The Ratings Game: Uber stock pops despite big losses as company ‘did not disappoint’ with its recovery talk
The Ratings Game
Analysts praised cost-cutting moves and were upbeat that the rides business is slowly improving off its COVID-19 lows
Uber Technologies Inc.’s quarterly loss of nearly $3 billion didn’t do much to dent analysts’ enthusiasm for the ride-hailing stock as Uber’s management outlined plans to cut costs due to pressures from COVID-19.
Shares of Uber
were up nearly 5% in morning trading Friday.
Evercore ISI’s Benjamin Black wrote that Uber had a tough set-up coming into the release as its stock already gained 10% in Thursday’s session following rival Lyft Inc.’s
own report, which highlighted cost-cutting efforts and the beginnings of a demand rebound in recent weeks.
“That said, the company did not disappoint,” Black wrote of Uber’s report. He highlighted management’s plans for $1 billion in annual savings through cost “rationalizations,” improving ride-sharing trends in regions that have started to reopen, and “structurally improving” take rates and margins for the Uber Eats business.
“In short, we believe this quarter served to demonstrate management’s commitment to profitability, grow confidence in the unit economics in Eats, and underscore that Rides trends, while down 80% in April, are coming off the trough,” Black wrote, while reiterating an outperform rating and $45 target price.
Needham’s Brad Erickson said that Uber is “the name to own not only as an acutely hit COVID-recovery story but also as the leading mobility platform in its infancy of adoption.”
He’s excited about the company’s “meaningfully faster ramp towards profitability” due to cost cuts and raised his price target to $42 from $36 while maintaining a buy rating.
Bernstein’s Mark Shmulik acknowledged that its been a “strange” period for ride-hailing investors as Uber and Lyft first announced layoffs, prompting concerns about liquidity, before they each “showed signs of life” in discussing growth off their lows. He saw “synergies” between the Eats and ride-hailing businesses with 40% of drivers moving over to Eats.
“Given rideshare overhang, 1Q was about as good as we could have hoped for, with the wheels starting to turn on Eats,” Shmulik wrote, as Eats bookings accelerated to 89% in April on a year-over-year basis. Still, he was cautious about extrapolating too much from the improved margin performance at Eats as he expects order sizes have been inflated now that people are buying food for their whole families rather than ordering takeout alone at work.
“Both stocks have moved ~20%+ on the prints, but the return to normal is likely to be bumpy,” Shmulik wrote of Uber and Lyft. He rates the stock at outperform and boosted his target price to $35 from $32.
Piper Sandler’s Alexander Potter highlighted that the Eats momentum gives Uber a cushion but still remains a far smaller portion of the overall business than ride-hailing is.
“Even with ~75%y/y growth in bookings, Eats will still be
At least 10 analysts raised their price targets on Uber after the report, according to FactSet, while at least three lowered theirs. Of the 41 analysts tracked by FactSet who cover Uber’s stock, 32 have buy ratings, eight have hold ratings, and one has a sell rating, with an average target price of $40.22.
Uber shares are down 20% over the past three months as the S&P 500
has declined 12%.