Uber Technologies (UBER)

From burning money to making money

Uber connects riders with drivers (Mobility), people with restaurants (Delivery), and shippers with carriers (Freight). Before its 2019 IPO, it was one of the world’s most valuable startups, though it was losing billions of dollars. Since COVID-19, Uber has bounced back.

This thesis suggests Uber now has a sustainable business model and plenty of growth ahead. The company is valued at $143 per share, which is over 50% higher than last week’s trading price.

Local Markets, Global Dominance

London is a good example of Uber’s strategy in action. Many Londoners use Uber, making it one of the company’s top five cities and responsible for 20% of $163 billion in gross bookings in 2024. On average, a Londoner uses Uber to book rides, order food, groceries, retail products, and even travel by train, boat, bike, scooter, or flight about 40 times a year, spending nearly £650 on the platform.

Uber’s success in London shows how it could succeed in other markets around the world.

Solving the Multi-Homing Problem

Uber’s business is highly local. Drivers in New York are focused on their own city, just as commuters in São Paulo aren’t concerned with Los Angeles. This is also true for Uber’s Delivery service. Each city is a separate market that Uber must develop individually.

For Uber to succeed in a city, it needs enough drivers to keep wait times around five to six minutes. In its early years, when venture capital was easy to get, competitors used subsidies to attract drivers and riders to their own apps. This led to the multi-homing problem, where both drivers and riders used several apps to find the best deals.

Because of the multi-homing problem, many investors doubted Uber could ever turn a profit. This thesis argues that Uber has solved this issue, as shown by its approach in London.

Luck and Time in the Market

Uber saw this challenge early and was fortunate to have investors who provided the funding needed to stay in business. The company also chose to focus on key markets and leave others, such as when it partnered with Grab to exit Southeast Asia.

Uber used its large funding to outlast competitors. In London, it now has over 95% of the driver market. The company has shown it can be profitable and should be able to support future growth.

Now, commuters have little reason to choose Bolt or Freenow. Since Uber controls most of the driver market, it’s unlikely that competitors can offer better prices.

The same goes for drivers. Other companies probably can’t offer enough rides for drivers to earn more, except for some initial incentives.

Uber’s experience was unique. It’s unlikely that any other company will be able to raise money as easily as Uber did in its first decade.

Super App

Uber focused on building partnerships with companies that offer transportation or products people want quickly and easily. This includes cars, food, groceries, retail items, trains, boats, bikes, scooters, and even flights. Uber then brought all these services together in one app.

By offering more than just rides, Uber made its customers less sensitive to price changes. People who use several Uber services take two to two and a half times more rides each month and bring in three times more gross bookings than those who use only one service. These customers are also 20-25% cheaper to attract than through paid advertising. In the past two years, Uber’s promotional costs per customer or driver have dropped by over 50%.

Loyalty Program

Uber’s membership program, Uber One, has made customers even more loyal. Since its launch in 2020, membership has grown from 5 million to 30 million users. In London, 19% of Uber users are now Uber One members, accounting for about 35% of all Mobility and Delivery gross bookings in 2024.

For Delivery, customers only need to order three meals a month to get their money’s worth. They also receive discounts and rewards for rides. Uber earns about £5 in recurring revenue per month from this program, which is a high-margin source of income. Along with advertising, this helps explain how Uber quickly went from losing money to generating strong cash flow.

Dynamic Pricing

By introducing dynamic pricing and upfront fares in some markets, Uber has gained more control. These changes have raised average fares, increased Uber’s share of each ride, and helped balance supply and demand.

If you book an Uber ride or order food today, you’ll notice how Uber’s pricing works. When you’re in a hurry or there’s a surge, Uber may suggest upgrading to Uber Black. Delivery fees are set up to encourage larger orders, with fees above 11% for orders under £27.

Future Prospects

By 2021, Uber’s top 20 markets were already making money, with the top five showing margins above its long-term goals: 10% for Mobility, 5% for Delivery, and 7% overall. While we don’t have the latest numbers for these markets, Uber’s earnings margin as a share of gross bookings was over 4% in 2024, up from 1.5% at the end of 2021. This points to growing profitability in the top 20 markets.

Uber still has many markets where it hasn’t reached full scale. Growing these markets requires marketing and promotions, but the outlook is positive. Uber’s return on advertising is rising, and even as total ad spending has increased, the cost to acquire each user has dropped by nearly 30% over the past three years.

If Uber can apply its London strategy to other markets, it could build a business with strong earnings potential.

Why Now

Uber has shown that, despite early setbacks, it can make money with its current business model and strategy. The company now has 170 million users and a market cap of $195 billion. This analysis sees even more room for growth.

1. Uber’s potential market is much larger than its current user base. The United Kingdom is its most developed market, with 13% of the target population using Uber. Except for Mexico, all other markets are below 10%. Since most trips are still cheaper than Uber’s, there’s room to grow by partnering with providers of more affordable transportation.

