A new year and new hope for Uber (Uber Stock Quote, Chart, News NYSE:UBER), which after a disappointing IPO last year has produced solid gains through the month of January.
But it’s a puzzle of a company, says David Baskin of Baskin Wealth Management, in that everyone loves using Uber but profitability still seems like a far-off dream for the ride hailing service.
“Uber is the kind of stock that we watch but don’t buy because the fundamentals for us aren’t there yet. We’ve never seen profits and we don’t know if it’ll ever be profitable,” says Baskin, president of Baskin Wealth, who spoke to BNN Bloomberg on Tuesday.
Uber and competitor Lyft (NASDAQ:LYFT) have both been on the upswing of late, with Uber up 42 per cent over the last three months. The stock is still below its $42.00 IPO price of last May, as is Lyft which debuted last March.
“I’ve used Uber in cities in lots and lots of places and it works, but that doesn’t necessarily mean that they’re going to make money…”
All eyes will be on Uber’s fourth quarter results which are due on Thursday, with expectations being that the company will grow its top line while extending its losses once again. So far, Uber has reported combined losses over the past three quarters of $7.4-billion. For its Q3 delivered in November, Uber posted revenue of $3.81-billion, beating analysts’ average expectation of $3.69-billion, with a loss of $0.68 per share compared to the expected loss of $0.81 per share. (All figures in US dollars.)
As to a roadmap to profitability, management has said that by 2021 the company will be EBITDA positive, with the company touting its greater financial discipline of late and attempts to cut losses through employee layoffs and shedding of unprofitable businesses.
But Baskin says while popular, the ride hailing industry still has a bumpy road ahead. “Uber faces a number of challenges that are unique to its circumstances,” Baskin said.
“For example, the state of California has just passed a law which will probably require Uber to recognize Uber drivers as employees rather than contractors, and as soon as they’re employees they’re in a whole different category in terms of how Uber has to treat them. Other cities are restricting Uber in other ways.”
“The city of London has put a lot of restrictions on Uber. Cities are anxious to control traffic, to control the use of the curb, the interface between the sidewalk and the street, and of course, Uber depends on picking up and dropping off people everywhere,” he said.
“So I think the company faces a number of challenges. That being said, it’s a terrific company and everybody loves using Uber and it’s ubiquitous around the world. I’ve used Uber in cities in lots and lots of places and it works, but that doesn’t necessarily mean that they’re going to make money,” Baskin said.
Earlier this week, investment firm Wedbush gave Uber its “best pick” status ahead of the fourth quarter results, saying that the company’s moves to cut losses have been encouraging. “[W]e believe this week will likely mark an important first step forward with better than expected 4Q earnings/2020 guidance from [Chief Executive Dara Khosrowshahi] and thus start to regain Street credibility,” said Wedbush.