Uber unleashes $7 bn buy back plan post fetching good cash flow in 2023

Uber Technologies Inc., which reported its first full year of operating profit and consistently positive free cash flow in 2023, plans to buy back up to $7 billion in shares to distribute funds to shareholders.

Money

By Sneha Sengupta On Feb 14, 2024

The repurchase scheme “is a vote of confidence in the company’s strong financial momentum,” Chief Financial Officer Prashanth Mahendra-Rajah stated. “We will be thoughtful as it relates to the pace of our buyback, beginning with actions that partially offset stock-based compensation, and working toward a consistent reduction in share count.”

A few internet businesses have announced plans to increase returns to shareholders, Uber being the most recent. While Airbnb Inc. increased the size of its repurchase program by $6 billion on Tuesday, Meta Platforms Inc. earlier this month announced intentions to buy back an additional $50 billion in shares and pay out its first-ever quarterly dividend.

After years of reckless spending as it attempted to expand into new markets and increase its market share, Uber amassed up $30 billion in cumulative deficits. The capital allocation plan represents another significant milestone in the company’s financial health. With its inclusion in the S&P 500 Index benchmark in December, Uber has stated that it is “very clear path” toward an investment-grade credit rating.

In New York, the stock surged as high as 11%, marking the largest gain since May of last year. By the close of business on Tuesday, it had more than doubled in the previous twelve months.

“If you are a cash machine and the Street is still relatively cautious in the way it values your business, one of the best uses of cash you can do is to buy back your own stock,” New Street Research analyst Pierre Ferragu stated during Bloomberg Television’s Surveillance. “That’s music to our ears.”

With a buy rating on the company, Ferragu stated that Uber’s ascent to the top of the ride-hailing sector “is really playing out the way we were expecting.”

Uber reported last week’s financial results, which included $768 million in positive free cash flow for the fourth straight quarter.

According to presentation slides from its investor day event, it also projects free cash flow as a percentage of adjusted Ebitda to climb more than 90% annually over the next three years.

Under Khosrowshahi, Uber has seen a significant shift. The 54-year-old Khosrowshahi has encouraged Uber to venture outside of its primary ride-sharing business into delivery services for restaurants and groceries as well as advertising, which has increased profit margins.

Uber was compelled to assess its business after the pandemic hit because consumers stayed at home and stopped using shared transportation. The company shifted to a more asset-light business strategy, selling off its division that produced autonomous vehicles and its loss-making motorcycles and scooters.

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