Uber Stock is a Strong Buy + Ackman's Top Position

Good day, fellow investors. Bill Ackman's new letter is out. Six new positions, but we'll discuss that tomorrow. Today, I want to focus a little bit on strategy and go in detail into Uber because it's a very positive risk and reward investing situations, Bill Ackman's top position, and you have to see how it might fit your portfolio. Just for reference, I'm an investment researcher. I look at businesses. I'm looking for compounders, but also from a value investing perspective, which means looking for a margin of safety. I run three portfolios on my research platform, working now on expanding the diversified portfolio. Therefore, a lot of research to narrow it down to the best ones. And therefore, I'm always interested in what Bill Ackman is doing, discuss the situation there, perhaps look into the opportunities. He is now diversified from Amsterdam, switching to London, now listed also in the US, both his asset management company and the fund, but he has beaten the market over the last 23 years, done really well, better than the S&P 500. You can see it here. However, it's important to note that for the past 15 years since the new IPOs, permanent capital, etc., he did not beat the market because from 2012, actually, the S&P did 15% while the compounded annual return is 12.5% for Bill Ackman. But all on aggregate, he's still doing great based on the early bets. Last 12, 14 years have not been that great, but there is always something interesting going on with Bill. If we look at his statement, what's going on with the current situation at Pershing. The stock price declined, net asset value per share declined, and some of the stocks went down, and then the discount to net asset value also widened. They are buying back shares, which is something they think there is a huge discount there. Did some very interesting portfolio changes, added six stocks, and he believes that the price is below intrinsic value. There is some debt that he's investing a little bit with leverage. There is some discount to net asset value, but keep in mind the fees are 1.5% plus 16% performance. When you sum up those fees over a decade, that's your 20-40% discount to net asset value. So, this can never trade at net asset value. He says that in the short term prices are often disconnected from intrinsic values, and that's what we're going to discuss, especially with Uber today. His target is earnings per share annual run rate of 15% or more in the next 3 to 5 years, and half of those companies that he discusses expect EPS growth of 20% or more in the same period. Why this level discount to NAV? But okay, it looks like Bill is always in the search for the next Amazon. Of course, we all are. Uber might be the next Amazon of logistics, delivery, and of course, the basis, the drive. If we look a little bit at the investments, the estimated growth rate for Uber is 25% for others between 15 and 24. A little bit lower on these great businesses that have been recently added, but still in the high teens. If this is met, much higher than the S&P 500, better valuation than the S&P 500, he will do great. And let's dig into Uber. If we look at the stock price, it is a little bit down from the peak of approximately a year ago. P/E ratio according to this is 16. We will adjust it a little bit, but we are not far from that at 19 20 given the stock base compensation and everything. For a company growing double digits, and if they can keep their moat that they currently have with the autonomous vehicles, this will be a great investment. So, Uber is on pace to grow 35% this year. The autonomous vehicle might be integrated with Uber or be a concern, but given the scale it already has, the business is going on, the business is growing, it might be more positive than not. If we look a little bit at earnings, they have just acquired Delivery Hero to go into that delivery of food, expanding their markets, combining all that logistics delivery drive network into one platform so that they become the go-to platform for all those vehicle fleets with autonomous drive with or not that use them so that they become capital light business, huge return on capital, scale growth. If they can build that, the upside is big. They are partnering with Lucid, [snorts] Vern, for example, also in Croatia. We have now This is already launched in April 2026. So, this should be green because there are robotaxis there already with Rimac and everything. So, they are in Zagreb driving to the airport. You can take a robotaxi. By Croatian law, there has to be a driver for safety, but for now, I've heard some stories it is working. Apart from that, that's still a small part of the business. The business is growing huge great growth rates, trips, everything. Gross bookings 22% growth. That's amazing. Revenue 11% on a constant currency growth slowing down a little bit, but if you look at operating income, as this is a business that is supposed to scale, they have 40% growth, earnings per share 45% growth. Of course, non generally accepted accounting