The U.S. economy is recovering strongly post the Covid lockdowns, with people increasingly heading back outdoors. Covid-19 cases in the U.S. are also well below the highs seen this summer with vaccination rates rising. The S&P 500 has also rallied by about 27% year to date. However, Uber stock (NYSE: UBER), which was seen as a key re-opening play has actually underperformed, remaining down by about 11% year-to-date. So what has been weighing the stock down, and is it a buy at current levels?
We think there are a couple of factors impacting Uber stock. Uber remains loss-making, despite the recent recovery in demand, with its operating losses standing at about $572 million in Q3 2021, although it turned profitable on an adjusted EBITDA basis. Uber’s large investment in Chinese ride-hailing giant Didi could also be weighing on the stock, as the company had to take a writedown of about $3.2 billion last quarter as Didi stock plummeted due to a crackdown by the Chinese government. Separately, the ongoing labor shortage and rising wages are also impacting the company, as it likely isn’t able to find enough drivers to meet the recovering demand. Uber’s outlook for Q4 2021 was also slightly softer than investors were expecting.
However, we think Uber stock appears oversold at current levels of around $45 per share. Uber’s ride-sharing business is recovering strongly post the lockdowns, with revenue rising by about 62% year-over-year in Q3, with the delivery business also holding up nicely, roughly doubling revenues compared to last year. Uber stock trades at just about 5.3x consensus 2021 revenues, while its smaller ride-hailing rival Lyft
[9/27/2021] Uber Poised To Turn A Quarterly Profit. Is The Stock A Buy At $47?
Uber stock (NYSE: UBER) rallied by almost 20% over the last week (five trading days), considerably outperforming the broader S&P 500 which declined by around 1% over the same period. The gains come as the company updated its Q3 2021 guidance, noting that it is likely to post its first-ever quarterly adjusted profit. Adjusted earnings before interest, tax, and depreciation are expected to come in between a loss of $25 million and a profit of $25 million for the quarter that will end September 30, versus the company’s previous guidance of a loss of under $100 million. Uber also expects to post an adjusted profit over Q4 2021.
Now, although Uber has reported a profit on a GAAP basis in the past driven by one-time gains, an improvement in adjusted earnings metrics indicates that the economics of Uber’s core business is improving. For example, Uber has reduced the deep discounts in recent years, while also pruning costs through the pandemic. The company also sold off its money-losing self-driving division. Moreover, the company’s ride-sharing business, which bore the brunt of the Covid-19 lockdowns, is looking up, while the food delivery business, which was a bright spot for the company through the pandemic, is likely holding up, driven by the eating at the home trend.
So is Uber stock a buy at current levels of $46.50 per share? We think it is. Uber trades at just about 5.5x projected 2021 revenues, while its smaller ride-hailing rival Lyft trades at a slightly higher 6x multiple, and food delivery rival DoorDash trades at around 16x. Both companies are likely to grow revenues at a slower pace compared to Uber Revenues over the next year. Moreover, Uber stock also remains down by about 8% year-to-date and by almost 25% from its February 2021 highs, compared to the broader Nasdaq-100, which is up by about 21% over the same period, potentially presenting a good entry point for investors. We value Uber stock at about $50 per share, marking a 7% premium over the current market price. See our analysis on Uber Valuation: Expensive or Cheap for more details
[8/27/2021]Pick Uber Stock Over Lyft As Covid Uncertainty Lingers
We think that Uber stock currently is a better pick compared to Lyft stock (NASDAQ
1. Uber’s Recent Revenue Growth Has Been Stronger
Now, although Lyft’s average revenue growth over the last three years was stronger than Uber’s (45% vs. 14%), given the company’s smaller revenue base and its focus on the lucrative North American ride-hailing market, things changed meaningfully through the Covid-19 pandemic.
Uber’s revenues declined by about -20% to $10.5 billion over the last twelve-month period, compared to levels of around $13 billion in 2019, prior to the pandemic. The decline was primarily due to a sharp drop in the company’s core ride-hailing business which saw sales decline by over 40% in 2020, although this was partly offset by the robust performance of the delivery operations, which grew by over 2.5x over the last year. Our Uber Revenues dashboard summarizes the segment-wise breakup of the company’s revenues. Looking at Lyft, total revenue declined by about -47% over the last twelve months to about $2 billion, as the company is almost entirely dependent on ride-hailing. This compares to sales of about $3.6 billion in 2019.
2. Both Companies Are Lossmaking, But Uber’s Margins Are Improving
Both companies remain deeply unprofitable, but Uber’s margins are showing some improvement. Uber’s operating margins stood at a negative 31% over the last twelve-month period, an improvement from the negative 60% margins it posted in 2019. The improvement was driven by declining fixed costs and lower losses in the food delivery business, Uber Eats. This compares to Lyft, which posted an operating margin of negative 88% over the last twelve-month period, a deterioration from levels of around negative 42% in 2018. The margin decline came as the reduction in the company’s cost base through the pandemic didn’t keep up with a sharp decline in revenues. We expect margins for both companies to pick up going forward. While Uber stands to benefit from strength in its food delivery business – which was previously a major source of losses – Lyft’s margins could also pick up as the ride-hailing market posts a gradual recovery.
The Net of It All
Although over half of the U.S. population is fully vaccinated against Covid-19, with overall economic activity picking up, there remains some uncertainty in the near-to-medium term for the ride-sharing market. Covid-19 is proving more difficult to contain than initially thought due to the spread of more contagious virus variants and infections in the U.S. are surging once again. This could make people somewhat averse to ride-hailing services and more specifically to services such as ride-pooling. While this could hurt the pace of Lyft’s recovery, Uber should be better poised to cope given its exposure to the food delivery business which is likely to remain strong even in the face of potential Covid-19 restrictions and also due to its international exposure. This has been reflected in Uber’s recent performance, as its sales rose by 32% over the first half of 2021, compared to a revenue growth rate of just 6% for Lyft.
Uber’s current valuation is also slightly more attractive than Lyft’s, with the stock trading at about 7x trailing revenues, versus about 8x for Lyft. We think this gap in valuation will narrow in the near term to favor Uber, which is more attractively priced and has better near-term prospects and possibly lower risk. As such, we believe that Uber is currently a better buying opportunity compared to Lyft stock.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates