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Is UBER Stock a Buy Post the $1.5B Accelerated Share Buyback Launch?
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Shares of Uber Technologies (UBER - Free Report) gained 2.7% on Jan. 6, closing the trading session at $66.31. The uptick followed a significant move by the company to return value to its shareholders. UBER announced that it would start an accelerated $1.5 billion stock buyback program. To this end, the San Francisco, CA-based ride-hailing company entered into an accelerated share repurchase ("ASR") agreement with Bank of America (BAC - Free Report) .
Digging the Details of UBER’s Accelerated Share Repurchase Agreement
The $1.5 billion plan is part of the company's $7 billion buyback program, which it announced last year. We remind investors that the $7 billion share repurchase authorization is the first such program in the company's history.
Under the ASR agreement, Uber will pay $1.5 billion to Bank of America and is likely to receive more than $18.5 million shares. This represents about 80% of shares Uber plans to buy back under the accelerated plan. The entire transaction is likely to be wrapped up by the end of the first quarter of 2025.
With this bold initiative, UBER is not only enhancing shareholder value but also signaling confidence in its ongoing business strategy. CFO Prashanth Mahendra-Rajah termed the $1.5 billion accelerated share buyback a "value-enhancing" move as he believed that Uber stock is undervalued relative to the business's strength.
Going by the forward 12-month price/sales ratio, the company’s shares are currently trading at levels lower than its industry and also its 5-year median.
Image Source: Zacks Investment Research
Timing of UBER’s Buyback Plan Shows Prudence
UBER shares have declined 13% over the past three months, underperforming its industry and rival Lyft (LYFT - Free Report) .
Image Source: Zacks Investment Research
Uber shares have dropped on concerns that self-driving cars could eliminate intermediary services. Plans unveiled by Google's (GOOGL - Free Report) Waymo to expand its robotaxi (autonomous vehicle) service to Miami have increased investor worries about heightened competition in the rideshare market, hurting UBER stock. Donald Trump’s plans to push for a federal framework supporting self-driving vehicles have also hit UBER shares.
The current buyback announcement, signaling confidence in business, is therefore perfectly timed.
Favorable Earnings Estimate Revisions for UBER
Earnings estimates for 2024 have moved up 80% to $1.89 over the past year, while the same for 2025 has improved 45.4% to $2.53. The positive estimate revision depicts bullish sentiments for UBER stock.
Image Source: Zacks Investment Research
UBER’s Prospects Remain Healthy
Even though Uber’s primary business is ride-sharing, it has diversified into food delivery and freight over time. Diversification is imperative for big companies to reduce risks, and UBER has excelled in this area. It has engaged in numerous strategic acquisitions, geographic and product diversifications and innovations.
Uber’s endeavors to expand into international markets are commendable and provide it with the benefits of geographical diversification. Prudent investments enable Uber to extend services and solidify its comprehensive offerings. Uber’s ride-sharing as well as delivery platforms are growing in popularity. This is generating strong demand, which, along with new growth initiatives and continued cost discipline, are driving the company’s results.
It Still Isn’t an Opportune Time to Buy UBER Stock
Despite the above-mentioned tailwinds and the buyback-related announcement, there are a couple of factors that keep us cautiously optimistic. We are concerned about Uber’s high debt levels. Long-term debt increased 31.5% to $11 billion at third-quarter 2024-end from 2019.
Image Source: Zacks Investment Research
The slowdown in UBER’s gross bookings, as witnessed in the third quarter of 2024, raises grave concerns. Total gross bookings in the September quarter increased 16% year over year to $41 billion. The year-over-year growth was less than the 19% witnessed in the second quarter of 2024, highlighting the growth slowdown.
Uber expects gross bookings in the final quarter of 2024 to have been hurt by currency-related headwinds. Uber, which dominates the North American ride-sharing market, is likely to increase its focus on suburban markets to drive growth amid fears of market saturation.
