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Uber is expensive but own it anyway, this portfolio manager says

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Uber Technologies (Uber Technologies Stock Quote, Charts, News, Analysts, Financials NYSE:UBER) is on investors’ minds again after the company dropped a bombshell this week saying, in fact, that profitability could come for the ride-hailing service as early as the third quarter. And while the news did bump up the stock a bit, Greg Newman of Scotia Wealth Management still thinks Uber is a buy considering how much room the company still has to grow.

Uber’s filing on Tuesday with the US Securities and Exchange Commission said that it reached adjusted EBITDA profitability in the months of July and August this year, prompting the company to raise its outlook for the Q3 ahead. Whereas before management had guided for EBITDA of “better than a loss of $100 million” the call now is for EBITDA between negative $25 million and positive $25 million, opening the door for an even better fourth quarter where the company now expects adjusted EBITDA between $0 and $100 million. (All figures in US dollars.)

Those numbers would be a marked improvement for the San Francisco-based transportation and food ordering company which only last quarter posted an adjusted EBITDA loss of $509 million. Uber said strong improvements in earnings from its Mobility and Delivery segments are factors in the better guidance.

“They say that crisis breeds opportunity and that’s certainly been true of Uber during the last 18 months,” said Dara Khosrowshahi, CEO, in the SEC filing. “Thanks to the team’s tireless work we’ve not only grown our global leadership across both Mobility and Delivery; we’ve done so more profitably than ever before. As a result, Uber is reaching an important milestone. We also know we have much left to prove and need to execute flawlessly. We will rise to the occasion.”

The news has pumped up Uber’s share price which had been falling in recent months. Now at about $45 per share, the stock is still under water for the year, down about 12 per cent.

From the beginning, profitability has been the perennial bugaboo for the innovative tech company and while questions have been raised about the long list of exclusions Uber includes in its EBITDA calculations the overall impact of being in the black may represent a corner being turned for the company which has posted billions of losses annually in recent years.

“They are still battling their whole business model, which depends on them being able to classify their drivers as contractors and in California,” said Gina Sanchez, chief marketing strategist at Lido Advisors, speaking on CNBC’s Trading Nation on Tuesday. “It seemed like they were going to win with Prop 22, and they just recently had a significant setback. And I think that that story isn’t over, which tells me that their business model to some degree remains at risk.”

Uber, whose business is split between Mobility and Delivery segments with small offerings in Freight and an Advance Technology Group, reported revenue of $11.1 billion against a net loss of $6.8 billion for the 2020 year and revenue of $13.0 billion against a net loss of $8.5 billion for 2019. By segment for its most recently reported quarter, the company’s Q2 2021, delivered in early August, saw Delivery and Mobility with revenues of $886 million and $787 million, respectively, with total revenue at $1.913 billion.

Uber’s quest for to stop leaking money notwithstanding, Newman says the company’s numerous paths to growth, even as its ride hailing business matures.

“Uber has said that they can be profitable by as early as this quarter, maybe by Q4, which is way ahead of the Street, which was not modelling any sort of profitability until 2023. So that jolted the stock from a pretty oversold condition,” said Newman, senior wealth advisor at Scotia, who spoke about Uber on BNN Bloomberg on Wednesday. 

“The bull case continues to be I think that they have many ways to monetize and they are a brand that is known all over the world,” he said. “But I do think that this is a great place for people to put money when everybody’s forgetting about it or disappointed with it, like they were just a couple days ago [when the stock was] below $40.”

“The trouble is that they really are very speculative because you’re not going to start to see real earnings growth maybe this year, but still, they’re very, very expensive,” he said.

Newman says Uber’s 2023 P/E ratio currently at 139x is “very pricey,” yet he thinks investors are going to want a piece of Uber, which as the Tesla of its industry could take shareholders a long way. 

“I think that it’s something that can really reward people over the long term similar to the Tesla with an ecosystem maybe not quite as powerful as that but something similar,” Newman said.

“Uber is a name that really could have a whole ecosystem built around it and that could be around for years and years,” he said. “It’s an interesting play that I think has to be owned.”

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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