New
Down 27%, Is Uber Stock An Incredible Buying Opportunity Before The End Of 2024?
Ever since it had its initial public offering in May 2019, Uber (NYSE: UBER) has taken its investors on a bumpy ride. Things were looking up through the first nine months of this year, but as of this writing, shares trade 28% below their October all-time high.
Does this current dip make the transportation-as-a-service stock an incredible buying opportunity before the end of 2024? Here's what investors need to know.
Recent developments
The past couple of months, a time when the stock has seen downward pressure, have brought some important developments as they relate to Uber. On Oct. 10, Tesla held its highly anticipated robotaxi event, with founder and CEO Elon Musk saying that the business could bring unsupervised driving to Texas and California next year. Uber shares popped the next day but ended October down 17% from the day after the Tesla event.
The negative sentiment continued even after Uber revealed its Q3 2024 financial results. For the three-month period that ended Sept. 30, it reported better-than-expected numbers. In fact, the company crushed analyst expectations, registering revenue of $11.2 billion and earnings per share of $1.20.
However, the stock dropped 9% after the announcement. Perhaps the market was disappointed with a softer gross booking projection.
Positive attributes
Despite what the stock's performance over the past couple of months shows, investors should zoom out and focus on the bigger picture. That's the smart approach if you're looking to make long-term investments.
Uber has some positive attributes that are working in its favor. For starters, it possesses powerful network effects. On the mobility side, Uber handled almost 2.9 billion trips in the last three months worth $21 billion in booking value. This was completed by 161 million monthly active users. Those figures are unbelievable.
As more riders get on the Uber app to go somewhere, it becomes more valuable to drivers. The opposite is also true. Consequently, the value all stakeholders derive increases as the platform gets larger.
Those network effects have been great for Uber's competitive positioning. However, if fully autonomous driving capabilities eventually go mainstream, it could deal a blow to Uber's entire business model. The businesses that own the software, like Tesla or Alphabet's Waymo, could launch their own ride-hailing apps to the masses that bypass Uber. No matter what your belief is about the future of this technology, this is a threat Uber bulls need to be mindful of.
Nonetheless, it helps that Uber is posting stellar profitability, a clear demonstration that it has reached a certain level of scale that allows it to better leverage its major costs, like product development and sales and marketing. Operating income increased 169% year over year to $1.1 billion in the third quarter.
Growth is another key part of the story here. In the past five years, between Q3 2019 and Q3 2024, Uber's revenue increased by 193%, with its monthly active user base expanding by 56% over that time. Executives think the long-term opportunity is huge, with expansion potential not only to boost brand awareness in core mobility and delivery activities but also in areas like corporate travel and advertising. That leaves plenty of room for sales to keep rising over time.
Uber's valuation
Investors might appreciate Uber's favorable qualities, even with the unknown impact of how self-driving tech will play out. Investors must see the present clearly, more so than trying to make accurate predictions about what the future might bring. Uber is a profitable and growing enterprise with competitive strengths.
In order to buy the stock, though, the valuation must be compelling. Shares currently trade at a forward P/E ratio of 22.2. In my opinion, this is a very reasonable valuation for Uber. For comparison's sake, it's slightly cheaper than the S&P 500's multiple of 22.5. I think it's an easy argument to make when saying that Uber is much better than the average business in that broad index.
Investors might want to consider buying Uber stock before the calendar turns to 2025.
Don’t miss this second chance at a potentially lucrative opportunity
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*Stock Advisor returns as of December 9, 2024
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.
