Earnings

Uber share price: will Q2 results drive a breakout?

Uber’s last set of results, reported in May, did little to assure investors that the ride-hailing company was on the way to profitability. Still, days before its Q2 results announcement on Thursday, and as of Friday 2 August’s close, Uber's [UBER] share price is down 3.8% from its 10 May IPO price of $42. Uber shares are currently 16% off their all-time high of $46.98, reached on 1 July. But, could new developments help the tech giant can top this price in August?

 

Uber’s past post-earnings performance

Uber’s Q1 results, which were reported days after its IPO in May, highlighted that the ride-sharing company has a cash-burn problem. It reported a net loss of $1.01bn for the quarter – largely in line with analysts’ expectations at the time, and among the largest quarterly losses of any public company.

On the upside, the company also reported total revenue of $3.10bn, which was at the top end of expectations. Gross bookings went up by 34% to $14.65bn from the same period in 2018 and its monthly active platform consumers hit 93 million, up 33% from the same quarter in 2018. 

While the stock barely moved on the initial earnings announcement, it creeped up as Uber executives discussed Uber Eats’ potential for growth.

 

Will Uber offer positive results?

Analysts foresee a 22% revenue gain for Q2 2019, but they also expect losses to continue throughout the rest of this year, according to consensus estimates compiled by Refinitiv. 

Investors expect that new regulations for ride-hailing companies in New York City could hurt passenger volumes. Passengers are now required to pay congestion charges, while a minimum wage for drivers has been imposed, leading ride-hailing companies to raise their fares. Such regulatory issues will have an impact on bookings numbers for the quarter and may in turn drag revenues down.

 

Where are the opportunities?

Writing on InvestorPlace, Faisal Humayun argues that the range of investment activities that have contributed to Uber’s losses should soon start generating cash flow for the company.

Humayan says that Uber Freight has bright prospects in the US and European markets, having witnessed a robust start with 36,000 carriers signed up to the service. The segment has already booked $125m in quarterly revenue, and Uber is looking to expand it to Europe, which has a $500bn trucking market.

$125million

Uber Freight's quarterly revenue

The ride-sharing platform is also expanding its food delivery services via acquisitions, suggesting that it will grow market share, according to Humayan. Its $3.1bn acquisition of Careem – a ride-hailing company operating in the Middle East – will expand its presence from 23 cities in the region to over 100. 

There is also speculation that Uber is interested in acquiring last-mile delivery company Postmates which, according to a report from Needham & Company, could take Uber’s food delivery arm close to profitability. 

Meanwhile, Uber is also looking for opportunities to cut its losses. This week, the ride-hailing company laid off 400 employees from its 1,200-person global marketing team in a bid to streamline operations.

 

Market cap $67.76bn
PE ratio (TTM) 2,171.39
EPS (TTM) 0.02
Profit Margin -31.93%

Uber share price vitals, Yahoo finance, 05 August 2019

 

Is Uber a ‘buy’?

The Street’s Bret Kenwell says that a false breakout, which saw Uber rise to highs of $45.62 before falling again on 29 July, has left him optimistic that Uber is ready to rally around its next results day.

“It held all sorts of key levels,” he says. “First, it held uptrend support, which underscores the stock's series of higher lows, a bullish technical development. Second, it held its newly defined 50-day moving average, which has been a key level over the past week. The last of the bullish news is that Uber stock reclaimed both its eight-day and 20-day moving averages. So while the stock wasn't able to break out, the setup is still intact.”

With this setup, Kenwell believes Uber stock could reach a new high of $47 in the near future. If it goes to circa $47.08, Kenwell reckons it could surpass $50.

“It held all sorts of key levels” - The Street’s Bret Kenwell on Uber shares' false breakout

Currently, Uber has an average price target of $52.13, which implies a 29% upside from Friday’s price of $40.40. Of 33 analysts covering Uber stock, 8 rate it a ‘buy’, 13 recommend it as ‘outperform’, 11 recommend ‘hold’, and 1 recommends shares as ‘underperform’. 

On the bear side, Stifel Nicolaus analyst Scott Devitt says Uber faces stiff competition to see any movement in coming days. 

“Uber faces competitors globally in its ride-sharing and food-delivery businesses. We also expect Uber to have slower adjusted net revenue growth and a longer road to profitability than Lyft,” he says. 

As Lyft is reporting its Q2 results one day ahead of Uber, this could have a detrimental impact on its competitor’s share price. Despite this, Devitt himself has a ‘hold’ rating on Uber, with a $50 price target, suggesting a 23.7% upside.

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