2. Cross-selling Mobility and Delivery helps Uber reach more people and boost engagement. While Uber is well-known in big cities, it’s less common in rural areas. As of early 2025, these less populated areas were growing 50% faster than cities, and competition is expected to be lower there.

3. Uber can add more merchants to its Delivery service, cut down on order issues, and use its courier network more efficiently. This should make orders more affordable and encourage more use. Uber has been working on these improvements, and its user base and order frequency are likely to keep growing.

4. In Uber’s top 10 cities, average fares have grown by 6.5% per year over the past six years. Factors like fuel prices, insurance, wages, driver supply, and Uber’s pricing will likely keep fares rising. Uber’s share of each ride has also gone up: Mobility take rate is now 30%, up by 8% in five years, and Delivery take rate has doubled to 18%.

The US market shows what happens when things settle. Uber and Lyft control 76% and 24% of the rideshare market, and their prices are very similar. Since 2023, both have focused on increasing profits. Other markets are likely to follow this pattern as they mature.

What It’s Worth

Uber’s current value is $195 billion. To support this, it needs to generate about $16 billion in cash every year. This would require 15.5 billion trips annually, with 218 million monthly users, each taking about 6 trips at $14.50 per trip.

To reach these goals, Uber must grow by 37%, double its profit margin, and triple its cash profits. While this seems ambitious, this thesis believes it’s possible within three years.

Uber expects to grow 15% to 19% per year through 2026, with profits rising even faster at 37% to 40% per year. If it keeps up steady growth through 2029—adding more users, increasing trips per user, and raising prices a bit—the stock could be worth about $143 per share.

Risks

Regulation

With ridesharing and delivery, establishing a presence in a new city can prove difficult. In addition to business, regulation has been a challenge even from Uber’s early days. Its approach had been to seek forgiveness later rather than request permission, and to run in as many cities as possible to establish its first-mover advantage. It suffered setbacks along the way, but these helped pave the way for regulation.

Uber’s success in London is even more remarkable given that its license to operate was revoked twice in 2017 and 2019. Its competitors face similar challenges, including more pushback from local communities, but Uber has proven that regulation is possible. It is now regulated in over 70 countries.

Some cities, such as London and New York, showed that regulatory interventions had strengthened Uber’s competitive position. Bolt and Ola scaled down their operations in London, citing regulatory complexity. Juno blamed New York regulations as one of the reasons it shut down. Uber benefits as regulation raises barriers to entry.

Insurance

Insurance is a significant cost for Uber’s business, accounting for a third of fares. The cost of insurance is largely out of Uber’s control, as it depends on market conditions. Uber passes this cost to its customers, and it can affect its competitiveness against other modes of transport when premiums rise rapidly, as they did in 2023 and 2024.

In the United States, where insurance costs are increasing, Uber is focused on helping its drivers improve their driving, which can impact the frequency of claims. This helps Uber get lower premiums. In addition, it is also lobbying for regulatory changes to reduce this cost.

It’s not certain whether these efforts will result in significant insurance costs. Similar to regulation, while insurance costs are a risk, they also serve as a barrier to entry for potential competitors without a strong balance sheet and track record.

Recession

Another unknown is how Uber’s business would be affected by a strong economic recession. On the one hand, customers’ discretionary income would suffer. Higher unemployment would likely lead more drivers to join the platform, which could push prices and wait times lower, improving the customer experience and mitigating the impact of reduced demand.

While not entirely similar, Uber’s performance during the COVID-19 pandemic suggests its competitive advantage improved.

Autonomous Vehicles

The announcement of Uber’s partnership with Waymo, launching in Atlanta, sent the stock up almost 10%. Uber believes its future in autonomous vehicles is in partnerships, and it no longer runs its own development.

Uber’s most recognized partnership is with Waymo in Austin, but it also has partnerships in other places. Autonomous vehicle companies can earn fees by keeping their vehicles available on the platform, and Uber can test the benefits of a hybrid model.

However, there is a long-term risk that Uber’s business could be disrupted.

Freight

This thesis does not look at Uber’s Freight business. It had a gross booking of $5 billion in 2024, but remains unprofitable. Given management’s lack of commentary on its prospects, it seems to have been deprioritized.

As a marketplace that helps shippers optimize their empty space and connect them to merchants, an upturn in trade would be an opportunity for growth. This thesis does not assign any value to this segment.

Checks

• UBER is Sharia-compliant according to Zoya.

• The closing price of $93.40 has a 3-star rating on Morningstar.

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This post is for educational and informational purposes only and does not constitute financial, investment, or other professional advice. All information presented is based on personal opinion and should not be relied upon solely to make any investment decisions. You should always do your own research and consult with a licensed financial advisor, attorney, or other professional before making any financial decisions. Past performance is not indicative of future results.