This email will be short and sweet, as most of this week’s content is in my new Bull List addition at Stocktrades Premium.
My account transfers from Wealthsimple to Questrade are still in limbo. I have about half of my accounts over, but the remaining keep having issues on the Wealthsimple side of things. I hope to complete this move as quickly as possible as I intend to make some shifts in my portfolio and purchase this new Bull List stock.
But right now, I am at the mercy of the brokerages, and Wealthsimple seems to be making the process relatively difficult. I’m not necessarily surprised by this. Most brokerages love to acquire AUM, but they make it a bit of a process if you’re leaving.
Let’s dig right into the new Bull List addition.
I’ve added Uber Technologies (UBER) to the Bull List
It has been interesting to watch Uber transition from a cash-burning startup to a cash-flowing, dominant rideshare company. Investments into growing the company’s market share and dominant position are now paying off, and it certainly has my attention.
I believe regulatory issues and some fears in terms of autonomous vehicles are keeping this company’s stock price flat. However, I believe long-term accumulators who can sift through the noise here will be rewarded, as the growth is substantial.
When we are in need of personal transport, especially in urban areas, and we don’t happen to have a vehicle at that moment in time, Uber is often the first thing we think of. You could arguably put the commonly used phrase, “take an Uber,” right up there with “Google it.” Obviously, these are two different situations (one being getting somewhere you need to go and the other being finding information), but when people need a ride and they need it immediately, they often think of Uber. This type of brand recognition certainly shouldn’t be undervalued.
As extensive brand recognition takes hold, the company needs to spend less on marketing as it becomes a household name. As this continues and more and more people ride with Uber, it can lower trip costs while maintaining profitability, add more drivers to the platform, and continue its business flywheel.
Although the company is dominant in the rideshare industry, it does have some diversity in its business in the form of Uber Eats and its Freight segment. Although its Uber Eats segment certainly has more competition and Uber is not the direct market leader (Doordash would have that title), that segment of the business is still growing well and expanding margins. And while Doordash is solely a food delivery company, Uber is multi-faceted, allowing it to capitalize on platforms like its Uber One system, where loyal customers can gain access to both rideshare and food delivery.
As I had mentioned, the company is beyond the cash-burning stage and is now a substantial generator of free cash flow. It can do this because its business model is asset-light. It does not own the vehicles; it simply has a take rate it extracts from each transaction.
On $44B in revenue in 2024, the company spent $242M in capital expenditures or around 0.55% of revenue. If we compare this to an asset-heavy business like BCE, for example, they generated $24B in revenue on $4.5B in capital expenditures, or around 19% of revenue.
The company’s balance sheet is in outstanding shape, with nearly $7B in cash and long-term debt of $9.4B. And because the company’s brand is now scaling organically, the company will likely take on substantially lower debt and equity issuances in the future. In fact, it has even started to buy back shares.
For investors with a 5–10+ year horizon, Uber offers exposure to a dominant, high-utility consumer platform. The main difference between now and a few years ago is it has changed from a promising vision to a cash-flowing machine. Organic growth will now continue to scale as the company’s brand is growing, which should allow it to benefit from organic, cost-free growth of market share. And the dominant market share is a deterrent for new players to enter the industry. We’ve witnessed this with Lyft recently, which is stalling out.
This is just the core thesis of the company. There is much more information on my full report on Uber, which I’ll link to below.
I’ve developed an in-depth report on Uber, which you can read here
