Investment Memo: UBER

1. Executive Summary

This memo outlines a long thesis for Uber Technologies, Inc. (UBER), based on a variant perception of its role in the forthcoming autonomous vehicle (AV) revolution. The market currently mischaracterizes Uber as a capital-intensive ride-sharing company vulnerable to disruption from vertically integrated AV manufacturers like Tesla and Waymo. Our thesis, "The Robotaxi Toll Booth," posits that Uber's true, durable asset is its massive, liquid, two-sided network. Uber is positioned not as a competitor in the costly race to build autonomous vehicles, but as the indispensable platform that will connect a fragmented ecosystem of AV fleets with its 189 million monthly active consumers.

Our edge stems from recognizing that the most defensible moat in this new era is not the car, but the demand network. As AV hardware becomes commoditized, manufacturers will need access to passengers to generate a return on their multi-billion dollar investments. Uber, with its global brand, route optimization data, and customer relationships, becomes the de facto "App Store" for mobility. It will provide the demand, and in return, collect a high-margin "toll" on every autonomous mile traveled on its network.

The primary catalyst for a stock re-rating will be the scaling of Level 4 autonomous vehicles from multiple partners onto the Uber platform. The recently announced partnership with NVIDIA and Stellantis to deploy 5,000 L4 vehicles is the first major proof point of this asset-light strategy. As this and other partnerships (including with rival Waymo) expand, the market will be forced to re-evaluate Uber not as a transport company with ~20% take rates, but as a capital-light technology platform with the potential for significantly higher margins, transforming its financial profile and justifying a much higher valuation multiple.

2. The Scoreboard

(Data based on Q3 2025 Earnings Report)

Note: GAAP Net Income includes a one-time $4.9B tax benefit, making P/E an unreliable metric. EV/Adjusted EBITDA is a more accurate measure of valuation.

3. Business Overview

Uber operates the world's largest mobility and delivery platform, connecting consumers with drivers, restaurants, and freight carriers. The business is structured around three core segments:

1. Mobility: The foundational ride-hailing service, operating in over 70 countries. It generates revenue by taking a percentage of the total fare (Gross Bookings) from each ride. In Q3 2025, Mobility accounted for $7.68 billion in revenue.
2. Delivery (Uber Eats): A three-sided marketplace connecting consumers, merchants (restaurants, grocery stores), and couriers. It has become a global leader in food and grocery delivery. Delivery generated $4.48 billion in revenue in Q3 2025.
3. Freight: A logistics platform that connects shippers with carriers, aiming to digitize and streamline the freight industry. This segment is smaller but growing, with $1.31 billion in revenue in Q3 2025.

Uber's primary monetization model is its "take rate"—the percentage of Gross Bookings it retains as revenue. This rate has historically hovered around 20-25% for the Mobility segment.

The Moat (Competitive Advantage)

Rating: Wide Source: Network Effect

Uber's competitive advantage is one of the most powerful two-sided network effects in the modern economy. A vast pool of riders attracts a large supply of drivers, which in turn leads to lower wait times, greater availability, and competitive pricing. This superior user experience then attracts even more riders, creating a virtuous cycle and dense market liquidity that is incredibly difficult and expensive for new entrants to replicate. This moat has been proven durable against heavily-funded competitors globally.

Crucially, this same network effect is the foundation of the Robotaxi Toll Booth thesis. Autonomous fleets require passengers to be profitable. Uber possesses the largest aggregated pool of mobility demand in the world. Therefore, any company seeking to deploy an AV fleet at scale will be almost forced to list on the Uber network to achieve a viable utilization rate, solidifying Uber's position as the central hub of the autonomous mobility ecosystem.

4. The Investment Thesis

Point 1: The Robotaxi Toll Booth - An Asset-Light Platform

The core of our thesis is that Uber will win the autonomous future by not participating in the hardware race. The company has astutely pivoted from its own costly AV research (selling its ATG division to Aurora) to a partnership-based, open-ecosystem model. This strategy is brilliantly asset-light and positions Uber to benefit regardless of which manufacturer's technology ultimately prevails.

