Uber wins target raise from Roth Capital

The stock has just come off an amazing 12 months, where fans of Uber Technologies (Uber Technologies Stock Quote, Charts, News, Analysts, Financials NYSE:UBER) relished in UBER’s almost doubling in value since last July. 

But there are a number of reasons investors should be staying bullish on the company and stock, according to Roth Capital Partners analyst Rohit Kulkarni, who upped his target price in a Tuesday note to clients, saying advertising and subscription revenues could be huge cash machines for the company going forward.

In his report, Kulkarni said Uber is on the cusp of accelerating its FCF conversion and EPS generation after it hits EBITDA of $1 billion per quarter, a milestone which he believes will come by the fourth quarter of this year. Kulkarni said the analyst consensus on Uber’s FCF for 2024 is about $4.5 billion, while the analyst sees a pathway to over $5 billion in FCF based on the company’s recent track record of incremental margins. (All figures in US dollars.)

“Despite UBER’s +90 per cent year-to-date performance, we reiterate our Buy rating on the shares given accelerating FCF generation ahead along with potential non-fundamental catalysts (S&P 500 addition, stock buybacks, corporate development actions),” Kulkarni wrote.

Uber finished its 2022 year with revenue up 83 per cent over 2022’s numbers, with adjusted EBITDA at positive $1.713 billion compared to negative $774 million in 2022. Free cash flow (FCF) also moved into the black at $390 million versus negative $743 million a year earlier.

More good news came with its first quarter 2023 report in May, where revenue was up 29 per cent to $8.823 billion and adjusted EBITDA went to $761 million for the quarter compared to $168 million a year earlier. FCF was reported at $549 million compared to negative $47 million for Q1 2022.

On new revenue sources, Kulkarni said Uber could generate over $1.25 billion in advertising revenues and over $1.75 billion in subscription revenues next year.

He pointed to Amazon, whose ad revenues represent about seven per cent of its GMV, and said that if Uber gets to one per cent of GMV, that would put ad revenues at over $1.6 billion in 2024.

On subscribers, Kulkarni noted DoorDash, which has about 50 per cent of users paying monthly subscriber fees, and he reasoned that if Uber could get monthly subscriptions from ten per cent of its users it could generate over $1.8 billion in subscription revenue in 2024.

With the update, Kulkarni raised his 12-month target on UBER from $46 to $59 per share, representing at press time a projected return of 30 per cent.