Uber Shares Sink on Outlook. Is It Time to Buy the Stock on the Dip?

Shares of Uber Technologies (NYSE: UBER) were down 7.6% on Feb. 5 after the company reported Q4 results. Though shares quickly recovered later in the week, the stock is still down about 20% from its all-time high as of this writing.

Let's dip into the company's recent results to see if its worth buying into this industry leader.

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Bookings guidance disappoints

In Q4, Uber's revenue climbed 20% year over year to $12.0 billion, topping the $11.8 billon analyst consensus. Mobility revenue, which includes its core ride-share business, soared 25% to $6.9 billion, while delivery revenue, home to Uber Eats, jumped 21% to $3.8 billion. Freight, its smallest segment, saw revenue unchanged at around $1.3 billion.

Gross bookings, which is the total value of services that go through the company's platform (excluding tips), rose 18% to $44.2 billion with equal growth from the mobility and delivery segments. The number of trips also increased 18% year over year, and monthly active platform consumers were up 14%.

Looking at profitability, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 44% to $1.8 billion.

Uber is guiding for Q1 gross bookings of $42.0 billion to $43.5 billion, falling just shy of analysts' expectations. Meanwhile, it's guiding for adjusted EBITDA to come in between $1.79 billion and $1.89 billion, representing 30% to 37% growth.

The company remains confident in its three-year outlook calling for mid-teens to high-teens gross booking growth and 30% to 40% profitability. However, it noted it was seeing pressure due to insurance cost increases. It's implementing safety technology, such as driver-insights dashboards, to help mitigate the higher expense.

Meanwhile, Uber will partner with Alphabet's Waymo to launch driverless ride-share vehicles in Austin and Atlanta this year. Management says this technology is advancing, but the company still thinks commercialization will take a long time as hardware prices need to come way down.

Uber sees autonomous driving being able to serve 10% to 15% of the market over the next five years, and then expanding from there. Overall, though, it views the technology as a $1 trillion opportunity in the U.S., but five things need to happen.

First, there needs to be regulations. Second, lawmakers must be comfortable with the technology and its safety. Third, hardware costs must come down significantly. Fourth, there needs to be a sufficient operation to handle things like charging, maintenance, and cleaning. And finally, there needs to be a network in place that can handle fluctuating levels of demand everyday.

Image source: Getty Images

Is it time to buy the dip?

Uber's biggest problem right now is that investors are unsure of where the company fits into a world slowly moving toward autonomous driving. Waymo is already offering paid robotaxi rides in various cities, while Tesla has big ambitions in the space. Uber has a lot of data that can be used to efficiently deploy a fleet of robotaxis, but over time, companies like Waymo and Tesla could also acquire that knowledge.

The company appears to be trying to position itself as the ground operation that will handle a network's day-to-day needs like charging and cleaning while running mixed fleets of vehicles (with both human drivers and autonomous systems). But is this a long-term arrangement Waymo and Tesla will be happy with? The company's partnership with Waymo as it enters Austin and Atlanta should shed light on ways Uber will adapt its business and prove its worth long term.

That said, it will take many years for these changes to play out. Tesla doesn't have any paid robotaxis on the road, and Waymo's existing hardware still costs hundreds of thousands of dollars. In five years, Uber's business is likely to look pretty similar to how it does today.

From a valuation perspective, the stock trades at a forward price-to-earnings ratio (P/E) of 20 times based on analysts' estimates for 2025.

Data by YCharts.

Uber has time to position itself in the evolving ride-share market, and the stock looks inexpensive as of this writing. Based on the company's current trajectory, investors can enjoy years of solid returns before having to face any uncertainty that driverless technology may bring.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.