By partnering with NVIDIA (for the AI architecture) and Stellantis (for the vehicles), Uber is creating a blueprint for the future. It provides the software (the Uber app and network), the demand (189 million users), and the operational expertise, while its partners handle the capital-intensive and technologically complex task of building and maintaining the autonomous vehicles.

In this model, Uber becomes the indispensable intermediary—the "toll booth" that sits between AV supply and passenger demand. Its role will be to:

• Aggregate Demand: Funnel its massive user base to various AV fleets.
• Optimize Fleet Utilization: Use its vast trove of data to predict demand, position vehicles, and price trips dynamically.
• Provide a Unified User Experience: Offer a single, familiar app for accessing a multitude of AV options.

This structure will fundamentally transform Uber's financial model. The primary cost in a ride today is the driver's earnings. In an autonomous world, this cost is replaced by the fee paid to the AV fleet owner. However, with the removal of a human driver, the overall cost per mile will plummet, allowing Uber to capture a larger portion of a much bigger pie, significantly expanding its take rate and gross margins.

Point 2: Competitive Analysis - A Race Uber Doesn't Need to Run

The primary threats to this thesis are vertically integrated players who aim to own both the vehicle and the network.

• Waymo (Alphabet): Waymo is the undisputed leader in autonomous driving technology, with fully driverless, paid services operating in multiple US cities. However, Waymo's primary challenge is not technology, but customer acquisition and network scale. Building a ride-hailing app and user base to compete with Uber is a monumental task. Tellingly, Waymo has already chosen to partner with Uber in Phoenix and Austin. This is a critical validation of our thesis: even the most advanced AV company needs Uber's demand network to scale. This is a symbiotic relationship; Waymo supplies the best AVs, and Uber supplies the most passengers.

• Tesla (TSLA): Tesla represents the most significant long-term risk, with its ambition to create a closed "Tesla Network" of robotaxis using its own vehicles. Tesla's strategy relies on solving Full Self-Driving (FSD) and leveraging its existing car owners to provide the fleet. This is a high-risk, binary bet. If they succeed, they could create a powerful, vertically integrated competitor. However, this approach faces several hurdles:

  1. Technological Uncertainty: FSD is still years away from true Level 4/5 autonomy, despite numerous predictions.
  2. Network Cold Start Problem: Tesla will have to build a ride-hailing network from scratch, competing against Uber's decade-long head start and deep user loyalty.
  3. Fleet Heterogeneity: Relying on consumer-owned vehicles creates a less predictable and standardized fleet compared to professionally managed AVs.

Uber's open-platform strategy is far more resilient. While Tesla attempts to build a walled garden, Uber is building the open internet of mobility, aggregating supply from all other manufacturers (Stellantis, Hyundai/Motional, etc.). This gives Uber a path to offering a more liquid, reliable, and diverse network to consumers, which is a powerful competitive advantage.

Variant Perception (The "Edge")

• Consensus View: "Uber is a low-margin transportation company whose business will be cannibalized by technologically superior AV companies like Waymo and Tesla, who will build their own networks and render Uber obsolete."
• Our View: "The market fundamentally misunderstands the source of the moat. The defensible asset is the network, not the car. As AV hardware is commoditized, the power will shift from the manufacturer to the demand aggregator. Uber is the world's largest demand aggregator for mobility. Its position will strengthen, not weaken, in an autonomous world, allowing it to transition into a high-margin, asset-light technology platform that collects a toll on every autonomous mile traveled."

5. Financial Deep Dive

Uber's Q3 2025 results demonstrate accelerating momentum and the platform's leverage. Revenue grew 20% YoY, and more importantly, Adjusted EBITDA grew 33% YoY, showing significant margin expansion as the company scales. Operating cash flow of $2.3 billion and free cash flow of $2.2 billion for the quarter are testaments to its increasingly efficient operations.