principles, but we can discuss that immediately. Revenue growing, all looks good. Profitability, they have finally after more than a decade they have reached good profitability. If they can now scale, it will be great. I'm looking a little bit at the balance sheet. You can see here additional paid in capital. There is a significant number, 40 billion more than 40 billion is what they have burned up till now, but the deficit is declining, which means they are profitable now. And that is a big turning point in any company. However, if we look at the cash flows, we have the profits and then we have to calculate some other things. Stock based compensation, 1 billion. Compensation is a cost. Don't get confused, that has to be deducted and we will double it because these are grants issued at IPO prices, lower stock prices to just keep the dilution Uber has to spend double of that. But again, on the network scale, it will be likely a fixed stock based compensation, therefore 10 15% of the business intrinsic valuations. You'll see later. There are some insurance reserves that they are reinvesting because they need to put those in insurance, but the claims are not happening, which is also then a positive. Nevertheless, all the money extra is used for now acquisitions, some acquisitions of businesses, now big with Delivery Hero, but repurchases of common stock, some swaps and things like that. All in all, if I calculate the repurchases of common stocks over the last 6 months, plus some other free cash flow calculations, I get to 4 billion. They say 10 billion of free cash flows minus 2 billion of stock-based compensation, then they will grow likely this year. So, we'll discuss that. However, let's say they get to 8 billion of free cash flows per year. 8 billion of free cash flow price to free cash flow of 20, which is really good. And that is in line with Bill Ackman's 19 times earnings, near its lowest ever valuation. Let me just discuss the stock-based compensation adjustment. We discussed this in a specific video how it impacts companies today. It takes away 10 to 15% of S&P 500, even more of Nasdaq's true owners' earnings. Because when you look at approximately 2 billion of stock-based compensation for Uber, but if you look at the number of shares declining, the decline rate is just 1.5%, but on the buybacks, they did spend 6.5 billion, which is 4.1% of the market capitalization. If you spend 4.1%, then the number of shares outstanding should go down by 4.1%, but those went down just by 1.5%. If you give away 2 billion of stocks, that's just 1.2% of the company. However, if I look a little bit at they spent 3.5 billion in the last 6 months, and this is the stock-based compensation situation. The cost of stock-based compensation in the accounting is the share price at the grant date. If they have to repurchase at a higher date, then the stock-based compensation expense is actually more than double depending on where the stock price is. So, according to my calculations, 8 billion free cash flow, if we take into account the growth rate, the 10 billion, 2 billion invested, okay, 8 billion. Then, if we deduct 2 billion of stock-based compensation and 2 billion of buybacks, I get to 4 billion of true free cash flow. But, investing is not about now, it is about the future. And we'll see later in the intrinsic value calculation how I'm going to adjust. I'm going to assume 4 billion that goes to the management per year, and I'm going to assume the 8 billion of free cash flow growing at 20%. It is not such a tragic impact as it looks now in the future if things go well. Because, when it comes to the future, Uber should be the autonomous aggregator of all the supply into one platform. If they make it, it's a win situation for investors. And that's also what Bill Ackman is betting on. The risk is that all these providers bypass Uber, "Oh, you don't need to pay, but we still have booking, we still have this, we still have that." We'll see how it goes that there is regulation offering less monopolistic pricing, perhaps. High capex leads into building their own fleet and things like that. These are uncertainties or risks that we cannot yet know at the moment and we'll see how it develops over the next years. But, keep in mind the risk. If we go calculate the intrinsic value, 8 billion cash flows for now, 4 billion goes to cover the stock-based compensation, but that 4 billion should remain at 4 billion over time. Free cash flows grow at 20% per year, then we are at a great return. Based on share, four earnings per share or free cash flow per share growing at 20 minus just two per share per year for the subsequent future. Here is my intrinsic value template. You can download it for free in my free value investing course. I have added here Uber. You just click here, you go to the template, and here we have it. Free cash flow per share, I have left it at four. Growth rate 20% for the first five years, then 15% going forward. The P ratio stays where it is. The intrinsic value is 118. Compare it to the current stock price, you will get