November has seen an acceleration in Uber’s [UBER] share price. Going into the month, customers were shying away from hailing rides due to the pandemic, while political trouble was threatening to cut the markets in which Uber could operate. Uber’s share price dropped 12% between 14 September and 30 October.
What a difference a month makes. Since 3 November, Uber's share price has gained over 45% thanks to events in California and a narrowing of the firm’s quarterly losses. If 2021 turns out to be a smoother ride, Uber’s share price could continue to rally.
What happened in Uber's Q3 results?
Uber's share price gains come despite declining growth in the third quarter. The company posted a loss of $0.62 a share for the quarter, with revenue coming in at $3.13bn — 14% down on the same period last year and falling short of Wall Street expectations. However, losses on a GAAP basis of $1.90bn were better than the $1.16bn loss seen in the same period last year.
The divergent effect of the coronavirus can be seen in the performance of Uber's two main revenue streams. Uber's ride-hailing business declined 53% year-on-year to $1.37bn in the quarter as more people stayed indoors due to the pandemic. Yet people staying indoors was also the reason its food delivery business grew 125% year-on-year to $1.14bn.
Uber Eats' YoY growth
While Uber's quarterly results saw more losses, things seem to be heading in the right direction. CNBC's Ari Levy points out that Uber's delivery business saw its negative margin shrink in the third quarter compared to the previous period. At the same time, its positive adjusted margin for ride-hailing operations went from 6.3% to 17.9% in the quarter.
Shareholders will be waiting to see if Uber can continue to reduce losses in the fourth quarter. Analysts tracking the stock on Yahoo Finance expect Uber to lose $0.54 per share in the fourth quarter, compared to the $0.64 loss per share seen in the same period last year.
Uber gets an important win in California
Uber got a win on US Election Day after voters in California supported Proposition 22. The proposition exempts Uber and other “gig companies” from classifying ride-share and food delivery drivers as employees under Californian state law. Instead, they will remain independent contractors.
Uber had argued the current state law would see the number of active drivers drop by 75%, while customers would pay between 25% and 75% more per ride.
With the vote going in Uber’s direction, investor confidence has returned to the stock. Uber's share price jumped 10% following the proposition passing on 4 November, peaking at $42.15 in intraday trading. From there, Uber's share price has enjoyed a steady climb and closed Tuesday’s trading at $51.26, a 21.61% gain.
Uber's share price following Proposition 22 results
However, the golden state could still pose problems for Uber. At the time of writing, California — one of Uber's biggest US markets — had imposed a mandatory stay-at-home order banning most nonessential activity outside the house between 10pm and 5am. These are Uber's prime operating hours. The restriction will begin on Saturday and last all the way to 21 December, which could cause a dent in Uber's fourth quarter revenues.
Where next for Uber's share price?
All in all, it's been a mixed year for Uber. While Uber’s share price is currently up 65.41% this year, the coronavirus has undoubtedly added volatility to the stock, as proven by September and October’s multiple rallies and selloffs. With the stock now trading near its all-time high, there is potential for a pullback. This will become especially likely in the event of further lockdowns, political turbulence or issues with the rollout of a vaccine.
Among the analysts tracking the stock on Yahoo Finance, Uber’s share price carries a $49.20 price target, which would see a 4.02% downside on the current share price (as of 24 November’s close). The highest analyst target is $65, which would represent a 26.8% upside if hit.
Investors will need to decide for themselves whether there’s enough gas in Uber’s tank to see the share price hit the bullish target, or if there’s a correction ahead for the tech giant.
|Operating margin (TTM)||-35.32%|
|Quarterly revenue growth (YoY)||17.90%|
Uber's share price vitals, Yahoo Finance, 25 November 2020
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.