Ride-hailing service Uber Technologies (Uber Technologies Stock Quote, Chart, News NYSE:UBER) has been slammed by the market selloff and is now at all-time lows, but portfolio manager Paul Harris says once this economic crisis settles down, investors should be rewarded for hanging onto this well-run company, which he thinks could be profitable sooner than many think.
Uber’s share price lost a whopping 13.8 per cent in trading on Thursday, bringing the stock to $22.81 per share, well below its recent low of $25.99 set in November and getting close to half the price set for its IPO back in May of last year.
One of the main issues dogging the company is a lack of profitability and, more to the point, little indication that Uber’s operations will be in the black anytime soon.
And looking at its recent quarterly reports, there appears little to challenge that thesis, despite what management may say. Uber reported second quarter earnings last August, featuring losses of $5.2 billion on $3.16 billion in revenue, which was followed by a loss of $1.2 billion for its third quarter this past November.
Then, in early February, the company posted a loss of $1.1 billion —altogether totaling a loss of $8.5 billion for the 2019 fiscal year.
Yet the company insists that (adjusted) profitability will be in the cards by the end of 2020, with CEO Dara Khosrowshahi saying in the Q4 press release, “We recognize that the era of growth at all costs is over. In a world where investors increasingly demand not just growth, but profitable growth, we are well-positioned to win through continuous innovation, excellent execution, and the unrivalled scale of our global platform.”
And while you may be saying ‘I’ll believe it when I see it,’ Harris thinks the profitability scenario may come sooner than you think.
“Obviously, when it came out with the IPO it collapsed and then it sort of threw all the IPO market down the tubes, effectively, because this was a very highly valued unicorn, as they call them,” said Harris, partner at Harris Douglas Asset Management, speaking to BNN Bloomberg Thursday.
“I think what's interesting about Uber is the guy who runs a company is very bright. They're going to be EBITDA-positive by the end of the year and hopefully that happens with what's going on,” says Harris. “[Khosrowshahi] used to run Expedia and he did a very good job with that, so I think they're on track to do that.”
Although Uber debuted last year alongside ride-hailing competitor Lyft, Harris said there’s a world of difference between the two.
“Uber has some really good businesses that are much more global than Lyft, and I think what they've done very well is that when some businesses were just not making their cost of capital, they've exited them and I think that was the right move,” says Harris.
“I think [profitability] is what's going to push up the stock because people are waiting for
it,” he said. “I think they felt that it’s going to be two or three years but I think it's going
to be a shorter time horizon.”