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Uber Is Still A Buy

May 08, 2020 2:26 AM ETUber Technologies, Inc. (UBER)71 Comments


  • Uber reported Q1 earnings on May 7, after the bell.
  • The promising remarks by the CEO sent shares higher in after-hours trading.
  • The company has taken a few bold steps to cease its business operations in markets that are difficult to dominate, which is in line with its core strengths and business strategy.
  • The macroeconomic outlook is favorable, and shares remain undervalued despite the 32% gain since my last article.

Even if Q1 numbers happen to be disappointing, Uber


Uber Technologies, Inc. (NYSE:UBER) shares have gained 47% since the bullish article I published on March 21. I was focused on the long-term prospects of the company, and I still am. To be fair, I did not expect Uber shares to report gains of this magnitude even before the mobility restrictions are lifted. To recap, I assigned a fair value of $87 per share and a time horizon of two years for the market price to converge with this estimate. The company's losses grew in the first quarter, and the impact of the coronavirus came to light with Q1 results. However, the long-term thesis for Uber remains intact, and the company is significantly undervalued.

Q1 results give reason to be wary about Q2 earnings

There was nothing too exciting in Uber's Q1 results. Even though the company reported year-over-year growth in monthly active platform consumers (MAPCs), active users reported a decline on a quarter-over-quarter basis. This goes on to show the negative impact of COVID-19 on Uber's operations.

(Source: Earnings presentation)

This phenomenon is true for most other operating metrics, including gross bookings, adjusted net revenue, and the adjusted EBITDA margin as well.

The real highlight was the 54% growth in the Uber Eats segment. Adjusted net revenue from this segment increased by a staggering 124% in the first quarter, which was supported by the new partnerships the company formed with restaurants who were struck by COVID-19.

In the earnings conference call, Dara Khosrowshahi stated that rides were down 80% in April, but were recovering on a week-over-week basis as a result of the easing restrictions in some parts of India, the United States, and Hong Kong. This is encouraging news, but investors need to be wary of a disappointing second quarter because of two factors.

  1. Many countries, including the

This article was written by

Dilantha De Silva profile picture
I am Dilantha De Silva, an investment analyst with 8+ years in the investment management industry. Before becoming an independent publisher, I worked as a buy-side analyst in a leading boutique wealth management firm in Dubai where I dedicated my time to identifying U.S. small-cap stocks for the funds managed by the firm. I am the founder of Beat Billions, a premium Investing Group on Seeking Alpha focused on identifying alpha-generating thinly followed stocks in the market. I am a CFA Level III candidate and an Associate Member of the Chartered Institute for Securities and Investment (UK).

Analyst’s Disclosure: I am/we are long UBER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (71)

ValueGrowth Investing profile picture
@Dilantha De Silva - Hi, with regards to latest Uber divestiture of JUMP and Convertible Note Investment in Lime - Does this divestiture mean that Jump is now part of Lime which is independently managed from Uber but in which Uber have 16% stake and can eventually acquire the majority equity interest in? As a result, can Uber offer bike services through Jump/Lime in their Transportation Super-app or is the bike service something external from Uber's app?

As per latest 10Q for reference:
On May 7, 2020, the Company entered into a series of transactions and agreements with Neutron Holdings, Inc. dba Lime (“Lime”) including (i) the divestiture of certain assets of Uber’s dockless e-bikes and e-scooters business and operations operated as JUMP which is included in the Company’s New Mobility offering (the “JUMP Business”), in exchange for common stock in Lime representing approximately 16% of the fully-diluted capitalization of Lime, (ii) an $85 million investment in Lime in the form of a secured convertible note which shall be convertible at any time at the election of the Company into senior preferred stock of Lime, and (iii) a commercial collaboration agreement. All transactions have been completed, except for the divestiture of the JUMP Business in certain jurisdictions outside of the United States, which are expected to be completed during the second or third quarter of 2020. Additionally, during a two-year period beginning on the second anniversary of the transaction, the Company will have a contractual call right to acquire all of the outstanding equity interests of Lime held by certain other significant shareholders at the then fair market value, subject to receipt of applicable regulatory approvals.
dpwroc profile picture
This is just getting started in the U.S. as individual states and municipalities learn more about TNC operation and effects, in general.

LA, San Francisco, San Diego sue Uber, Lyft over driver classification
WolfpackCapital profile picture
I sold today at $32.25. I’ll be back when it’s below $30. Still believe in the long term, it just got a little ahead of itself
CatchTheFallingKnife profile picture
Time to buy was $15 ago, at this level, I pass.

Thank you.
Thanks for the article. Uber didn’t lose $3billion any more than Berkshire Hathaway lost $50billion. It’s called GAAP accounting. It makes GE and most large banks opaque and impossible to understand. Uber is struggling but I have to believe the other taxi services are hurting worse. Love your articles.
dpwroc profile picture
Curious by what you mean, in your unerstanding of their report, exactly. Uber didnt lose three million? Curious.
Uber has a vault of money that Scrooge Mcduck swims in when he’s not swimming in his own. Very little money was spent out of that. Uber owns equity stakes in foreign ride companies, those crashed along with the market. GAAP accounting makes you show that as a loss. My portfolio crashed in March but my savings account didn’t lose a penny.
Uber and Lyft are going to get slam dunked in court and at the ballot box because drivers are employees. Everyone knows the drivers are being cheated. Even conservative taxpayers will line up against Uber because they don't like Uber mooching off society. You can kiss the business model goodbye.
WolfpackCapital profile picture
Want to bet on it?
Like with any other job, they can leave if they are not happy. No one is forcing them to drive for Uber. If they want benefits go find another job
solucky profile picture

" Everyone knows the drivers are being cheated."

