UBER with Nobias technology: On The Verge Of Profitability, Is It Finally Time To Buy UBER?
Uber (UBER) is a highly followed name in the growth space because of the secular tailwinds that many analysts believe exist in the ride sharing industry. Uber’s IPO made headlines in 2019 due to the immense size of the company’s initial market cap. As you can see in this article, Uber’s $8.1 billion IPO price was one of the largest of all-time. And yet, the stock has been on a relatively bumpy road since then.
UBER’s IPO price was $45/share. Today, shares trade for $34.68. This means that since its IPO date, UBER has produced negative returns for shareholders. During the COVID-19 pandemic this company struggled in a major way as social distancing trends and regulation hurt the travel sector and led to secular movements like “work from home” and the “urban exodus”, both of which have created headwinds for Uber’s growth.
In March of 2020, Uber’s share price was essentially cut in half, with shares falling from the $40 area to less than $20/share, because of fears associated with COVID-19. And yet, during its recent Investor Day presentation, Uber management highlighted the fact that its company has continued to grow nicely throughout the pandemic period, with Gross Bookings posting a 27% compounded annual growth rate (CAGR) throughout the 2017-2021 period.
The market remains content to largely ignore this growth, however. UBER shares are down 17.29% on a year-to- date basis. They’ve fallen 41.22% during the trailing 12-months. And, even in more recent times, the stock’s struggles have continued (during the last month, UBER shares are down 9.71%).
UBER Feb 2022
In short, this stock has been a perennial under-performer when compared to the major averages. And yet, reading through analyst reports, it’s clear that many individuals and Wall Street firms believe that UBER continues to offer strong long-term growth potential. The stock reported Q4 2021 earnings this week. And therefore, we wanted to take a look at what the credible authors/analysts that the Nobias Algorithm tracks have had to say about the stock recently.
Is this -41% trailing twelve month sell-off a buying opportunity? Many people think of Uber when they think of ride hailing; however, this company has expanded its operations quickly in recent years and is now much more than a ride hailing service.
Danassa Lincoln, a Nobias 5-star rated author, highlighted Uber’s diverse operations in a recent article saying, “Uber Technologies, Inc operates as a technology platform for people and things mobility. The firm offers multi-modal people transportation, restaurant food delivery, and connecting freight carriers and shippers. It operates through the following segments: Rides, Eats, Freight, Other Bets and ATG and Other Technology Programs.”
During the company’s recent quarter, its continued efforts to diversify its operations appears to have paid off nicely. Within UBER’s Q4 earnings report, its CEO, Dara Khosrowshahi, said: “Our results demonstrate just how far we’ve come since the beginning of the pandemic. In Q4, more consumers were active on our platform than ever before, Delivery reached Adjusted EBITDA profitability, and Mobility Gross Bookings approached pre-pandemic levels. While the Omicron variant began to impact our business in late December, Mobility is already starting to bounce back, with Gross Bookings up 25% month-on-month in the most recent week.”
Nobias 4-star rated author, The Value Pendulum, recently published a bullish article on Uber, bucking the year-to-date sentiment trend. The Value Pendulum began their piece with an “elevator pitch” for their bullish outlook, saying, “Uber's Q4 2021 financial performance was good, but its management guidance relating to 2024 EBITDA and Q1 2022 gross bookings disappointed investors. But I remain bullish on Uber and reiterate my Buy rating, on the basis that Uber's valuations are undemanding and the company's multiproduct platform has lots of untapped potential with respect to growing cross-platform users.”
The Value Pendulum noted that Uber recently beat analyst estimates during its fourth quarter earnings results, writing: “Uber reversed from an operating loss of -$454 million at the non-GAAP adjusted EBITDA level in Q4 2020 to generate a positive adjusted EBITDA of +$86 million in Q4 2021, as disclosed in the company's recent quarterly media release. In November 2021, Uber had guided for the company to deliver an adjusted EBITDA in the $25-$75 million range for the fourth quarter of last year, so its actual operating earnings exceeded the higher end of management guidance by +15%. Moreover, Uber's Q4 2021 adjusted EBITDA was +28% higher than the sell-side analysts' consensus forecast of $67 million as per S&P Capital IQ data.”
When discussing Uber’s bottom-line beat, The Value Pendulum attributed the company’s success to two primary catalysts. They said, “Firstly, Uber has managed to scale up its mobility (ride sharing) and delivery businesses to a level that we are able to see the positive effects of operating leverage kick in.” They continued, “Secondly, competition naturally becomes less intense in specific markets which have gone past the initial growth phase, and the focus of Uber and its rivals then shifts from gaining market share to expanding profit margins in these markets. “
The Value Pendulum also highlighted the fact that after their recent sell-off, Uber trades at a relative discount to its peers. Therefore, they believe that mean reversion back up towards the industry standard could be yet another catalyst for upside share price moment. They wrote, “According to S&P Capital IQ, the market currently values Uber at a consensus forward next twelve months' Enterprise Value-to-Revenue multiple of 2.9 times. In contrast, Uber's peers Lyft and DoorDash trade at consensus forward next twelve months' Enterprise Value-to-Revenue multiples of 3.2 times and 5.0 times, respectively.” Concluding their article, The Value Pendulum touched upon this relatively attractive valuation status again, saying, “I still rate Uber as a Buy. The company's shares have significant upside potential, taking into account the valuation discount on a historical and peer comparison basis.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
After years of unprofitable operations, it appears that Uber is on the verge of posting consistently positive bottom-line results. During the Q4 report, the company announced first quarter guidance for EBITDA of $100 million to $130 million. And, while the analyst consensus estimate across all of Wall Street currently points towards negative earnings-per-share once again in 2022 (right now, the forward consensus estimate is -$0.80/share), that trend is changing as well.
The consensus estimate for Uber’s earnings-per-share in 2023 is currently $0.03/share (which would mark the company’s first profitable year - from an EPS perspective - since its IPO). And, in 2024, analysts expect bottom-line growth to accelerate, rising to $0.76/share. This rapid growth potential is what has the bulls excited. However it’s important to note that at Uber’s current share price, shares are still trading with a very speculative forward price-to-earnings ratio (relative to the broader market’s forward multiple of approximately 21x) of 47x when looking at those 2024 estimates. That’s a hefty price to pay for earnings potential nearly 3 years down the road. But, bullish analysts aren’t necessarily thinking about what type of cash flows Uber can generate during the next several years, but instead, its potential a decade or more down the road.
Looking at the sentiment expressed by credible authors, it appears that the vast majority of individuals that our algorithm tracks remain incredibly bullish on this long-term potential. 95% of recent articles written by 4 and 5-star authors have included a “Bullish” leaning opinion. And, when we look at the credible Wall Street analysts that cover UBER stock, we see a similar trend. The average price target that credible (once again, Nobias 4 and 5-star rated) analysts place on UBER shares is currently $67.80. Today, UBER’s share price sits at $34.68. Therefore, this price target represents upside potential of approximately 95.5%.
Disclosure: Nicholas Ward has no position in UBER. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.