Uber: Profitable Company, Just not Worth the Market Cap

 After a decade of operation , Uber has progressed to being profitable. Uber has two main business segments- (i) Mobility and (ii) Delivery.

Mobility

EBITDA has been growing and the good news is that it has turned cash accounting profitable. All in all, across two segments, Uber reported a respectable US$220 million in accounting profits. This shows at about EBITDA $1.2 billion, Uber starts to be profitable.

However, one dark cloud has emerged. Revenue growth has slowed from its break neck speed to only 40% growth In the long run, this means revenue growth will slow and so too will profitability growth. Personally, it takes a lot of forecasting to predict how much Uber's mobility will report on an accounting basis. However, I will stick my neck out and say at maturity stage. Uber's mobility should be reporting US$2 billion per year in accounting profits. 

This is because the service provided by Uber is (i) passenger safety from point to point and (ii) ensuring prices are transparent. Things in Singapore we take for granted, but is lacking in many countries even in USA. The USA is a dangerous place, no doubts about that.

Delivery 

Too many competitors are affecting Uber in this business. There are too many delivery providers and even the large scale restaurants have their own delivery network. This is evident by that revenue is now growing at single digit levels in line with inflation. This means delivery is stagnating.

The positive is that Uber is trying to make the operations efficient. Year on year, the margin has doubled from 1.3% in the previous Q3 compared to the current Q3. This is a positive and accounting wise, the delivery business should be on track to reporting a $0.5 billion accounting profits.

Worth it?

For a business with an expected US$2.5 billion in profits, I would say a US$100 billion market cap is too pricey. I am talking about future earnings potential here and not even current P/E which is expected to be P/E 100. Uber is just too pricey; a drop by 70% would put it in a value region for me.

Given how many value opportunities out there such as Sea Group which is becoming a cash cow but in a different business, Uber is definitely not in my list of value picks. A US$15 share price will get me interested. Until then I will keep looking on. Another candidate I am looking at is Grab Holdings, but like Uber, its future earnings is there due to how dangerous South East Asia transportation is. However, Grab too is pricey at the moment (not as pricey as Uber but not in my value zone yet)

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