Uber Technologies UBER has not performed as per expectations since it went public on May 10, 2019, due to multiple headwinds like high costs. In fact, shares of the company have mostly traded below its IPO price of $45, having lost 21.5% since its trading debut. Uber has also underperformed its industry's decline of 10.2% during the same period.
What's Hurting the Stock?
Uber is spending significantly toward promotions and driver incentives as it competes with rivals like Lyft LYFT for higher market share. This, in turn, is hurting Uber’s bottom-line growth. Evidently, Uber collected $37 billion in fares last year, out of which 81% went to the drivers.
In fact, Uber has incurred losses in excess of $6 billion in the first six months of 2019 due to escalated expenses on sales, promotions and marketing to attract riders as well as drivers. What’s worse is that the company has warned of the huge losses to persist through 2019 since this will be its “peak investment year”.
Furthermore, Uber is a highly leveraged company. This is indicated by the fact that the ratio of its long-term debt-to-capitalization (expressed as a percentage) currently reads 26.9. This compares unfavorably to the figure of 4.1 for its industry. At the end of second-quarter 2019, long-term debt stood at $4.53 billion.
In September 2019, the legislators in California passed a bill, which is a threat for the business models of companies like Uber. This is because, the bill, to be effective Jan 1, 2020, would force Uber to reclassify its drivers as employees and not independent contractors.
Moreover, the ongoing uncertainty related to the renewal of Uber’s license in London, which will expire shortly, is also an overhang on the stock until clarity is obtained on the issue.
Not All Brickbats, Some Roses As Well
Despite the aforementioned headwinds, this San Francisco, CA-based ride-hailing company does have its share of positives. Notably, Uber's endeavors to enter the promising market for driverless or self-driving cars bode well.
On Jun 12, Uber announced that it will partner Volvo to build autonomous vehicles for delivering food from restaurants. The companies declared that the car will begin public testing in 2020. Per Modor Intelligence, the autonomous delivery robot market is expected to witness a CAGR of more than 49.5% between 2019 and 2024. These cars, once operational, are expected to bring down the costs for paying drivers.
Also, in a bid to improve efficiencies and drive the bottom line, Uber announced job cuts in July and September. Increase in ridesharing revenues (up 6% in the first half of 2019) is an added positive. The company’s efforts to expand its presence across the globe are also encouraging.
Zacks Rank & Key Picks
Uber carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are TiVo Corporation TIVO and Sohu.com SOHU. While TiVo sports a Zacks Rank #1 (Strong Buy), Sohu.com carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
TiVo has seen the Zacks Consensus Estimate for current-year earnings being revised 12.2% upward over the past 60 days. Meanwhile, Sohu.com has surpassed the Zacks Consensus Estimate in three of the trailing four quarters.
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