Uber stock (NYSE: UBER) has declined by about 42% year-to-date trading near $25 per share, underperforming the broader S&P 500, which is down by about 14% over the same period. There are multiple factors weighing the company down. Firstly, inflation has been surging with the labor market also remaining tight, making it difficult for Uber to manage its supply of drivers who are also contending with surging gas prices. This has driven up Uber’s average fares, which is, in turn, impacting the number of users who use the platform and the number of trips the company is offering. For perspective, over Q1, Uber’s monthly active platform customer base fell to 115 million, down from 118 million in Q4 2021. Investors have also been reducing allocation to high-growth and loss-making companies, as interest rates trend higher and this has also hurt Uber, which remains in the red. Separately, with U.S. GDP contracting over Q1 2022, there are concerns that the economy could be headed into a recession, which could, in turn, hurt demand for Uber’s ride-hailing, delivery, and logistics services, which are heavily levered to broader economic activity.
That being said, there have actually been several positive developments for the company, which could make the stock a buy. Despite the correction in the stock, Uber’s underlying growth has been robust. Uber Revenues over Q1 rose 136% year-over-year to $6.9 billion, beating estimates. Consensus estimates point to revenues of about $30 billion for this year, which translates into about 70% growth versus 2021 and more than double the revenue the company posted prior to Covid-19, as the ride-hailing business grows, while the food delivery business which boomed through Covid largely holds up. The underlying economics of Uber’s business is also getting better despite inflationary headwinds. Excluding certain expenses such as stock-based compensation and writeoffs, Uber was profitable in Q1. Uber’s free cash flows also approached break-even levels in the quarter and the company now expects to generate meaningful free cash flows for full-year 2022. Adjusted EBITDA margin stood at 5.8% of Gross Bookings in Q1, an all-time high, compared to 4.4% in Q1 2021. Uber’s advertising business could also provide an upside to margins in the long run given the company’s large base of about 115 million users. Uber projects ad sales of $1 billion by 2024.
Now, despite the strong growth and margin improvement trends, Uber stock trades at just 1.6x consensus 2022 revenues, well below delivery rival DoorDash stock, which trades at almost 4x projected 2022 revenue. We value Uber stock at about $35 per share, marking a 50% premium over the current market price. See our analysis on Uber Valuation: Expensive or Cheap for more details.
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|S&P 500 Return||-1%||-14%||84%|
|Trefis Multi-Strategy Portfolio||1%||-18%||224%|
 Month-to-date and year-to-date as of 6/6/2022
 Cumulative total returns since the end of 2016