Bill Ackman says new Uber (NYSE: UBER) stake is all about value, but a bigger prize lies beneath the surface
If you spend much time on X, you wouldn’t be wrong to wonder if outspoken activist investor Bill Ackman had traded in his day job as a hedge fund manager for the role of an aspiring political influencer peddling opinions as fast as the news cycle can churn. But every now and then a new investment thesis does slip through into the feed, and ridesharing giant Uber (NYSE: UBER) is his latest big idea.
“Uber is one of the best managed and highest quality businesses in the world,” Ackman wrote earlier this month, disclosing that Pershing Square in January started building a stake in the company that’s now worth nearly $2.5 billion. It’s a big deal because the investment firm he founded in 2003 is known for maintaining an extremely concentrated portfolio that held just nine top tier companies including Nike (NYSE: NKE) and Google (NASDAQ: GOOGL) before this latest acquisition.
“Remarkably, it can still be purchased at a massive discount to its intrinsic value,” Ackman continued in the post about Uber. “This favorable combination of attributes is extremely rare, particularly for a large cap company.” Uber shares, having already popped after its “strongest quarter ever” was disclosed two days earlier, have climbed an additional 13% since and are now up 26% year-to-date, far outpacing the S&P 500.
Mixed record
Like most high-profile activist investors, Ackman has a mixed record. He had big wins with Chipotle Mexican Grill (NYSE: CMG), The Wendy’s Company (NASDAQ: WEN) and Canadian Pacific Railway (NYSE: CP). The misses, though, have been notorious. He lost more than $3 billion on Valeant Pharmaceuticals International, stumbled with Target (NYSE: TGT), and had to famously exit a short position in nutrition supplement company Herbalife after a bitter, and very public dispute with his nemesis, Carl Icahn. Over time, however, Pershing Square has outperformed the broader market—rising 1,670% since its founding twenty years ago compared to the 630% gain seen in the S&P 500—and that could be why Ackman has seemingly moved to embrace value investing over the more acrimonious activism that typified the earlier part of his career.
Indeed, Pershing Square detailed the latest iteration of its investment strategy in a recent letter to investors and argued that growing index fund ownership of most stocks had increased the impact that ”short-term, highly leveraged investors” can have on prices. “Equity markets have exhibited an enormous amount of single-name stock price volatility for even the largest companies when they surprise investors with even minimally below-expectation overall results or small misses on certain closely followed business metrics,” Ackman wrote. That’s exactly what seems to have happened to Uber late last year when shares started to decline after third-quarter results missed some analyst projections despite record revenue.
Ackman reiterated his new preference for a more long-term approach in a podcast interview last year with YouTuber Lex Fridman, saying that The Intelligent Investor by Benjamin Graham—first published in 1949—had been an inspiration for his career. It’s the same book that legendary investor Warren Buffett has said helped develop his overall outlook on the market. “You have to understand the difference between price and value,” Ackman said. “Price is what you pay, value is what you get.”
The opportunity ahead
While Ackman says his latest stock pick is all about value, there could be a bigger wildcard lurking in the background: Uber owns the dominant platform at the center of an industry that’s about to be reinvented with driverless cars. Alphabet’s Waymo, for example, already operates ride hailing services in some markets, and Tesla (NASDAQ: TSLA) is also advancing with plans for self-driving taxis. Just how much the new entrants will be willing to work with Uber remains to be seen, but CEO Dara Khosrowshahi said the company was uniquely positioned to capture “the $1 trillion+ opportunity that autonomy will unlock in the US alone.” He better hope so, because the alternative could obliterate the company’s business.
“Given the scale of the Uber platform, and human drivers’ ability to dynamically fulfill demand spikes—and take a break during demand troughs—partnering with Uber allows AV players to move much faster than they could on their own,” he said earlier this month on an earnings call with investors. “This fact gives us confidence that the Uber network, with a hybrid of AV and human drivers, will deliver the highest asset utilization and revenue generation opportunity for our partners.”
As the industry evolves, meanwhile, the real surprise for investors could always come from good, old-fashioned M&A. That was so much suggested in the back and forth last week on X between Ackman, Khosrowshahi and angel investor Jason Calacanis, who first teased at the possibility. “Imagine what the world will look like when TSLA, AMZN or Google buy $UBER for a modest 10-20% of their market caps,” the host of the popular All-In podcast wrote.
Ackman, for his part, has a few ideas for Uber, though they’re a far cry from the bold demands for sweeping shake-ups of his activist days. New features he wants related to tipping and multiple rides might make the trip smoother, but they’re simple tweaks at the end of the day. The bigger prize lies further down the road.
