The company has transformed into a free cash flow generator, leveraging its market leadership, loyal customer base, and unmatched driver network.
The company has generated $8.5 billion in free cash flow in the trailing 12 months. The unshakeable confidence of the management toward strong FCF generation can be seen in their decision to authorize a new $20 billion share repurchase program last month, which brought the total authorization to $23 billion.
Market leadership
The global ridesharing industry is expected to grow at a CAGR of ~14% through 2030. Uber, which has grown at healthy double-digit rates in each year since 2017 except for 2020, is well-positioned to remain the undisputed global leader in this market. Uber is now enjoying competitive advantages resulting from the scale of its massive network of drivers and riders.
Next Strategies
The Advertising Business Is Uber’s Secret Weapon
For many years, Uber could not find a way to monetize its massive audience. To give some color, in 2024, Uber reported approximately 30 billion user sessions. Uber has already made notable progress in monetizing this massive audience through sponsored listings on Uber Eats. In Q1, management announced that the ad revenue run rate had surpassed $1.5 billion (~3% of TTM revenue). I expect Uber to make incremental investments in its ad platform, enabling merchant partners to use different types of targeted advertisements. The advertising business, on the contrary, is a capital-light business that could immediately contribute to margin accretion. The potential of the ad business becomes even more evident when you look at the growing Uber One subscriber base. Uber One currently has around 36 million subscribers who account for almost 40% of total bookings on the platform. From the perspective of advertisers, an engaged user base is most definitely a goldmine. As an advertiser, leveraging such real-world data may lead to immediate commercial outcomes. In addition, given Uber’s understanding of a customer’s physical whereabouts and immediate purchasing decisions (through Uber Eats), the company can offer advertisers bottom-of-the-funnel targeting opportunities to reach customers at the exact point when they are making decisions. With 180 million monthly customers and ~36 million active Uber One members, the company has access to a massive pool of data that is ready to be monetized through advertising.
Robotaxis
On September 4th, it was reported that Uber’s investment into Lucid’s (LCID) robotaxi program had closed.The investment was previously announced in July and later next year, the robotaxi service is expected to launch in a major U.S. city. Therefore, instead of seeing autonomous vehicles as a potential threat to the business, Uber is embracing these new technological advancements.
Google’s (GOOG) Waymo has been partnering with Uber (NYSE:UBER) for years now, already pushing aggressively beyond its core bases in San Francisco, Los Angeles, Phoenix, and Austin, now handling more than 300,000 rides per week with a fleet of 1,500 autonomous vehicles, set to grow to 2,000 by 2026. Expansion plans include new rollouts in Atlanta, Denver, and Seattle, active testing in New York City, and even early international pilots in Tokyo, with plans to launch commercial operations in Miami, Washington, D.C., Dallas, and Denver next year. So for example in the markets where AVs are operational, and these are the San Francisco and LAs and Phoenixes of the United States, we are seeing growth, industry growth I’m talking about, that is 5x larger, 5x larger than what you’re seeing in other top markets. .And with the AV market affording a reported $1T+ TAM for the leading players to exploit, I expect Uber to muscle its way to claim its right place amidst the turf war going on.
Drones
Uber’s recent announcement introduces drone deliveries for Uber Eats through its partnership with Flytrex, a company that has secured FAA approval for Beyond Visual Line of Sight operations and successfully completed over 200,000 deliveries. In addition, It was announced just days ago that Joby’s (JOBY) Blade services will soon be available for booking on the Uber app. Joby acquired the passenger business back in August and now it is reported that customers will be able to book flights directly on the Uber app as early as next year. With air mobility already gaining significant traction in international markets like China, Uber’s push into this space is another highly strategic one which could payoff down the road.
Risks
For Uber, the biggest threat stems from regulatory scrutiny in some of its key global markets. Investors should keep a close eye on how Uber deals with regulatory challenges in certain markets such as the United Kingdom. Court orders that prevent the company from hiring drivers as gig workers could materially impact the competitive advantages Uber enjoys from its network effect.
