Citi Reaffirms Buy Rating for Uber Amid Strategic Growth and Margin Expansion

Key Metrics for Uber

Stock Rating: Buy
Revised Price Target: $96.00
Previous Price Target: $93.00
Stock Price (June 10, 2024): $68.60

Summary Points

• Citi's updated price target for Uber is $96, driven by strategic investments and a 24.5x EV/EBITDA multiple for 2025.
• Uber's supply advantage and Uber One membership growth are key drivers, with members spending 3.4 times more than non-members.
• Expanding services like Uber Teen and new mobility modalities are expected to significantly boost Monthly Active Platform Consumers and overall GB growth.

Uber's Strategic Investments Drive Growth and Margin Expansion

Uber Technologies, Inc. (UBER.N) has reaffirmed its Buy rating from Citi, with an updated price target of $96, reflecting a 39.9% expected total return from the current price of $68.60 as of June 10, 2024. This revised target is based on a 24.5x EV/EBITDA multiple for 2025, up from the previous 24x, driven by improved visibility and multiple growth levers. Citi's confidence stems from Uber's strategic investments across products, modalities, and geographies, which are expected to achieve the company's three-year Gross Bookings (GB) and EBITDA CAGR targets set at its Investor Update in February.

Supply-Led Marketplace and Membership Growth

Uber's supply advantage is a key driver of its growth, with 7.1 million earners and a 29% year-over-year increase in Mobility Active Drivers in Q1. This robust supply is enabling the company to introduce new products and services, resulting in lower wait times and higher utilization rates. Additionally, Uber One membership has emerged as a significant growth driver, with over 19 million members accounting for 32% of combined Mobility and Delivery GBs in March. Members spend approximately 3.4 times more than non-members, highlighting the potential for cross-platform consumption.

Prashanth Mahendra-Rajah, Uber's CFO, emphasized the importance of this strategy, stating, "Uber One is becoming a core Uber offering, in our view, and is a key product to drive cross-platform consumption."

Expanding Services and Geographic Reach

Uber is expanding its services to a broader demographic, including Uber Teen, Uber Caregiver, and Uber One for Students. These initiatives are expected to drive Monthly Active Platform Consumers (MAPC) growth, which could account for approximately 50% of overall GB growth over time. New mobility modalities like Reserve, Hailables, Moto, and U4B are also contributing to profitable GB growth, with a combined $11 billion GB run-rate in Q4 and an 80% year-over-year growth in Q1.

Citi's report highlights, "We believe Uber has a meaningful opportunity to unlock supply in constrained markets, particularly those that are newer to ridesharing, which can act as a tailwind to growth."

Margin Expansion and Profitability

Uber's focus on EBITDA dollar growth and operating efficiencies is expected to drive continued margin expansion. The company is leveraging its fixed cost structure and exploring opportunities to reduce costs within its Operating Cost Structure (OCS) items, such as payments, fraud, and customer support. This strategic focus is anticipated to help Uber achieve its three-year EBITDA growth CAGR of high 30% to 40%, potentially leading to greater capital returns and an upgrade to its investment-grade credit rating.

Outlook

Citi remains optimistic about Uber's long-term potential, driven by strong earner supply, expanding services, and strategic investments in new products and geographies. However, the report identifies two primary risks to the price target: macroeconomic factors affecting urban centers and competition that could impact investor sentiment and Uber's ability to narrow losses. Despite these risks, Uber's expanding EBITDA margins and strategic focus on growth present a compelling investment opportunity.

In defending the price target, Citi noted, "We believe Uber is well positioned to take advantage of the reopening trend across its businesses. Driver supply has rebounded, and Mobility is recovering, while Delivery continues to see strong demand that is expanding beyond food to grocery, alcohol, and convenience."