We believe the market is underestimating the competitive position and earnings potential that Uber Technologies (UBER, Financial) has in its core Rides and Eats businesses. Uber holds the #1 position in 90% of its rideshare markets globally and is typically more than twice the size of its next competitor. Having the largest and most dense driver network is a key advantage as it enables Uber to offer shorter pickup times and lower prices than competitors while also earning higher margins. We believe the synergies between Rides and Eats will further improve Uber’s service quality and cost position. In recent years, competition from well-funded but unprofitable challengers has pressured Uber’s economics. However, as these challengers are forced to compete more rationally, we expect Uber to generate significant margin improvement alongside continued high growth. We began buying shares at just over 1x revenue and a double-digit free cash flow yield based on management’s guidance for 2024. We view this as an attractive valuation for a business with Uber’s future growth outlook.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund third-quarter 2022 commentary.
