A Narrow Moat for Newly Public Uber
Uber Technologies is the leader in the ride-sharing market in the U.S.
We are initiating coverage of Uber Technologies (UBER) with a narrow moat rating, stable moat trend, and a fair value estimate of $58 per share. Uber is becoming a public company as it will sell at least 180 million shares at an IPO price of $45 per share (which is at the low end of the range that the firm was seeking) on May 10, 2019. We note that such pricing is not indicative of low demand. We suspect that, given the lack of performance in Lyft’s IPO since its debut in March and increasing volatility in the equity market, Uber's initial pricing may have come out on the conservative side. The IPO price is more than 22% below our fair value estimate and we recommend allocating capital to this name if Uber’s stock trades at the reported $45 IPO price or lower.
Uber Technologies, founded in 2009, is the leader in the ride-sharing market in the U.S. and likely in the world after the close of the Careem acquisition (possibly in January 2020). With services such as ride-sharing, food delivery, and freight brokerage, the firm has successfully tapped into an addressable market which we value at $740 billion by 2023 and over $1 trillion. In our view, Uber's core business, the ridesharing platform, warrants a narrow economic moat rating as it has displayed some moat sources such as network effects and intangible assets, which could position the firm to become profitable and generate excess returns on invested capital in the future. In addition, Uber has grabbed market share in food delivery very quickly for which we think there is strong growth potential.
We expect Uber's total net revenue to grow at a 19% 10-year CAGR to over $64 billion by 2028. Also, we expect Uber to become sustainably profitable by 2024. Plus, given how effectively Uber is using its scalable platform for other services, we expect further operating margin expansion after 2024.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.