Uber Technologies (UBER.N) surged to a historic high on Wednesday, propelled by the announcement of its inaugural share buyback program totaling $7 billion. This move follows a robust recovery in ride-share revenue and sustained demand in its food delivery segment, marking a significant milestone for the company since its initial public offering in 2019. The decision to initiate buybacks reflects Uber’s confidence in its strong financial performance and underscores its commitment to enhancing shareholder value.
The company’s recent achievement of its first annual net profit, reported last week, further bolstered investor confidence. Uber’s Chief Financial Officer, Prashanth Mahendra-Rajah, emphasized that the share repurchase program signifies a vote of confidence in the company’s robust financial trajectory, signaling a positive outlook for its future prospects.
Market response to Uber’s buyback announcement was overwhelmingly positive, with shares surging by 12% on the same day. However, amidst the celebratory atmosphere, thousands of drivers for Uber, as well as competitors Lyft (LYFT.O) and DoorDash (DASH.O), organized a one-day strike across the United States to advocate for fair pay, highlighting ongoing labor tensions within the gig economy.
Uber’s financial performance has witnessed a remarkable turnaround, exemplified by its substantial increase in free cash flow from $390 million in the previous year to $3.4 billion in 2023. The resurgence of the ride-share market following the pandemic-induced downturn, coupled with the gradual return of employees to offices and increased mobility, has contributed to Uber’s impressive financial growth trajectory. As a result, the company’s market value more than doubled last year, with Wednesday’s gains poised to push its valuation beyond $150 billion.
Market analysts view Uber’s decision to initiate share buybacks as a testament to its operational excellence under the leadership of CEO Dara Khosrowshahi. Thomas Hayes, chairman of hedge fund Great Hill Capital, commended Uber for its strategic alignment and operational discipline, emphasizing that the buyback program reflects confidence in the demand for its services and prudent financial management.
Looking ahead, Uber anticipates continued growth momentum, projecting mid- to high-teen percentage gross bookings growth over the next three years, accompanied by high 30s to 40% adjusted core profit growth. While dividends may become a consideration in the future, the initiation of share buybacks signals a shift in Uber’s financial strategy, moving away from its previous image as a cash-burning startup to a more mature and financially prudent entity.
Dan Coatsworth, an investment analyst at AJ Bell, echoed this sentiment, noting that Uber’s foray into buybacks signifies a departure from its previous approach of aggressively investing cash without tangible returns. The move underscores Uber’s transition into a more financially responsible and shareholder-friendly company, marking a significant milestone in its evolution.
In conclusion, Uber’s landmark share buyback program heralds a new chapter in the company’s journey, signaling its emergence as a financially robust and shareholder-focused organization. As Uber continues to navigate the evolving dynamics of the gig economy and capitalize on growth opportunities, its commitment to delivering value to shareholders remains unwavering, positioning the company for sustained success in the years to come.
