Despite taking shareholders on a very bumpy ride, Uber (NYSE: UBER) has been a huge winner. In the past 24 months, since August 2022, shares of this growth tech stock have skyrocketed 121%. Investors would've more than doubled their money owning this business, compared to a 34% return from the S&P 500 index.
But is now the right time to buy Uber?
Financial performance
It's hard to ignore the ongoing macroeconomic uncertainty worrying investors. Inflation is still well above the Federal Reserve's 2% target, and high interest rates are still causing fears of a recession. This unaccommodating backdrop makes Uber's results -- which topped Wall Street estimates -- that much more impressive.
Revenue increased 16% year over year in the second quarter (Q2 2024 ended June 30), driven by strong double-digit gains in trips, monthly active users, and gross bookings on both the mobility and delivery side.
"Based on what we're seeing today, the Uber consumer is in great shape," CEO Dara Khosrowshahi said on the Q2 2024 earnings call . "Our audience is bigger than ever and using our services more frequently than ever."
The Q2 top-line gain comes on the heels of a 17% revenue jump in 2023. The COVID-19 pandemic certainly created a major disruption for the company. However, Uber has bounced back in an impressive way.
And what was once a money-losing enterprise has now been upgraded into a profit-making machine. Through the first six months this year, Uber generated $968 million in operating income. This was 15-fold more than the same period in 2023.
Uber's showing that it can scale up its business model in a lucrative way. Its big operating expense items, like sales and marketing as well as research and development, decreased in the second quarter compared to Q2 2023. It's no wonder the bottom line is expanding rapidly.
Economic moat
To be clear, investors need to pay attention to the competitive nature of the industry. There are of course direct rivals like Lyft and DoorDash . But when it comes to mobility, consumers can choose to drive, take a taxi, walk, bike, or use public transportation. On the delivery side, people can buy groceries or go eat at a restaurant.
Despite this setup, Uber has built an economic moat that protects its competitive position in the market. it completed almost 2.8 billion trips and had nearly $40 billion in gross bookings in Q2. And its services are available in more than 10,000 cities across the world. This wide reach is unmatched.
As a result, Uber benefits from powerful network effects . Riders go to the platform because it has a dense population of drivers available. And drivers choose to work for Uber because of its huge rider base. The network becomes more valuable for both stakeholders the bigger it gets.
Uber's valuation
After Uber's monumental performance in the last two years, it might be surprising that the stock isn't egregiously expensive. It trades at a forward price-to-earnings ratio of 31.6. This does represent a 16% premium to the Nasdaq 100 Index .
But I think it might still make sense to scoop up shares. According to Wall Street consensus analyst estimates, Uber is projected to increase its earnings per share at a compound annual rate of 52% between 2023 and 2026. This means that the current valuation becomes more and more compelling as the bottom line expands considerably going forward.
While it's always a good idea to take forecasts like this with a grain of salt, Uber's current trajectory makes it easy to be optimistic.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash and Uber Technologies. The Motley Fool has a disclosure policy .
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