Go big or go home. Billionaire investor Bill Ackman of Pershing Square Capital Management takes that sentiment to heart. His hedge fund has some $13 billion in assets under management, but he owns just 10 stocks (track his portfolio here), almost all of which he has put $1 billion or more into.
Last week, however, Ackman disclosed he was buying just one stock hand over fist and he accumulated a $2.3 billion stake in it. Beginning in January, the activist investor started accumulating shares of ride-sharing leader Uber Technologies (NYSE:UBER). He purchased 30.3 million shares, or a 1.4% stake in the company. It is now the largest position in his portfolio.
In a post on X, Ackman wrote, “We believe that Uber is one of the best managed and highest quality businesses in the world. Remarkably, it can still be purchased at a massive discount to its intrinsic value. This favorable combination of attributes is extremely rare, particularly for a large cap company.”
Let’s take a look at what the billionaire investor calls “a highly profitable and cash-generative growth machine” and see whether you should be a buyer, too.
Profitable growth
Uber Technologies has transitioned from a cash-burning company into a profitable growing business
Uber Technologies bookings are rising smartly. Similar to revenue, but different, Uber’s gross bookings in Q4 were up 18% to $44.2 billion, the midpoint of management’s guidance in the third quarter. These include ride-shares, delivery, and freight shipments. From the bookings, it pays its drivers, and the amount left over is its revenue.
Churning out cash
What the market seemed to miss that Ackman saw is Uber is turning into a cash-generating machine. Net income of $9.9 billion increased five-fold from the year ago period while FCF more than doubled from last year. It has a growing cash balance and is paying down its debt.
This is a different company from the one a few years ago that was burning through cash at a hefty rate.
Uber is now able to look to the future and see what new challenges it can undertake. Increasingly, it looks like it will be autonomous vehicles. Uber spent a good bit of time discussing the opportunity it represents.
The future of ride-share
Uber sees the autonomous vehicle market as the next leg of its growth trajectory
The ride-share app has already partnered with several AV companies such as Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Waymo, WeRide, and Pony.ai (NASDAQ:PONY). There are numerous others it can tap into.
The attractiveness of the Uber network is that it can help these companies get to scale quickly because it can leverage its massive network. It already has an excellent car summoning platform that could be integrated into numerous players’ vehicle fleets.
Yet as Uber advances this technology, it will face a growing rift with its driver’s many of whom are already dissatisfied with their relationship with the company. Uber has built its profitability up by often taking directly from its driver’s earnings, keeping more of their wages for itself.
Uber stopped reporting how much it paid drivers just before its IPO. It has long had a contentious relationship with them and as it tries to eliminate them to keep all of the fare for itself, that will grow.
Key takeaway
Uber Technologies has become synonymous with ride-sharing, and profits and margins remain healthy and growing. UBER stock is down 14% from its high point and remains attractive if not cheap.
The long-term outlook for the ride-hailing, food delivery service looks fairly bright and should be a good long-term investment for Ackman.
Top Gaining Stocks
Top Losing Stocks