TIP751: Mastermind Q3, 2025: Uber, Merck, and Bath & Body Works

What It Covers

Stig Brodersen, Tobias Carlisle, and Hari Ramachandra analyze three investment opportunities: Uber's mobility and delivery ecosystem at $190B market cap, Merck's oncology dominance facing Keytruda patent expiration in 2028, and Bath & Body Works' fragrance retail business trading at 7.5x earnings.

Key Questions Answered

• •Uber's Network Economics: The company operates a supply-driven two-sided marketplace requiring critical mass of drivers first before demand materializes. This creates strong local network effects that are difficult to disrupt once established at scale, though effects remain city-specific rather than global, requiring market-by-market conquest against local competitors like Grab in Southeast Asia.
• •Autonomous Vehicle Integration: Uber maintains competitive advantages over pure AV players like Waymo through flexible supply management—human drivers can be called during surge periods while AVs require constant capital deployment. The company's matching algorithm technology and ability to offer both human and autonomous options positions it as potential infrastructure partner rather than displacement target for AV manufacturers.
• •Merck's Patent Cliff Strategy: Keytruda generates $29.5B annually (nearly half of Merck's revenue) with 2028 patent expiration creating 3-5% annual revenue decline rather than immediate cliff due to biosimilar competition dynamics. Management pursues subcutaneous delivery extension, $10B Verona acquisition for COPD drugs, and late-stage pipeline development to offset losses by 2032.
• •Bath & Body Works Valuation Disconnect: The company trades at 7.5x earnings and 6.3x price-to-cash flow versus historical 8x average, generating $750M free cash flow (12% yield on market cap). Management reduced share count from 280M to 212M since 2021 peak, demonstrating capital allocation discipline during 40% stock price decline from all-time highs.
• •Pharmaceutical Sector Positioning: Healthcare trades at 25-year valuation lows relative to broader market, similar to late 1990s setup that preceded strong multi-year performance. Merck's 31% operating margin leads pharma industry while trading at 12x earnings versus peer average of 18x, offering 4% dividend yield during valuation normalization period with limited downside risk.