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Uber is set to report 3rd-quarter earnings on Monday. Here's what 6 Wall Street analysts are saying ahead of the report.
Uber is set to report 3rd-quarter earnings on Monday. Here's what 6 Wall Street analysts are saying ahead of the report.
Carmen ReinickeNov 4, 2019, 20:04 IST
Ints Kalnins/Reuters
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Uber reports third-quarter results after market close on Monday, November 4.
After Lyft's rosy results, Wall Street is expecting that Uber will have a similarly strong quarter as the competitive landscape cools for both ride-sharing companies
Still, analysts caution investors that Uber's post-initial public offering lockup period expires November 6, which could lead to further stock-price volatility.
Here's what six analysts said about Uber before earnings.
Uber, the popular ride-hailing company, reports third-quarter earnings Monday after market close, just days after rival Lyft reported its own third-quarter earnings that beat analyst expectations.
After Lyft's rosy results, Wall Street is expecting that Uber will show a similarly strong quarter as the competitive landscape cools down for both ride-sharing companies.
"In the US, we believe competitive intensity is easing somewhat, evidenced by Lyft's recent proclamation of sooner than expected profitability, with less coupons and discounting as a driver," wrote Youssef Squali, an analyst at SunTrust Robinson Humphrey, in a recent note.
In addition, ride fees are set to generally increase going forward, meaning that ridesharing can be a growing and profitable business, wrote Tom White from D.A. Davidson.
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This should offer a boost to Uber's revenue, which analysts estimate will be $3.9 billion in the quarter, and may also lead to a smaller loss on the bottom line. Analysts are expecting a loss of $1.5 billion, much less than the $5.2 billion loss Uber reported in the second quarter.
Reporting a smaller loss would help show analysts and investors that the company is on a path to profitability, especially after Lyft's recent announcement that it would become profitable in the fourth quarter of 2021, one year sooner than Wall Street had expected.
Uber has been less specific about when it will be profitable, but has said that it plans to reach the milestone before 2022, according to Bloomberg.
Analysts will also be watching shares as Uber's post-initial public offering lockup expiration date approaches. Its lockup ends November 6, two days after its earnings release, meaning that 763 million shares could become eligible to trade when the period expires. RBC Capital Markets analyst Mark Mahaney estimates as many as 1.68 billion Uber shares could become available after the lockup. This could lead to further volatility in share price.
Even though Uber has underperformed in the market since its IPO, Wall Street remains largely bullish on the company. Uber has 26 "buy" ratings, 12 "hold" ratings, and only one "sell" rating, according to Bloomberg data.
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Here's what analysts are saying about Uber before it reports earnings:
1. Bank of America Merrill Lynch: "Uber will benefit from decreasing competitive intensity in U.S. ridesharing"
Price target: $44 from $53
Rating: Buy
"We continue to believe Uber will benefit from decreasing competitive intensity in U.S. ridesharing in 2H'19. A key question for the stock over the next 6 months is if the street will give the company credit for improving rides profitability, and see eats and freight as good investments (despite expected deceleration)," wrote Justin Post of Bank of America Merrill Lynch in a Tuesday note.
He continued: "While industry risks have grown, we continue to assume Uber's net rev. can reaccelerate, with contribution margins also increasing on lower excess driver incentives."
2. D.A. Davidson: "We believe UBER/LYFT can be 'surgical' in their pricing"
Price target: $44
Rating: Neutral
"The bottom line is that Ridesharing prices for consumers look set to generally increase going forward (let's set aside the longer-term potential around robo-taxis)," wrote Tom White at D.A. Davidson in a note October 24.
He continued: "Near-term we believe UBER/LYFT can be 'surgical' in their pricing optimizations, but, if driver-related expenses and congestion/regulatory fees and taxes continue to rise across UBER/LYFT's various markets (a safe bet we think), we'd expect long-term ride volume to be negatively impacted as certain consumer 'use cases' for taking an UBER/LYFT will no longer make sense."
3. SunTrust Robinson Humphrey: "We view Uber as a generational company compounding at scale"
Price target: $56
Rating: Buy
"We believe Uber's decision to more meaningfully integrate Rides and Eats could have a positive impact on key metrics in 4Q/2020. We maintain a BUY rating as we view UBER as a generational company compounding at scale, taking advantage of a massively inefficient transportation market," wrote Youssef Squali of SunTrust Robinson Humphrey in a note Monday.
"Additionally, share of app downloads in the U.S. among Uber and Lyft appears to have stabilized in recent quarters, according to Sensor Tower."
"We estimate that the total headcount reduction (~1,200 total, ~815 in the U.S., since end of July) represent ~$140M in annualized savings, or ~1% of 2020E revenues. We view the move positively as it demonstrates management's intent to stay operationally fit as it grows."
4. RBC Capital Markets: "The controversy is around profit potential"
Price target: $62
Rating: Outperform
"We believe investors largely agree that Uber faces very large TAMs, has a leading competitive position, and benefits from an experienced management team. The controversy is around profit potential, heightened by the largest loss profile of almost any IPO (~$4B EBITDA loss in FY19E)," wrote Mark Mahaney of RBC Capital Markets in a note Friday.
He continued: "But, over the past 3 years, we have seen each of Uber's four opex lines (Ops & Support, Sales & Marketing, R&D, and G&A) decline as a percentage of Revenue (from 99% in FY16 to 66% in FY18), and we have seen Driver & Rider Subsidies as a percentage of bookings come down materially (from 13% in FY16 to 9% in FY18)."
Regarding the lockup, Mahaney wrote: "We remind investors that Uber's IPO lockup expires on November 6, 2019, when we believe ~1,682.5MM shares will become eligible for sale in the public market. We would also note that concurrent with the IPO, PayPal purchased $500MM of Uber's common stock in a private placement, amounting to ~11.11MM shares at $45 each. The private placement shares are subject to a lockup period that will expire on February 4, 2020."
5. Raymond James: "Uber should trade near Internet marketplace peers"
Price target: $54
Rating: Outperform
"Lyft's results indicated healthy market trends, as evidenced by less couponing and balanced Active Rider and Revenue per Active Rider growth. Our sense is LatAm remains stable, while Europe experienced some softness from new competitors. Healthier trends in the U.S should mitigate Europe pressure," wrote Justin Patterson of Raymond James in a Thursday note.
In food delivery, "U.S. challenges appear unique to GrubHub. International remains competitive (particularly India). We expect Uber is evaluating markets, and is more focused on profitable growth, which may create softer bookings but stronger profit."
"Given potential for gross profit growth to accelerate to 30%+ in 2020E-2021E, we believe Uber should trade near Internet marketplace peers. Our Outperform rating (vs. Strong Buy) reflects volatility associated with loss generating assets."
Wedbush: "This will be a long and winding road for Uber"
Price Target: $58
Rating: Outperform
"Uber will be reporting results a few days before the official lockup period begins on Wednesday, in which over $20 billion more of stock (763 million shares) hits the market and could cause an avalanche of selling as early investors and insiders hit the bid, which remains a major Street worry around near-term pressure," wrote Daniel Ives in a note Friday.
He continued: "While Lyft has now given targets on profitability, Uber remains mum with hopes the company will give some more color around its bottom line strategy on its conference call Monday night. In terms of the quarter, we expect Uber to beat expectations with our/consensus revenue of $3.85B (+31% y-y)/$3.7B (+26%) and adj. EBITDA of ($730)mm/($818)mm."
"To this point, this will be a long and winding road for Uber to prove to the Street its ability to monetize a massive installed base of ~100mm and growing although the lack of profitability even with binoculars remains a negative focus for bears, which is an overhang on valuation."
