(BFM Bourse) – The specialist in VTC services will join the major Wall Street index on Monday, December 18, following a good stock market performance and a turnaround in its accounts. To see if this new exhibition can allow it to rise further.
Uber is entering the big leagues. The specialist in passenger vehicle services with drivers (VTC) will enter Wall Street’s benchmark index, namely the S&P 500, on Monday, a little more than four years after its IPO. The company was then worth around $80 billion on the stock market. Its market capitalization has since increased to nearly 130 billion dollars, a more than honorable valuation which would now allow it to appear in fifth position on the CAC 40 (between Totalenergies and Airbus). But remember that to be included in the S&P 500, a large market capitalization is not enough (the minimum is $14.5 billion), the company must also generate a profit over all of the last four published quarters.
Uber met these conditions, with a net profit of $221 million in the third quarter, and a cumulative profit of more than $1.05 billion over the last four reported quarters. The group could also achieve a positive net result in 2023, after losing more than 9 billion dollars last year.
Recovery of accounts
Uber Technologies also posted fairly significant growth in its revenues, which reached 10% excluding currency effects in the third quarter, after 17% in the second, thanks to the increase in ride frequencies for its VTC service as well as for Uber eats, the home meal delivery.
This growth can be explained, notes Bloomberg, in particular because the group has managed to increase its supply of drivers while launching new technological initiatives such as a partnership with Waymo, Alphabet’s autonomous vehicle division, to offer races with robotaxis. This initiative, which began in Arizona in October, is intended to improve Uber’s productivity.
“The mobility and delivery segments generated an acceleration in reservations and reached record Ebitda (gross operating profit, editor’s note) margins as a percentage of reservations. This is fundamentally impressive,” Mark underlined in November Mahaney, analyst at Evercore ISI, quoted by Bloomberg, reading the third quarter accounts.
The recovery in Uber’s business and accounts has not gone unnoticed by the market. Uber shares have risen 155% since January 1, also benefiting from expectations of an end to key rate increases by the American Federal Reserve (Fed), a stock market phenomenon conducive to technology and growth stocks.
Its potential inclusion in the S&P 500 may also have boosted its stock, with analysts having widely anticipated it after the publication of its third quarter accounts last November.
Towards share buybacks?
Can the actual entry into the S&P 500 further carry the Uber title? In any case, this is the question that the XTB trading platform asks itself. In theory, inclusion in a benchmark index is supposed to benefit a stock, because the managers of index funds replicating these indices (here the S&P 500) must buy the stock in question to continue to follow this performance. According to XTB, American funds tracking the S&P 500 represented total assets under management of $5.7 trillion at the start of 2023.
“It seems rather naive to think that Uber’s stock will increase simply because the company joined the S&P 500,” judges the platform. “But Uber is a powerful company with a significant market capitalization, and its inclusion in the S&P 500 will help it attract more investor attention,” she adds.
Dan Ives, tech analyst for Wedbush Bank, expects that following its inclusion on the S&P 500, the company will decide to conduct share buybacks, due to its improving generation of cash. This could send a sign of confidence to investors newly attracted to the company. Wedbush expects the company to generate nearly $5 billion in free cash flow in 2024, he explained on the social network
This conviction is shared by Oppenheimer analysts, cited by CNBC. They believe that Uber’s inclusion in the S&P 500 will “likely help improve investor sentiment regarding the stock’s return on investment.” “Post-inclusion, we expect Uber to build on growth and share repurchases, which should improve investor sentiment for growth/return in 2024,” they detailed.
XTB also considers that the improvement in cash generation and net margin (net profit compared to turnover) constitute “key elements” which could justify the continued rise in the stock.
“The real ‘lever’ for generating returns for shareholders is the margins. So far, management is growing the company brilliantly, and Uber is no longer the same company that was ‘burning money’ ‘ in 2019, raising concerns about its potential profitability, with rising costs and growing competition.
And in passing, the investment platform applauds the initiative which consisted of launching Uber eats, which has become a source of growth for the company. “Had the company not introduced the Uber eats service and been able to build an entirely new business from scratch on top of its existing structure, it would likely have had an uninspiring fate in the face of the pandemic, and today, it could only ‘dream’ of joining the S&P 500″, concludes XTB.
Julien Marion – ©2023 BFM Bourse