Activist billionaire investor Bill Ackman revealed a $2.3 billion investment in Uber Technologies (UBER) last week. It quickly erased all the doubts the market had about the ride-share leader's recent earnings report as shares of UBER stock are up 20% since Ackman's stake was revealed.
Yet Uber still faces a challenging future as its autonomous vehicle plans are going slower than expected, which was what sent its stock down in the first place. Ackman obviously sees something beyond those concerns, so let's see what that might be.
Ackman wrote on X, "We believe that Uber is one of the best managed and highest quality businesses in the world. Remarkably, it can still be purchased at a massive discount to its intrinsic value. This favorable combination of attributes is extremely rare, particularly for a large cap company."
He revealed he began acquiring his 30.3 million share stake in Uber in the beginning of January. Ackman now owns 1.4% of the company and it is now the largest position in his portfolio.
That's typical of Ackman's investment style. His Pershing Square Capital Management hedge fund has $13 billion in assets under management and he likes to take big swings at a small handful of stocks. His portfolio currently owns 11 stocks, including UBER stock.
Ackman is also known as an outspoken advocate for change at companies, though in recent periods he has shown a preference for being a passive investor. Considering his complementary comments about management, it seems clear that's the path he is taking here.
Uber Technologies is enjoying strong gross bookings growth, with mobility and delivery both rising 18% from last year. The ride-share leader is guiding Q1 2025 bookings to continue increasing by 17% to 19%, a range that implies $42 billion to $43.5 billion in gross bookings.
More importantly, Uber has become a solidly and consistently profitable company. In the fourth quarter, it produced almost $10 billion in net income, up from nearly $2 billion a year ago.
The problem is its autonomous vehicle ambitions are taking longer than anticipated. It seemed to go against the accelerated timeline Uber suggested it would see after partnering with Nvidia (NVDA).
That's why Ackman revealing his stake in Uber was so fortuitous. It helped break it out of a downward spiral it has been on. UBER stock still trades 12% below its all-time high hit last October.
Certainly the autonomous vehicle market provide large growth opportunities to expand its services. Instead of AV makers needing to develop a ride-summoning platform on their own, they could incorporate Uber into their vehicle. Uber is partnering with several such companies including Waymo and WeRide.
Because Uber now generates significant free cash flow, some $1.7 billion in Q4, it is able to invest more money into the business as well as return value to shareholders. Uber said it launched an accelerated $1.5 billion stock buyback program under its existing $7 billion authorization. It makes Ackman's purchase look like a smart buy at these prices.