The transition to the "Robotaxi Toll Booth" model will supercharge these trends. Consider the unit economics of a hypothetical $20 ride:

• Today: Gross Booking: $20. Uber's Take (25%): $5. Driver Earnings & Expenses: $15. Uber's Gross Profit: $5.
• Autonomous Future: Gross Booking: $12 (lower cost to consumer). AV Fleet Fee (50%): $6. Uber's Take (50%): $6. Uber's Gross Profit: $6.

In this scenario, the consumer price is 40% lower, yet Uber's gross profit per trip increases by 20%. The key is the dramatic expansion of the take rate. As the platform controlling the customers, Uber will have significant pricing power over the AV fleet owners who need access to its network. This shift will transform Uber's income statement, driving gross margins from ~40% today towards software-like margins of 60-70%+.

Furthermore, the asset-light model frees up immense capital. Uber will not need to engage in the multi-billion dollar R&D and manufacturing arms race. This allows for a focus on strengthening the core technology of the platform and returning significant capital to shareholders through buybacks, further driving EPS growth.

6. Valuation

Our valuation is based on a sum-of-the-parts (SOTP) analysis, valuing the mature Delivery and legacy Mobility business separately from the high-growth, high-margin potential of the autonomous network.

1. Core Business (Mobility/Delivery): Valued at 15x 2026E EBITDA, in line with other platform marketplaces.
2. Autonomous Network (Toll Booth): We project a scenario where by 2030, 20% of Uber's mobility miles are autonomous. We apply a 60% take rate and a 30x terminal EBITDA multiple, reflecting a high-growth, high-margin software business.

Discounting this back, we arrive at a fair value estimate of $120 per share, representing approximately 60% upside from the current price. The current valuation fails to price in the platform shift and the enormous annuity stream that will be generated by the "Robotaxi Toll Booth" model.

7. Pre-Mortem (Risks)

1. Regulatory Pushback (High Probability): A significant accident involving an AV from any company could trigger a severe regulatory crackdown, delaying the timeline for mass deployment by years. Cities may also impose heavy taxes or restrictions on robotaxis to protect municipal revenue streams and placate labor unions.
2. Tesla's Network Succeeds (Medium Probability): If Tesla solves FSD faster than anticipated and successfully launches a seamless, compelling, and inexpensive robotaxi network, it could create a viable, vertically-integrated competitor that doesn't need Uber's demand.
3. Execution and Integration Risk (Low Probability): Uber may struggle with the technical challenge of integrating multiple different AV providers into a single, cohesive user experience, leading to service unreliability and reputational damage.

8. Conclusion & Action

Uber is at an inflection point. The market is still valuing it based on its past as a capital-heavy, low-margin transportation company. We believe the pivot to an asset-light, open-platform model for autonomous vehicles is a strategic masterstroke that will unlock tremendous value. By becoming the "Robotaxi Toll Booth," Uber is poised to capture a significant share of the value created by the autonomous revolution, with a financial profile resembling a high-margin software company. We recommend initiating a long position at current levels with a price target of $120.

9. Sources

• Uber Q3 2025 Earnings Report: https://investor.uber.com/news-events/news/press-release-details/2025/Uber-Announces-Results-for-Third-Quarter-2025/default.aspx
• Uber and NVIDIA Partnership: https://investor.uber.com/news-events/news/press-release-details/2025/Uber-to-Deploy-One-of-the-Worlds-Largest-Networks-of-Autonomous-Vehicles-Powered-by-NVIDIA-AI-Architecture/default.aspx
• Waymo Freeway Expansion: https://www.theguardian.com/technology/2025/nov/12/waymo-robotaxis-freeways
• Tesla Robotaxi Testing: https://www.teslarati.com/tesla-hints-premium-robotaxi-offering-model-s/ Disclaimer: Internal research only. Not financial advice.