a great return. By 2045, you can have practically a 4x on your money just based on that. And just here, where I calculate the terminal value, I have deducted the $2 per share in stock-based compensation that now look big on an earnings of four, but not that significant on earnings per share of 15 down the road. If we go to more exuberant growth rates and Uber really becomes the platform of the future, and even I download it on my app, the P ratio goes a little bit higher, the present value is insane compared to the current stock price, and you can almost hit a 10x over the next 10 years. This is the Amazon situation scenario. Then, if we go to probabilities, perhaps I should change the probabilities. Let's say the standard scenario, 50%. Let's say 25% the best case Amazon scenario. And let's say the worst case scenario where Uber doesn't make it, it just becomes an app, it gets taken over by someone because the fleets are bypassing it. Still a 10% growth, but P ratio goes down, somebody takes it over somewhere at the certain valuation, then that would be the risk where you can maybe lose 50%. Compare the intrinsic values at these probabilities, sorry, 25 here, it has to almost double to be valued fairly in these kinds of scenarios. When we go to the comparative table, it is the best investment out there except for crazy risky charter, but this is really clear why this is Ackman's biggest bet. And also Wall Street is very positive on it. Here we have high the exuberant targets of 150. Somebody is less positive on compensation on being bypassed by the fleets, but most analysts have it as a strong buy. The market is scared a little bit about Waymo leaving things like that, which Bill Ackman says is a great time to buy. Discussing this robotaxis scare, let's go into the conference call, and they discuss how the conversation has shifted whether there will be autonomous vehicles to how broadly, reliably, and economically it can scale. So, practically in 5 years we'll all be going around with robotaxis, Zagreb, Verna, this this partnerships. And you Uber wants to be the platform. We also now have drones potentially delivering things like that. So, it is insane. On the question of competition discussing in Brazil, lower earnings, lower everything. And here is another risk. It's not just the Brazil, it's China. Extremely competitive environment for the same things that Uber is trying to achieve. And that is then also a question of risk, of understanding how well this develop. The question is, does it have a moat? To have a moat, you need to have regulation backing so that they can keep long-term profits. For now, they don't have it. There are issues, UK issues with workers, things like that. And will Uber get it? Unlikely globally, unlikely for the long-term, which is another risk. But if everyone has the app, then the no regulation can change that. Then there are investments, they will invest 10 billion across the future years. That's why I lowered the free cash flow there also on top of the stock-based compensation. Is it a commodity? If Uber is the first mover, then it can gain. Risky? Yes. Many just wait for proof that the business model will be working, and then they might enter. It's the same with electrical vehicles. Only when Tesla really did it in 2019, all the others entered the market, and now, 6 years later or 7, nobody made any money. It might be like that, which is the risk. Somebody will take it over, private equity or something. But it might also win, and then you have your Amazon. If the growth sticks, and I think here is Bill Ackman situation next 2 to 3 years, autonomous vehicles are just small now. They're not global. Uber is, and it will keep on growing for the next 2 to 3 years. If that gets reflected in the business, you have a 2x 3x higher valuation, and then we'll deal with the autonomous vehicles situation. Before that, you already made your money. If there is growth, P goes to 30 40, that's your 3x already. If there is a slowdown, it's very risky, but unlikely for now. And that's the horizon next 2 to 3 years. There is no competition because they already moved. Autonomous vehicles, it seems also to me it's just cool discussions like space, like AI. The business is there. It's growing fast. There's definitely a big yes on whether you can make money on Uber. Positive risk and reward, 3 5 10x if there is a really big yes, 50% down if it's no, and that even maybe. I'm looking for compounders. It looks like Uber will compound. From a value investing perspective, it's not for me because I'm just lacking the margin of safety. If you can take more risk in your portfolio, if you like taking more risk, this is interesting. So, this is my upside. Risk is always a technological novelty, apps download, something like this. The old Uber gone in 5 years, the new is questionable. It's a very positive risk and reward bet. Thus, not for me. See how it fits you. I hope this video gave you value. I'm looking forward to your comments. You can check what I do on my research platform. I'll see you in the next video.