Does Uber Stock Deserve More Long-Term Optimism?


Uber’s (UBER) debut on the stock market at the beginning of May was among the largest ever, but so far investors aren’t too sure how to analyze the company. While the company has high hopes for the future — including with self-driving cars and being the go-to destination for all transportation — the short-term looks murky. Uber continues to burn through cash, especially as it expands into more cities around the world, while drivers are increasingly unhappy with the way the company treats them.

But at the end of the day, the company is growing its revenue and out playing its rivals. Lloyd Walmsley of Deutsche Bank sees this as a reason to be bullish, as he maintains his Buy rating on UBER stock, with $58 price target, which implies nearly 32% upside from current levels. (To watch the Walmsley’s track record, click here)

Walmsley noted, “We are bullish on Uber and see continued evidence the competitive market continues to improve, with reports from drivers that Lyft (not covered) has communicated plans to reduce driver payouts 4-5% on two drive modes broadly across the US. We see lower driver payouts on stable consumer pricing leading to improving unit economics in the form of improving revenue take-rates. While this seems to be catch-up to lower driver payouts at Uber on similar (and somewhat limited) ride types, we view Lyft moving to Uber as a clear sign competition is rationalizing in the US and feel better about our outlook for improving take rates at Uber.”

Another factor in Walmsley’s opinion is Uber’s performance in Latin America. The analyst believes “the Latin American market is also stable for Uber,” as the company continues to reach beyond the US. Furthermore, Walmsley believes “fears around competition in the UK are overblown,” saying Bolt and Ola are not meaningful threats to the giant.

Uber announced its first-ever quarterly earnings at the end of May, reporting a loss of about $1 billion on revenue of $3 billion, about 20% higher than this time last year. Total bookings increased 34% to more than $14 billion, as active users rose to 93 million. While perhaps its market cap of $74 billion is not justified by its earnings, many are still looking to the future when (the hope is) labor costs are cut and the company sees stability in foreign markets.

All in all, though only a handful of analysts were bullish on Uber at the time of its debut, more and more analysts are coming around. TipRanks analysis of 27 analyst ratings shows a consensus Strong Buy rating, with 21 analysts recommending Buy and six Holding. The average price target for the stock stands at $54.23, suggesting the stock can rise about 23% from current levels. (See UBER’s price targets and analyst ratings on TipRanks)

 

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