February 13, 2020

Should You Buy Uber Now?

Uber stock was up nearly 10% yesterday in the after-market session as the company reported a number that surprised Wall Street analysts. Its stock fluctuated in the after-market session on the back of both good and bad news. Nonetheless, Uber’s stock is up more than 40% since November when it hit a low of $25.58 per share, on November 6. The stock nearly touched $41 in the after-market session but was still shy of its tumultuous IPO price, a $45 issue price back in May 2019.

So, does the stock have a buy or sell label after it reported its earnings?

Investors have always measured the company’s growth against its losses. Uber reported $1.1 net loss for the fourth quarter of 2019 beating the analysts’ forecast of a loss of $1.2 billion and racked up its revenue of $4.1 billion—in-line with the market expectation. The stocks’ loss per share was 64 cents against the estimate of a loss of 65 cents per share. The adjusted net revenue stood at $3.73billion versus estimates of $3.70B. The below chart demonstrates Uber’s gross bookings.

The reason that traders participated in this upward move was the company reported that it expected to return to profit for the first time by the end of this year. Previously, analysts anticipated that Uber would achieve positive EBITDA in full by 2021.

 So, what helped the company and what should remain a concern for investors is as follows:

Bookings Improved

One of the metrics which the company has improved is its booking which narrowed its losses. The gross booking’s revenue increased to $4 billion year-on-year. A stellar jump of 28%, thanks to the love of news, it has a global twenty million more active users per month. 

Uber Eat Is Rotten

The Uber technologies’ Uber Eat business continues to drag the company profits lower despite increased bookings of 71%, this comes as a lack of strategic thinking and expanding in several markets where it should not have tried to dominate the market. The net outcome resulted in a loss of $461 million on an adjusted EBITDA basis. Having said this, the company has a safety net; and the first initiative was selling the Uber Eat business in India to Zomato in January.

The fact is the company needs to be strategic, and the only way for Uber to make money in tough markets is by making deals through acquisitions because although it holds a powerful position in Australia, not all markets are the same.

Ride Business Is Growing

The ride business is up 281% on a year-over-year basis as the company generated $742 million in adjusted EBITDA during the fourth quarter

New Area of Growth

Uber needs to introduce a loyalty program in return for a subscription. The CEO mentioned plans to invest in Uber for Business, but the details were relatively thin. I do think that with its large user base, an incentive and loyalty business will firm its growth position.

The Bottom Line

There is no doubt that overall, its earning has improved. Uber understands the necessity to exit losing markets because it cannot continue the fight to improve its margins in all parts of its business—sometimes it’s better to exit a market rather than to keep taking heavy hits on the chin. A proactive approach would help the company’s growth. The fact that the CEO is committed to improving profit through continuous innovation and keeps the cost under control through better execution, Uber stock stands tall as an exciting candidate among the investment community.