Stock Market

UBER Stock Is Up 140%. Should You Share a Ride With Uber Technologies?

You would think ride-share leader Uber Technologies (NYSE:UBER) was some kind of artificial intelligence stock. Shares are up 26% in 2024, are 61% higher in the last six months and are running 140% above the level they traded at last year. Who needs to gamble on some sketchy AI-adjacent company when you can hitch a ride with Uber?

There are sound reasons in favor of the ride-share leader’s continued growth, but the same forces could work against it. Because they are not imminent in any large scale way, the immediate future for UBER stock still looks bright.

A Massive Disrupter

Uber is the largest ride-sharing app in the world, outside of China where it no longer operates.

It does have competition from competing services in global markets, including Lyft (NASDAQ:LYFT) in the U.S., Bolt and China’s Didi in European markets and more.

It’s a fairly fragmented market. In the U.S., there are hyper-local services as well that compete for passengers. And taxis do still exist.

It’s notable that UBER stock has decimated the taxi industry. At one time, taxis held a virtual monopoly on getting around a city. Cabdrivers have to get a medallion to operate in places like New York City.

As recently as 2014 the cost of a medallion exceeded $1.4 million. Uber’s rise destroyed the taxi industry’s stranglehold on urban transportation. An NYC medallion costs $137,000.

And Uber has grabbed such strong mind share with the public that its name has become a verb. People will casually drop in conversation that they will “uber” somewhere even if they are taking a different service. According to Brand Finance, Uber Technologies is the most valuable mobility brand globally worth $29.7 billion.

Uber’s stellar financials

Yet it hasn’t been an easy ride for Uber Technologies. The ride-sharing company earned the enmity of the taxi industry, which fought hard to ban the service in cities around the world or limit its availability.

Even in the U.S., Uber is banned in Alaska and in Oregon is only available in the central and southern regions of the state. You also can’t get Uber in Switzerland, Denmark, Hungary and elsewhere.

Yet where it exists, Uber thrives. Revenue in 2023 jumped 15% to $9.9 billion as bookings surged 22% to $37.6 billion. Adjusted EBITDA doubled last year to $1.3 billion.

This was the first year the ride-sharing app posted an annual profit. For the first quarter of 2024, Uber expects gross bookings of as much as $38.5 billion and adjusted EBITDA of up to $1.34 billion.

However, states are passing minimum pay amounts for drivers per trip because of Uber’s abysmal track record of boosting its profits by lowering driver pay. Yet that could work to its advantage. Smaller, more poorly financed rivals might not afford to meet minimum pay levels, solidifying Uber’s dominance. 

But the ride-share leader is also exploring autonomous ride-sharing vehicles. It wouldn’t have to split any fare with a human driver and could keep all the trip fees for itself. The differential between gross and net revenue would narrow until any gap was eventually eliminated.

UBER Stock Ups and Downs

Those potential growth drivers could also work against it. There remains a raging debate about classifying Uber drivers as employees, which would drive fares skyward and wreak havoc on Uber’s finances.

Eliminating drivers with self-driving cars would eliminate the problem but could invite others. For example, autonomous vehicles such as Alphabet’s (NASDAQ:GOOG),NASDAQ:GOOGL) Waymo might just obviate the need for a ride-sharing app altogether.

As previously noted, Uber’s relationship with its drivers is rocky and there are lingering public perceptions about the company’s reputation. It’s had its share of internal scandals over the years, which has encouraged politicians to try and regulate it more heavily.

Overall, though, Uber Technologies is in a growth phase and is benefiting from the network effects of its sprawling reach. UBER stock, though, has become pricey and investors might wait for a pullback in shares before taking a ride with the mobility leader.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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