Uber’s stock is a “moon shot”, this fund manager says

Now that Uber Technologies (Uber Technologies Stock Quote, Chart NYSE:UBER) has recovered from its disappointing public debut last month, what’s in store for the stock going forward?

There’s a lot left to be decided in the still-evolving ride-hailing space, says Ian Fung of Davis Rea, but in terms of Uber’s lack of profitability, it’s hard to see the light at the end of the tunnel.

“As a very small percentage of your portfolio, if you want to take a moon shot, sure, I think [Uber] is an interesting way to do it,” said Fung, vice president and portfolio manager at Davis Rea, to BNN Bloomberg on Thursday. “The problem with Uber, though, is that the competition is pretty fierce. You’ve got it competing against Lyft. Even in Toronto, you’ve seen that there’s a lot of price competition between the companies and having been in them, you find that a lot of drivers are working for both companies.”

Both Uber and Lyft had their initial public offerings in the last few months, with Lyft still struggling well below its IPO price while Uber, at a little under $45 per share in early trading on Friday, has now evened out since it began trading in early May.

Part of Uber’s rebound might be due to investor confidence after the company posted its first earnings report at the end of last month and matched preliminary expectations. Uber generated revenue of $3.10 billion, which was better than the expected $3.04 billion, while the net loss of $1.01 billion were equal to the expected $1.01 billion.

But it’s that glaring $1-billion loss per quarter that should have investors worried, says Fung.

“That model, I don’t know if it’ll turn profitable any time soon because both companies are still jockeying for growth and taking losses to expand market share, but I think that we’re a long ways away from seeing profitability,” Fung says.

“If you want to bet on driving as a service, Uber is one way to play it [and] you get some exposure through Uber Eats and other ancillary businesses that they’re working on, but it’s still very early days,” he says.

After Uber’s IPO, CEO Dara Khosrowshahi sent a memo to employees in which he called for patience, saying that just as tech giants Facebook and Amazon were slow to catch on for investors, sentiment concerning Uber is bound to change once a path to profits is established.