Can the Uber share price withstand Uber Eats investigation into partnerships?

The Uber [UBER] share price has fallen circa 13% in the past three months – a steeper decline than rival Lyft’s [LYFT] circa 1% dip and well off the wider Nasdaq’s 9.13% gain in the same period, as of 17 August’s close.

The performance reverses a recovery in the Uber share price, which having hit a then year low of $43.17 on 12 May managed to close 2 July at $51.71. From then on, it's been downward traffic for the stock, which closed Tuesday at $41.00.

The company has said it will be profitable for the full year, which bodes well for the Uber share price. However, an investigation from the watchdog could hamper plans to expand its successful UberEats business.

Why is the Uber share price running out of gas?  

The Uber share price is coming under pressure from watchdog scrutiny. The Federal Trade Commission is investigating a couple of Uber’s recent partnerships on the basis that deals with Gopuff and Drizly could stifle competition.

The Uber-Gopuff investigation was launched in June shortly after the deal between the two companies was inked. Gopuff is an online delivery service operating in over 550 US cities with an extensive network of fulfilment centres, according to its website. The partnership is described by Uber as an “in-app collaboration” and will be piloted in 95 cities before being expanded across the US.

Raj Beri, Uber’s head of grocery and new verticals, said that Uber has seen a 40% increase in searches for grocery and convenience items since the beginning of the year. According to Beri in a statement accompanying the partnership, GoPuff would allow Uber to “leapfrog the competition in using Gopuff’s network of micro-fulfillment centers to instantly meet consumer demand.”

Uber hopes to acquire on-demand booze retailer Drizly in a stock and cash deal worth $1.1bn. According to MarketWatch, while the Drizly acquisition is separate from the GoPuff partnership, both come down to similar concerns — namely whether the deals would stifle online competition in the sale and delivery of convenience items, including alcohol. 

Seeing how Uber’s core ride-hailing business has suffered, it's no surprise that the company is looking to expand what its delivery business can offer, from groceries to prescriptions, and now alcohol. However, investigations often lead to share price volatility, and it will be interesting to see if this one has teeth.

According to a report by Josh Sisco and Mark Di Stefano in technology publication The Information, regulators could be looking to intervene in growing online industries to avoid some of the mistakes made when Facebook [FB] and Google [GOOGL] were “cementing their dominance” a decade ago.

Second-quarter earnings underwhelm

Uber’s second-quarter earnings were also something of a disappointment. Despite beating Wall Street’s top and bottom line expectations, adjusted EBITDA loss came in at $509m, a steep increase on the $359m loss in the previous quarter.

On a year-on-year basis, Uber’s ride-hailing business continued to recover, pulling in $8.6bn in gross bookings, up 184% on last year when the pandemic was at its peak. Still, the business is suffering from a surge in prices and a lack of drivers, something it said it was addressing during the second-quarter earnings call. UberEats continued to offset losses, delivering $12.9bn in gross bookings, up 85% from last year, although plans to expand what it can offer could be curtailed by FTC investigations.

For the second quarter, Uber delivered a loss of $0.51 per share on earnings of $3.93bn.

“As we make progress towards that important milestone, we expect our adjusted EBITDA loss in Q3 to improve to less than $100m in addition to record gross bookings between $22bn and $24bn” - CFO Nelson Chai

Where next?

Uber said it was still hoping to be profitable for the full year, with third-quarter losses expected to improve – something to watch out for when the ride-hailing firm next updates the market.

“As we make progress towards that important milestone, we expect our adjusted EBITDA loss in Q3 to improve to less than $100m in addition to record gross bookings between $22bn and $24bn,” said CFO Nelson Chai.

Among the analysts tracking the Uber share price on Yahoo Finance, the stock carries an average $66.47 price target – hitting this would represent a 62.12% upside on the 17 August close. Of the 43 analysts offering recommendations on the stock in July, 16 rated it a strong buy and 21 a buy.