TIP844: Uber (UBER): The Autonomy Referendum — Is Mr. Market Completely Wrong? w/ Daniel Mahncke & Shawn O’Malley

SPEAKER_1 (0:00)

You're listening to TIP.

Daniel Mahncke (0:03)

Welcome back folks to The Investor's Podcast, episode 844 And today is a special one because we're not pitching a new company. We're here to discuss a company that I feel gets referenced in nearly every episode that we do. So it definitely deserves to be actually be revisited with a full update, especially since it's one of the largest holdings in our intrinsic value portfolio of stocks. So for context, last year, Shawn, you pitched Uber to me and we added it to the intrinsic value portfolio with some pretty good timing. It was around the time when the market sold off over terror fears last April, which by now feels like a decade ago. And I would say both of us, including our colleague Stig, have become increasingly excited about Uber's long term prospects, while the stock on the other side has been basically flat since we first looked at it. So bookings are compounding at around 20% a year, the user base is growing at 16% a year, and free cash flow is running at $10 billion annually. And the company is buying back billions in stock, just $3 billion last quarter alone, shrinking the share count, which is something that we always like to see with our portfolio holdings. And the stock has gone again, basically nowhere. Recently, we just did an episode talking about our biggest losers and our biggest winners. And Uber didn't make the cut because again, it didn't fit into the conversation because it has just been flat. And so maybe the stock was just a bit too richly valued a year ago, but now, as the fundamentals have actually continued to catch up. And we've gotten more clarity on how Uber will partner with all of the AV companies out there to strengthen the platform. I think the question we're asking ourselves today is whether this opportunity has only gotten more attractive, or if there's actually something that we're missing, where we might have been blinded by our own confirmation bias. So I would say we just listen to your thoughts on the risks facing Uber the first time we cover the company.

Shawn O'Malley (1:51)

So don't make the same mistake. I made of writing off this company because of distant fears around automation. That is sort of my message up front to the audience. And at least listen to the rest of this episode before you make up your mind on whether Uber is a good company to own.

Daniel Mahncke (2:05)

Fifteen months later, the entire market seems to be making exactly the mistake you warned us about. Or maybe that could also be the case. We've just underestimated the threat of automation to Uber's specific business model. And I gotta say, I find myself jumping a bit from being very bullish on the company to being slightly in doubt.

And I gotta say, that's never a good sign for you as an investor. Which is also why I look forward to this episode so much. Because it does give us the opportunity to dig really deep into Uber again. And I'm also quite sure that you've got some very important updates for us today, right?

Shawn O'Malley (2:36)

Yeah, that's right. When we pitched Uber in April of last year, the company traded at around 55 times its operating profits, which was a rich price, admittedly.

Unless you were as bullish on the company's growth as at least I was. And today, now that valuation multiple is at 22 times operating profits, which is much, much more reasonable. So over that same period of time, profits have roughly doubled. So the business doubled, but the multiple got cut by more than half, and then the stock went sideways. So that alone has me feeling very bullish. But all that is for not if the terminal value of Uber is in peril.

SPEAKER_1 (3:20)

Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.

We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only.

All opinions expressed by hosts and guests are solely their own, and they may have investment in the securities discussed. Now for your hosts, Shawn O'Malley and Daniel Mahncke.

Shawn O'Malley (4:06)

So for anybody new to Uber, how about we start with a 60-second refresher on the company. Uber is the world's largest ride-hailing platform. But it is really three different businesses. Mobility is the rides business, we all know. There's delivery, and that refers to Uber Eats, and actually now includes a growing list of grocery shops and retailers beyond just restaurant delivery.