🤖 Ackman Bought The Riders

Good morning to everyone who thinks robotaxis end this story.

Bill Ackman just made Uber the biggest bet in his fund, while the stock sits near its lowest price in a year.

Today, why he did it.

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Bill Ackman is a famous investor who runs a $19.5 billion fund called Pershing Square.

Every three months, big funds have to publish a list of the US stocks they own. That list is called a 13F, and Ackman's landed on Friday.

$UBER ( ▲ 4.53% ) is his largest holding at $2.48 billion (or 12.7% of everything he owns) and he bought 14.6% more last quarter.

Then the surprise.

The same list shows he sold every share of Alphabet, the company that owns $GOOG ( ▲ 0.12% ).

Alphabet owns Waymo, the driverless taxi service most investors expect to take Uber's business away.

Ackman never explains his trades, so the money is the only evidence.

He added to the app and walked away from the driverless fleet.

Uber earned $10 billion of free cash flow over the past year, the best stretch in its history. Free cash flow is the cash left once every bill is paid.

The stock fell anyway, close to its lowest price in a year.

The worriers have one real number.

In San Francisco, Uber's share of rides fell from 70% to 60% since 2023 while Waymo climbed from 0% to 27%.

Here's why Ackman's two trades tell one story.

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Ackman is betting that investors stop pricing Uber like a taxi company and start pricing it like a payment network.

Here is the machinery.

Investors value a company as a multiple of its yearly profits, so at 10 times you pay ten dollars for every dollar it earns.

Businesses people trust earn high multiples. Businesses people fear earn low ones.

He also owns Visa, Mastercard, Microsoft and Amazon.

Each takes a small cut of somebody else's activity, and investors pay 25 to 35 times profits for that safety.

Uber works the same way.

It takes a cut of every ride, owns the app, and lets other people buy the cars and insurance.

Investors pay about 12 times for Uber today.

Driverless cars are what could close that gap.

Baidu runs robotaxis in China for $0.06 to $0.23 per kilometer. Waymo charges $1.50 to $2.50 for the same kilometer in America.

Once driving costs pennies, the money shifts from whoever drives to whoever holds the customers. Uber has 208 million people opening its app monthly.

So what does this mean for your portfolio?

Uber should produce roughly $13 billion of free cash flow in 2027.

It trades near $76 today, so even the gloomy case pays.

None of it needs Uber to win one robotaxi customer.

Ackman sold the company building the cars. He bought the company that owns the riders.

Second Order is for information and entertainment only and is not financial advice.

We are not licensed financial advisors.

Any tickers or companies mentioned are our opinions, not recommendations to buy or sell.

Do your own research and consult a professional before making investment decisions.