- Uber is at an inflection point and should benefit from the reopening of the economy.
- Long Uber/Short Zoom is a play on the reopening that I wrote about previously.
- Uber is announcing earnings on May 7 and I am watching these 6 things that will drive the stock.
Last week, I published Coronavirus Reopening: Long Uber/Short Zoom Pair Trade Opportunity. The thesis is that sentiment is at peak Zoom (ZM) and trough Uber (NYSE:UBER). The reopening of the economy is setting up a reversal.
Uber reports Q1 earnings on May 7, 2020. Uber gave an update on 1Q and withdrew 2020 guidance.
Keep in mind that Lyft (LYFT) reports on May 6, which will be an important tell for Uber.
I am looking at the following factors for confirmation (or not) of the Long Uber thesis.
1. Cash Burn & Liquidity
On March 19, 2020, Uber CEO Dara Khosrowshahi said that Uber had $10 billion of unrestricted cash and expected to end the year with $6 billion of cash and a $2 billion revolver.
The airlines recently raised equity and debt to fund their cash burn. However, it doesn't seem that they are covered through 2021, like Uber suggested. Uber may be in a better cash position relative to the airlines.
I will listen to the earnings call to see if Uber confirms:
- $6 billion of cash at year-end 2020
- It has enough cash to get through 2021 without raising additional equity or debt
Uber's shares could fall if there is hesitation about this.
2. Ride Volume
We all know that Uber's ride volume is down significantly. But, has Uber started to see an inflection in its major U.S. markets?
On the March 19 update call, CEO Khosrowshahi said that Uber's base case assumes a bottoming in 2Q and rebound in 3Q. Is that still the base case?
He gave specifics about 2 cities. Hong Kong was down -45%, but rebounded to -30% by the time of the call. Has Hong Kong rebounded further since March 19?
Seattle was down 60-70% at the time of the call. Did it see a rebound like Hong Kong, or is it still down 60-70%?
These two cities could be instructive across Uber's geographic footprint.
3. Uber Eats
Uber Eats was 22% of 2019 Gross Bookings, compared to 76% for Rides.
Uber Eats was up 10% in late March. I expect strong growth from Uber Eats, based on the extent of the shutdowns since March.
A strong growth rate for Uber Eats could drive shares higher.
4. Cost Structure
Before the coronavirus crisis, Uber expected to achieve profitability in 2021 (Source: Uber's February 6, 2020, Investor Presentation). However, this guidance was withdrawn in the April 19, 2020, update.
Uber Eats' segment Adj. EBITDA was a drag on the overall results in 2019. It will be interesting to see how the growth in Uber Eats impacted the segment profitability in 1Q.
(Source: Uber 2019 Annual Report)
Since the outbreak of the coronavirus crisis, the following cost cuts have been announced, or reported in the press:
- Uber Eats exits eight global markets
- Uber Discusses Plan to Lay Off About 20% of Employees
- $150 million pullback in advertising and incentives by March 19 (maybe more by now)
Uber is now a company that looks different:
- Smaller, profitable Rides business, which is hopefully rebounding in Q3
- Growing Uber Eats business (not yet profitable)
- Cuts to fixed costs and investments
Will Uber hint that this formula can achieve profitability in 2021?
5. Market Share
Many drivers and passengers use both Uber and Lyft. Can Uber gain market share from Lyft as we go through the coronavirus crisis?
Advertising, discounts and subsidies drive market share. In this environment, Uber and Lyft need to balance chasing market share with profitability.
I am listening for Uber's approach and if it can expand market share while being disciplined on expenses.
6. "Take a Seat" Wildcard
Amazon built a lot of goodwill with investors over the years. Its investments have paid off.
Uber is in a different place. However, there is risk that Uber delivers a similar message to investors. This could cause the stock to drop in the short term, even if it works out in the long term.
Uber's results are down because of the coronavirus. The upcoming call will give us color on a few key questions.
Does Uber have enough cash to get to the other side? Does Uber Eats' growth offset declines in the rides business? What is the profitability of the new Uber?
The economic reopening should be a positive catalyst for Uber. We will see if there is confirmation from the earnings report.
This article was written by
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