Considering all factors, we believe it is preferable to stay on the sidelines for this Zacks Rank #3 (Hold) stock currently.
Image: Bigstock
Is UBER Stock a Buy Post the $1.5B Accelerated Share Buyback Launch?
Shares of Uber Technologies (UBER - Free Report) gained 2.7% on Jan. 6, closing the trading session at $66.31. The uptick followed a significant move by the company to return value to its shareholders. UBER announced that it would start an accelerated $1.5 billion stock buyback program. To this end, the San Francisco, CA-based ride-hailing company entered into an accelerated share repurchase ("ASR") agreement with Bank of America (BAC - Free Report) .
Digging the Details of UBER’s Accelerated Share Repurchase Agreement
The $1.5 billion plan is part of the company's $7 billion buyback program, which it announced last year. We remind investors that the $7 billion share repurchase authorization is the first such program in the company's history.
Under the ASR agreement, Uber will pay $1.5 billion to Bank of America and is likely to receive more than $18.5 million shares. This represents about 80% of shares Uber plans to buy back under the accelerated plan. The entire transaction is likely to be wrapped up by the end of the first quarter of 2025.
With this bold initiative, UBER is not only enhancing shareholder value but also signaling confidence in its ongoing business strategy. CFO Prashanth Mahendra-Rajah termed the $1.5 billion accelerated share buyback a "value-enhancing" move as he believed that Uber stock is undervalued relative to the business's strength.
Going by the forward 12-month price/sales ratio, the company’s shares are currently trading at levels lower than its industry and also its 5-year median.
Timing of UBER’s Buyback Plan Shows Prudence
UBER shares have declined 13% over the past three months, underperforming its industry and rival Lyft (LYFT - Free Report) .
Uber shares have dropped on concerns that self-driving cars could eliminate intermediary services. Plans unveiled by Google's (GOOGL - Free Report) Waymo to expand its robotaxi (autonomous vehicle) service to Miami have increased investor worries about heightened competition in the rideshare market, hurting UBER stock. Donald Trump’s plans to push for a federal framework supporting self-driving vehicles have also hit UBER shares.
The current buyback announcement, signaling confidence in business, is therefore perfectly timed.
Favorable Earnings Estimate Revisions for UBER
Earnings estimates for 2024 have moved up 80% to $1.89 over the past year, while the same for 2025 has improved 45.4% to $2.53. The positive estimate revision depicts bullish sentiments for UBER stock.
UBER’s Prospects Remain Healthy
Even though Uber’s primary business is ride-sharing, it has diversified into food delivery and freight over time. Diversification is imperative for big companies to reduce risks, and UBER has excelled in this area. It has engaged in numerous strategic acquisitions, geographic and product diversifications and innovations.
Uber’s endeavors to expand into international markets are commendable and provide it with the benefits of geographical diversification. Prudent investments enable Uber to extend services and solidify its comprehensive offerings. Uber’s ride-sharing as well as delivery platforms are growing in popularity. This is generating strong demand, which, along with new growth initiatives and continued cost discipline, are driving the company’s results.
It Still Isn’t an Opportune Time to Buy UBER Stock
Despite the above-mentioned tailwinds and the buyback-related announcement, there are a couple of factors that keep us cautiously optimistic. We are concerned about Uber’s high debt levels. Long-term debt increased 31.5% to $11 billion at third-quarter 2024-end from 2019.
The slowdown in UBER’s gross bookings, as witnessed in the third quarter of 2024, raises grave concerns. Total gross bookings in the September quarter increased 16% year over year to $41 billion. The year-over-year growth was less than the 19% witnessed in the second quarter of 2024, highlighting the growth slowdown.
Uber expects gross bookings in the final quarter of 2024 to have been hurt by currency-related headwinds. Uber, which dominates the North American ride-sharing market, is likely to increase its focus on suburban markets to drive growth amid fears of market saturation.
Considering all factors, we believe it is preferable to stay on the sidelines for this Zacks Rank #3 (Hold) stock currently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.