Is Uber’s share price on track as earnings loom?

It’s been a rocky road for ride-hailing group Uber since its IPO last May. It’s recent performance, however, has put this share price slide in reverse. With its fourth quarter earnings results on Thursday, is the road looking clearer for Uber?

Uber’s IPO was one of the most disappointing in recent times. The company, with a huge global profile and wedded to the booming gig and digital economy, was expected by many to flourish. Instead, Uber’s share price plunged from $42 on opening day to $26 in November.

A series of roadblocks drove the share price off course. General market concerns over profitability and governance of digital tech firms following the WeWork debacle, new Californian gig-economy laws requiring the conversion of contract workers into employees, its unprofitable Uber Eats division, and the loss of its operating licence in London all contributed to a poor share price performance.

However, the markets have recently worked in the company’s favour. Since the start of the year Uber’s share price has risen 25% to 4 February. What can we expect from its fourth quarter earnings results?

Analysts stay positive

Analysts believe Uber will post revenues of $4bn up from $3.81bn in the fourth quarter, according to Yahoo Finance. However, losses are expected to increase overall. As a result, EPS is expected to come in at -$0.68.

Despite this, analysts still view Uber positively over the long-term with 24 out of 41 analysts rating the share price a buy and 13 as a hold, according to CNN. The average 12-month share price target is $45.

RBC Capital Markets analyst Mark Mahaney is confident that Uber can “materially outperform” this year, holding a share price target of $64. “It’s actually our No. 1 pick for the year,” Mahaney told CNBC, stressing that Uber is well positioned to narrow losses and continue growth in its ride-hailing business. 

“Our survey work found that it’s only about 40% of U.S. internet users use ride-sharing,” he said. “I think that penetration rate can double. This company could sustain 20% bookings growth in its core ride-sharing business for a lot longer than people realize.”

He also likened it to another tech company which came back from a tough year: Facebook. “It could be the Facebook of 2020. Facebook was really dislocated at the end of 2018 and fundamentals stayed very well intact. I think that’s kind of the setup on Uber,” he added.

“It’s actually our No. 1 pick for the year” - RBC Capital Markets analyst Mark Mahaney

He is positive about the company’s recent decision to sell its Uber Eats food delivery business in India and that other similar moves out of unprofitable areas could lead to positive market reactions.

Freedom Finance analyst Erlan Abdikarimov is also bullish with a target of $63.80 a share, while UBS is also bullish with analyst Eric Sheridan holding a $56 price target – a potential 53% increase on 30 January’s closing price of $36.68. 

“Uber’s collection of global businesses looks poised to scale into the next large cap multi-sided marketplace with improving economics and flywheel effects on both the supply and demand side,” Sheridan said. 

He believes Uber can grow global ride-sharing revenue to the mid-teens, at around 17% CAGR, and also believes that over time Uber Eats can grow its gross booking at a rate of 33% plus CAGR.

He added that Uber can turn profitable in 2021 thanks to management's "rationalization of markets", cutting back on incentives and discounts and eliminating some operating expense lines. This would lead to an EBITDA of $43m in 2021.

Weathering the storms

Uber is certainly a survivor. In response to the new Californian gig economy law, it is experimenting with new processes where its drivers will be given more control over pricing. Thus, blurring the line between what is a contract or employed worker.

It has also not given up hopes of continuing ride hailing operations in London, focusing on the use of environmentally friendly electric vehicles in the capital to tempt regulators to change their minds.

More changes could also be afoot at Uber Eats. It recently lost exclusive rights to make millions of McDonald’s deliveries each year in the UK. “Without that exclusivity orders could be under pressure in 2020,” said Joseph Barnet-Lamb, Credit Suisse analyst. Approximately half of the orders made through the platform in the UK are for McDonald’s food.

However, this could drive Uber into finding a partner for the division. The Financial Times recently reported that it discussed the possibility of a merger with food delivery service Door Dash last year. It said the companies had not ruled out the possibility of resuming talks.

The possibility of such a deal could be one more potential upside for the Uber share price. It is certainly a stock to get investors and traders chewing on in the months ahead.