Bill Ackman Just Bought Uber Stock. 3 Reasons I'm Staying Away.

Core Viewpoint - Uber Technologies experienced significant stock volatility following its earnings report, with initial declines due to a muted growth outlook and long-term concerns about autonomy, but later recovery driven by hedge fund manager Bill Ackman's substantial investment in the company [1][2]. Financial Performance - Uber's earnings report for 2024 showed strong metrics, including operating income of $2.799 billion (up 152$9.846 billion, adjusted EBITDA of $6.484 billion (up 60$6.895 billion (up 105%) [3][4]. - Despite appearing cheap with a P/E ratio of approximately 16, the true valuation may be higher when considering after-tax income from operations, which is significantly lower than other reported metrics [3][4][12]. Valuation Concerns - The reported net income included a one-time $5.8 billion tax benefit, which will not recur, reducing pre-tax income to$4.13 billion for 2024 [5]. - Uber's interest income from cash holdings is substantial, projected at $1.85 billion for 2024, which constituted 45$1.8 billion) and insurance reserve charges ($1.1 billion), which are real costs that should be discounted by investors [8][10]. Pricing and Insurance Risks - Uber's revenue growth has been partly driven by significant price increases (83% from 2018 to 2022), which may not be sustainable as competition increases and customers seek alternatives [14][16]. - Rising insurance costs, projected to increase at a high-single-digit rate, could pressure Uber to either absorb costs or raise prices further, potentially impacting customer retention [16][17]. Autonomy Risks - The emergence of autonomous ride-hailing services from competitors like Waymo and Tesla poses a threat to Uber's market position, with Waymo already capturing a 22% market share in its service areas [18][20]. - Although Uber is partnering with Waymo for fleet management, the financial implications of this partnership remain unclear, particularly regarding the economics of self-driving technology and potential commission fees [22][24][25]. - The uncertainty surrounding the long-term economics of autonomous vehicles could significantly affect Uber's valuation and market strategy in the coming years [26]. Conclusion - While Uber may be a reasonably priced market leader, the complexities in its valuation, pricing power, insurance costs, and the threat of autonomous competition suggest it may not be the bargain that some investors perceive [27].