forward price-to-earnings ratio (P/E) of 21.6. This represents a discount to the overall S&P 500‘s multiple.
Uber is a better-than-average business that possesses favorable qualities, even though there is a risk to be mindful of. Nonetheless, the stock looks like a smart buying opportunity.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
