Nearly two months after Uber (UBER) waddled into the public markets with its NYSE listing, Wall Street analysts are releasing their thoughts on Uber’s stock and they are very bullish on the company. Wall Street analysts avoid releasing their opinion earlier to allow the stock’s price to stabilize and to avoid price manipulation.
Uber is a behemoth in two global markets: ridesharing and online food delivery. Their key competitor, Lyft, is not as large, doesn’t have the same access to capital, nor does it have the same reach and technological innovation. These built-in advantages should allow Uber to expand horizontally into other transportation markets such as the Freight industry. Although the company is not profitable on aggregate right now, its original ride-sharing business is profitable. Their other businesses – including food delivery – should follow a similar path to profitability.
There are four reasons why Wall Street is so bullish on Uber. The economy right now is shifting towards a sharing economy, which is a structural shift that is helping Uber succeed. Further, platform businesses such as Uber benefit as they grow larger. The marginal utility for each user grows as other users join the platform, and these network effects mean that Uber’s size is a fantastic defense against new competition. Costs should come down as well as Uber grows, and Uber can scale down the sales promotions when it decides to focus more on profitability than growth. Finally, the other businesses Uber can expand into will provide it with numerous staggered growth opportunities when its current portfolio of businesses eventually matures.
Not everyone is so bullish on Uber though, and Stifel analyst Scott Devitt is part of the camp that has reservations about the stock. After initiating coverage on Uber, Devitt has a Hold rating and a $50 price target on the stock. (To watch Devitt’s price target, click here) TipRanks analysis shows that Scott Devitt has a 22.4% average annual return and a 72% success rate on his calls. He is ranked #36 out of 5,229 analysts on TipRanks.
Specifically, Devitt still needs to be shown Uber can keep growing “user acquisition, retention, frequency, and share of wallet” before he upgrades his rating on the stock. In the profitability area, Devitt believes that Uber should breakeven by 2022 or 2023. Overall, Devitt has faith in the company, but he also thinks that the current valuation is “fairly balanced.” Some of the additional concerns that worry Devitt is the heavy competition Uber faces in the food delivery and ride-sharing spaces, and the regulatory risk inherent in a company that has been restricted and banned in certain cities around the globe.
Overall, Wall Street has favorable views on Uber’s stock. TipRanks analysis of 29 analyst ratings for Uber shows that there is a Moderate Buy consensus. 21 analysts recommend Buying the stock, with 8 analysts suggesting waiting on the sidelines for now. The average price target on UBER is $53.33, which represents a 20.5% upside on the stock’s current price. (See UBER’s price targets and analyst ratings on TipRanks)