Written by Jackson Stebbins
Uber Technologies Inc. (NYSE: UBER) has come a long way since its IPO. Initially falling victim to the trend of recent startups that see their share price slide following their public debut, they have begun to claw their way back in an unbelievable run that has investors noticing. With Uber shares rising over 30% during the month of November alone, Uber has found itself affixed in finance headlines all across the country. Besides a strong recent earnings call, what is so great about their business model that can continue to generate all this buzz?
Founded in 2009, Uber currently operates on a near global scale, besides the notable exclusion of China and Southeast Asia (Vole, 2024). Although the overarching theme between all three is commissioning, their business model is actually split into three different streams: Mobility, Delivery, and Freight.
“Mobility” is the sector that is associated with Uber by most of the public. It allows customers to call for rides on demand through their phone, akin to their mission statement, “make movement happen at the tap of a button”. (Heiligenstein, 2022) Transportation through Uber is more convenient for a consumer than a taxi because it is easily accessible through an app and connects them with a huge network of drivers, over 5 million worldwide. Additionally, Uber employs dynamic pricing for its rides, allowing them to raise prices significantly (called a surge rate in the app) once demand begins to exceed supply, allowing them to stay perfectly efficient and maximize profits. Uber has also partnered with companies such as Hertz, Avis, Budget, and Enterprise to allow both drivers and consumers to rent cars as needed (Toppe, 2023). Even more recently, Uber has begun partnering with local taxi companies across major downtown areas including New York City, Rome, Paris, and Los Angeles now listing their taxi drivers in the app. The famous black “cabbies” of London were the most recent partnership, allowing the near 15,000 drivers to begin signing up for Uber ride referrals. Although taxis are already on the Uber app in 34 countries, the company has stated that they hope to have “every taxi in the world” as a part of their network as early as 2025 (Thorbecke, 2023). Finally, Uber now has its own subscription model called Uber Pass that gives users discounted rides and rentals, incentivizing users to stick with Uber and creating a level of stability for the company.
The “Delivery” sector functions primarily out of a subsidiary of Uber, Uber Eats. Uber Eats is a direct competitor to other food delivery technology companies such as Doordash, Grubhub, and Instacart. In 2020, Uber solidified its position as the second largest of these companies with their acquisition of Postmates for 2.65 billion dollars, citing their commitment to horizontal integration and commitment to this sector of their business model (Guszkowski, 2020). More recently in 2021 they partnered with Gopuff, a company that uses micro fulfillment centers to allow consumers to get essentials delivered to them at a rate much quicker than other businesses (Gopuff, 2021).
Uber Eats is able to use the same driver network as the Uber app, creating synergies between their two streams, and allowing for users to take full advantage of what the company has to offer. It also benefits from the Uber Pass, providing consumers with free delivery, reduced fees, and frequent discounts to increase customer loyalty. Furthermore, both apps also collect massive amounts of data based on user ride and food preferences. Not only does this allow the apps to become more personalized to the user and enhance overall user experience, but it also allows for the company to use data monetization as an additional source of revenue.
Finally, the “Freight” sector, unfamiliar to most typical Uber users, works to connect shippers to carriers digitally, allowing for more transparency in pricing and availability, and increasing convenience through their user-friendly platform. One of their company values is “Innovate with Purpose”, shown through their recent creation of a proprietary AI- Optimized network that was created to further streamline operations (Murphy, 2023). They are also investing heavily in autonomous vehicles and electric vehicles, two segments that seem poised for growth in the future.
Despite Uber’s recent rally, it appears that Wall Street doesn’t quite think that they are finished. Uber was recently added to the S&P 500, a huge development for a company that some believe may be enough to continue to drive their growth. Morgan Stanley, JP Morgan, Wells Fargo, and KeyBank all maintained their Overweight rating for the stock during the month of November, while new funds including Seaport Global initiated buy ratings (Maybach, 2023). Price estimates for the stock remain slightly less optimistic, however, with experts polling a median target price of $62 a share, just dollars above the current share price hovering near $60 a share at the time of writing. It currently remains unclear whether or not their diversification of cash flow and expansion of their business model will continue to be enough to sustain long term growth, but for now they have seen some incredible short term success.
References
Heiligenstein, M. X. (2022, April 15). Uber Mission Statement, Vision, and Values. Firewall Times. https://firewalltimes.com/uber-mission-statement-vision-values/
Maybach, G. (2023).Seaport Global Initates Coverage of Uber Technologies https://fintel.io/news/seaport-global-initiates-coverage-of-uber-technologies-uber-with-buy-recommendation-970
Murphy, T. (2024, January 9). Uber Freight founder and CEO Lior Ron on how AI will transform logistics. Uber Freight. https://www.uberfreight.com/blog/how-ai-will-transform-logistics/
Romeo, P. (2023, December 13). Uber Eats completes Postmates acquisition. Restaurant Business. https://restaurantbusinessonline.com/technology/uber-eats-completes-postmates-acquisition
Thorbecke, C. (2023, November 29). Uber announces partnership with London’s iconic black cab taxis. CNN. https://www.cnn.com/2023/11/28/business/uber-london-black-cab-partnership/index.html
Toppe, J. (2023, June 8). Uber enters car rental market. Fox Business. https://www.foxbusiness.com/markets/uber-enters-car-rental-market
Uber and Gopuff Partner to Bring Everyday Essentials to Uber Eats. (n.d.). Retrieved January 3, 2024, from https://www.gopuff.com/newsroom/company-news/uber-and-gopuff-partner-to-bring-everyday-essentials-to-uber-eats
Volle, A. (2023, March 3). Uber. Encyclopedia Britannica. https://www.britannica.com/topic/Uber