Wall Street has been laser-focused on the bright side of Uber's (UBER) shares as a post-pandemic reopening play. The company hopes to achieve continued positive EBITDA after hitting that goal for the first time in the third quarter.
Analysts are bullish on continued stock momentum, with 45 buy recommendations, five holds, and no sells. The average price target is 85% above the current share price.
The problem is that Wall Street analysts are missing the big picture: Ride-hailing may be dramatically altered by advancements in autonomous driving in the next few years. Uber will be challenged by deep-pocketed, technologically sophisticated companies entering the industry in the foreseeable future.
The problem for Uber investors is the uncertainly of the industry's future.
So, will today's Uber driver be this generation's toll booth collector -- a job slowly driven to obsolescence by technology? The vision of fleets of robotaxis roaming cities, picking up and driving passengers, is being chased by numerous tech companies, including Alphabet's (GOOGL) Waymo division, Apple (AAPL) , Cruise (majority-owned by General Motors (GM) ), Argo AI, Mobileye, and Tesla (TSLA) . With this much engineering R&D employed to solve autonomous driving, it would be a mistake to dismiss these efforts as too far in the future.
Last year, to focus on profitability, Uber sold its under-development autonomous-drive subsidiary to Aurora Technologies. Uber maintains a stake in Aurora and will likely be part of an autonomous future in some form. However, while ride-hailing is dominated domestically by Uber and Lyft (LYFT) , several companies will deploy their own fleet of robotaxis down the road.
Competitors are making steady progress with potential autonomous deployment dates upcoming:
- Lyft has partnered with Argo AI and Ford (F) in hopes to bring autonomous driving to Miami and Austin in 2023.
- Waymo has an ongoing autonomous ride-hailing service outside of Phoenix and has a trial service in San Francisco.
- Cruise has applied for a nighttime ride-hailing service in San Francisco expected to begin in 2022 and a deal for a robotaxi service in Dubai in 2023.
- Apple is reported to unveil a fully autonomous car by mid-decade.
- Mobileye is working on deploying a ride-hailing service, eager to justify a premium price when the company likely goes public in mid-2022.
- Tesla has continued to beta test "full self-driving" software in their vehicles.
- Several companies have also unveiled sophisticated mapping technology to facilitate a robotaxi roll-out to any urban area.
Many cities are likely to welcome the efficiency of an electric fleet of autonomous vehicles when proven safe. Plus, the superior pricing and consistency will help to drive consumer adoption.
What appears as a ride-hailing duopoly on the cusp of profitability is sure to become a larger field of dominant companies looking for market share.
Nobody knows how and when companies will fully develop deployable fleets of robotaxis. But, with significant resources and focused engineering, companies are making discernible strides. The problem for Uber investors is the uncertainly of the industry's future. What appears as a ride-hailing duopoly on the cusp of profitability is sure to become a larger field of dominant companies looking for market share.
With a market cap of $75 billion, Uber is still unprofitable and trades at 3x next year's expected sales. While the multiple to sales looks reasonable, expanding profit margins have been a question mark, and cash flow has yet to turn positive. Since going public in 2019, net cash has flipped from positive $4 billion to negative $4.5 billion -- owing to losses and acquisitions. Next year's cash flow may turn positive by the second half, which may be something to cheer in the short-term.
The economics of robotaxis can prove to be far superior to current ride-hailing. Cruise has unveiled a completely vertically integrated business while other companies have partnered for end-to-end integration. Uber will likely participate in a profitable autonomous business as well. Apple, of course, is highly secretive of its intentions but could loom large in the industry.
For Uber's stock, Investors may want to ignore Wall Street's bullishness, have a wary eye on developments in autonomous driving, and keep one foot out the door.