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Uber stock is a Buy right now: BofA analyst

·3 min read

A new Bank of America (BAC) Global Research report found a rising supply of Uber (UBER) drivers was the main driver of the company’s first profitable quarter.

“We see Uber as the top Internet stock in our coverage universe for Urban reopening and improving labor conditions and think multiple expansion is possible on market share gains,” BofA analyst Justin Post wrote in the report released Monday.

The report noted that a higher-than-expected mobility take rate, which measures how much revenue the company keeps from the fares of all trips, is cause for optimism and suggests the stock may be undervalued.

“Reiterate: buy,” Post wrote to conclude the key takeaways of the report.

The ride-sharing service released its third quarter earnings report last Thursday, revealing a before-tax operating profit of $8 million. Uber saw a 57% increase year-over-year in Gross Bookings, as well as a 39% increase in trips taken, over the quarter. The company’s adjusted EBITDA profit of $8 million was up from an adjusted EBITDA loss of $507 million in quarter two.

Still, the company’s net income was still well below zero. This quarter’s net loss of $2.4 billion disappointed investors, especially as industry rival Lyft (LYFT) posted a profit for the second consecutive quarter. Uber’s heavy investment in DiDi (DIDI), a Chinese ride-hailing company proved hurtful to the company’s profits in the short-term. Didi’s stock price fell precipitously following a crackdown by Chinese authorities, leading to a $3.2 billion loss for Uber.

The mixed bag that is the Q3 earnings report arrives as the cacophony of dissatisfied feedback facing the company as a result of worker grievances, higher prices, and longer wait times begins to abate. Both Uber and Lyft faced significant driver shortages after the spread of covid variants around the world disincentivized ride-sharing, exacerbating wait time and pricing issues for consumers.

Back in April, the company launched a $250 million incentive program in an effort to combat nationwide driver shortages. In Q2, it incurred a $509 million loss before interest and taxes, with a great deal of the expenses being costs associated with attracting drivers. Along with offering increased payment incentives, Uber created guidelines like mask mandates for passengers and drivers in order to reduce the spread of the coronavirus.

Uber and Lyft driver Adama Fofana, who says he and other drivers he knows have
Uber and Lyft driver Adama Fofana, who says he and other drivers he knows have "fear in their stomachs" about contracting the coronavirus disease (COVID-19) while working, but cannot cut their hours because they need the income to survive, sprays disinfectant in his car in New York City, New York, U.S., March 9, 2020. Picture taken March 9, 2020. REUTERS/Joe Penney

The campaign to draw more drivers to the service appears to have been successful, at least in the short-term. Uber CEO Dara Khosrowshahi explained on an earnings call that both instances of surge pricing and wait times had seen significant declines since their respective peaks. “We’re comfortable that the bulk of our recruitment spending is behind us,” he said.

In the third quarter, Uber made good progress towards ending that shortage by attracting more drivers, according to Bank of America Global Research.

“Uber saw driver supply tailwinds in 3Q with US Mobility drivers up 60% Y/Y, which continued to improve through October with 10 straight weeks of growth,” the report noted. “Big picture, Uber is benefitting from scale and driver supply tailwinds, with mobility rebounding, and we expect these trends to continue through [2022]. Based on relatively [unchanged] estimates, we maintain our [Price Objective] at $64 based on our SOTP [Sum-of-the-parts analysis].”

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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