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Uber’s road to profitability

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

Innovation cash kings of the next decade - In our new series we look at the companies that are ‘pivoting to profit’ and are at an inflection point of converting customer-driven innovation into shareholder value. This week we take a closer look at Uber.

This is the second article in the series, you can read the other articles here:

Shopify – the engine of ecommerce refocusing on its core

Twilio - delivering the message on profitability 

Airbnb: booking beds and profits

 

Uber has long been a disruptive force in the transportation industry, revolutionising the way we think about getting from point A to point B. Its technology-driven, on-demand model has made it a household name in over 900 metropolitan areas worldwide. We have all experienced the convenience of Uber’s value proposition. The historical problem for investors though, was that despite delivering us home safely after a party, Uber did not make a profit in doing so. Then Covid struck and the world stopped moving. Fast forward to 2023 and we are confronted by a very different picture. The company has recently reported profits for the first time, capturing the attention of investors who see long-term value in its transformative business model and ceaseless focus on innovation.

At its core, Uber’s business model is an amalgamation of brilliant simplicity and intricate logistics. The company is a classic example of a platform business that connects riders and drivers through an accessible, user-friendly mobile app. It reduces friction in transactions by offering upfront pricing, easy payment systems, and reliable service. The genius lies in its scalability: without owning a single vehicle, Uber expands by acquiring more users and drivers, who are essentially the assets that make the model so lucrative. This asset-light strategy has enabled it to rapidly enter new markets and diversify its services, which now range from food delivery (Uber Eats) to freight logistics (Uber Freight).

Uber’s focus on innovation amplifies its power as a business. The company is continually improving its algorithms for routing, pricing, and demand prediction, thereby increasing efficiency and user satisfaction. Investments in autonomous vehicles represent its long-term vision for drastically reducing operational costs, while also minimising human errors and potentially making rides safer. By placing big bets on forward-thinking technology, Uber hopes to position itself as a future-ready company prepared to adapt to the evolving needs and expectations of consumers.

Pivoting to profitability is a crucial milestone for any technology company, and Uber’s recent profitability is particularly remarkable given its historical cash burn. A combination of driving efficiencies across its organisation, scaling back on less profitable endeavours, and increasing revenue from high-margin services have contributed to this positive financial turnaround. The shift to profitability is not merely a short-term achievement; it’s a fundamental change in business dynamics that enhances the company’s viability and we believe makes it an increasingly appealing investment option.

Achieving profitability demonstrates a degree of fiscal discipline and operational efficiency that investors find comforting. It offers reassurance that management is capable of making prudent decisions to ensure the business’s long-term sustainability. Secondly, profitability affords Uber greater capital to invest back into R&D and market expansion, which can further solidify its competitive advantage – over the past year we have seen market share improve alongside Uber’s economics as a higher cost of capital has put greater constraints on smaller competitors. Lastly, now that it has proven its ability to be profitable, the company is likely to attract a broader investor base, including those who may have been sceptical before but are now willing to buy into its long-term vision.

Uber's transformation from a cash-draining giant to a profitable entity underscores the potency of its business model, unwavering commitment to innovation, and strategic adjustments to attain financial sustainability. The company's metamorphosis into a profitable enterprise makes it a compelling investment proposition that promises potentially not just short-term gains, but long-term value. As we look to the next decade, Uber is well-positioned to continue reshaping industries and consumer behaviours.

Understand common financial words and terms See our glossary
KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Funds managed by the Global Innovation Team:

■ May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
■ May have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on a Fund's value than if it held a larger number of investments.
■ May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
■ Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
■ May be exposed to Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
■ Do not guarantee a level of income.

The risks detailed above are reflective of the full range of Funds managed by the Global Innovation Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

All use of company logos, images or trademarks in this document are for reference purposes only.


DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

Storm Uru
Storm Uru
Storm is a lead fund manager of the Liontrust Global Innovation, Liontrust Global Dividend and Liontrust Global Technology funds. He has 12 years industry experience, including as a fund manager and trader and prior to Liontrust worked at Neptune Investment Management running global funds and covering the global industrials sector. He holds an BBS in finance and MBS in international business from Massey University, an MBA from Oxford University and is a CFA Charterholder. He represented New Zealand in rowing at the 2008 and 2012 Olympic Games, winning bronze in London in 2012.

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