The S&P 500 contains some outstanding businesses, with the companies known as the ‘Magnificent Seven’ leading the way. But which shares could be the next big names to join them?
One stock in particular stands out to me at the moment. With an asset-light business model, a strong competitive position, and impressive growth prospects, I think investors should take note.
Robotaxis
Uber Technologies (NYSE:UBER) is in the transportation business. Its mobility division moves people to where things are and its delivery unit moves food to where people are.
The obvious threat at the moment is Tesla. There’s a question mark over what effects Elon Musk’s company launching its robotaxi business in the near future would mean for Uber’s services.
It’s an important risk, but Uber isn’t standing still. The firm doesn’t make its own vehicles, but it’s in the process of partnering with the likes of Waymo and Baidu to get ahead of the competition.
There’s a lot to like about this business model from an investment perspective. And it’s starting to show up in the firm’s financial reports, which makes the stock particularly exciting right now.
Key strengths
Uber’s big competitive advantage is the size of its user base. With 180m monthly active users, the firm’s around eight times the size of Lyft. That makes it an attractive partner for the likes of Waymo. If Alphabet’s autonomous vehicle unit wants to be where the customers are, it’s going to have to join with Uber.
Acting as a platform – rather than owning its vehicles outright – also has another key benefit. It means the firm doesn’t have maintenance costs, which frees up cash for other purposes.
In this spirit, Uber’s announced a $20bn share buyback programme. Around 10% of this might be offset by stock-based compensation, but that still leaves $18bn – 10% of the firm’s market value.
Growth prospects
Ultimately, the key to Uber’s long-term success is the size of its membership base. And the 60% user growth generated by Uber One – the firm’s premium platform – is encouraging on this front.
I think this is particularly exciting. The ability to generate subscription revenue has been a key part of how Amazon has established itself as the leading e-commerce platform. In its most recent report, Uber reported a 17% increase in gross bookings. And the company’s guidance was for at least this again in Q3 2025.
The business is clearly an impressive operation with a strong competitive position. But the big question for investors is what does the valuation look like?
Valuation
Adjusting for stock-based compensation, Uber’s free cash flows account for around 3.25% of the firm’s market value. Considering the firm’s growth prospects, I don’t think that’s bad at all.
As revenues grow, margins should continue to widen, leading to net income growing faster than revenues. And the ongoing buyback should give earnings per share a further boost.
Given this, I don’t think a 3.25% implied yield is a bad return at all. With years of potential growth ahead, Uber’s a stock I think investors should be paying attention to.