Thats the reason to outlaw the business in some markets
cbr6910 profile picture
hi Dilantha. thanks for your detailed overview, and the time you spent preparing. What are your thoughts on how Uber supports a valuation greater than half'ish of 2019, and the forward looking growth that time supported v. now?
A_Fava profile picture
There's nothing in here to justify valuation over $100 billion or even the current $53 billion value. Sure, many companies made incredible runs since March and we all could probably brag on the moves we made. Typically in bear markets, unprofitable, negative cash flow companies and dumpster fires are supposed to be cleansed, not double in value from today's price.
Optimomentum profile picture
So, it's the market that's wrong and not you - is that your premise? I find it fascinating the number of people who will pound the table with absolute certainty on what should be, when reality shows it's clearly not so.
A_Fava profile picture
First of all, "The market can be irrational longer than you can be solvent" is the quote that comes to mind and is relevant to Uber and others. Second, I'm not even stating what I value Uber at, just simply stating that the article doesn't justify the stock doubling or even why it's worth its current market cap.
dpwroc profile picture
What are your main valuation assumptions for 87$ TP?

Negative points:
a) no prospects in Europe due to strong unions
b) easy to replicate business model, low entry barrier, thus plenty of local names are beating Uber
c) social distancining in the next 2 years will lead to much less shared economy activity
d) food delivery will never be profitable.

I agree Uber has future, but I can comprehend the valuation of 80bn
mxschumacher profile picture
a) it's not really unions that are a problem, because drivers are not employees. The problem is government regulation: re-classification as employees (with associated tax and social benefits implications)
b) completely false, the entire business model is based on network effects, you need people to have the app installed and drivers that offer their services on it. Do some research on the Daimler-BMW joint venture in Europe: FreeNow and Kapten: they have a very hard time competing and are burning hundreds of millions of dollars. Uber's tech is impressive and not easily replicated. Many have tried and failed. In the markets where Uber failed (e.g. China), they have often given up their efforts in exchange for equity stakes in local market leaders. If you buy Uber shares you indirectly own a part of DiDi.
c) and d) are genuine risks though I think people will continue to move. Taking an uber seems less risky than taking the subway.
Maverick Value, LLC profile picture
The CEO’s optimism was expressed in Uber laying off 14% of their staff literally one day before reporting earnings.
Optimomentum profile picture
Because the smart thing for a transportation company to do is staff up when global travel has ground to a halt?
Maverick Value, LLC profile picture
Exactly. That was my point. Uber’s business has ground to a halt. That’s why the growth expectations and the rising stock price make no sense.
dpwroc profile picture
The intention of this, in part, by its timing is to gyrate momentum for and earnings bounce up, in coupling with the incoming Uberspeak flowing from Dara K. CEO, to counter (watered down) guidance, which for the upcoming quarter, should be abysmal, but this is not a CEOs job, to communicate graphic truth, especially at UBER.
intra profile picture
The points made here are little more than hype, similar to Dara's hot air which still couldn't maintain the pumped price. The results were terrible. I wouldn't touch these at these overvalued levels. Anyone saying they made an intelligent call by investing in either Lyft or Uber when they dropped in March is fooling themselves - that was a no-brainer trade. The market is buying the hype and foolish investors will pay dearly, as the upside is minimal and downside is huge.
Optimomentum profile picture
You don't think buying Uber at $14 was smart? Or you do. I can't tell. As someone who did, my 120% gain doesn't really care.
dpwroc profile picture
Many stocks can be used as trading tools. Good job...

The converstion though is about Ubers' value overall, and their and their economics, survivbility.
Lol. The over optimism on Uber is as ridiculous as this rally.
dpwroc profile picture

Never. The price of this equity will fluctuate. But, from day one, this is a descending trianle, rightward... which I mean to say, will be indicative of their actual financial performance, as this company charters it's path into continuous losses, and more clearly the value of this stock will deteriorate greatly, again over time.

The company trades on hope, speculation, and absolutely no clear plan for profitabity.

The acts of both closing operations and exiting markets are not bold, but necessary as a clear sign, obvious to their cash burn. Mainly though, It is a reaction to misappropriated growth and generally 'error prone' stratagem towards well, growing and running a business. This article is out of touch with this actuality.

But also, Uber states through its CEO, many times in the recent past that it wants to operate where it can be number one or number two (misrepreseted in this article) in market endevours, where it chooses to exist, which is sound, but it gives reasoning to its need to reverse course and back out in so many types and location of operations.

This company is still trying to figure out what really, it is, and most importantly, how it can possibly turn a profit being established as it is in structure
and in market, flush with other growth stories in competition.
Orewash profile picture
This article is even more ridiculous than market reaction on Uber's $3bb loss
Dilantha De Silva profile picture
@Orewash You wouldn't say so had you bought the stock the last time I published an article on Uber! (just saying, chill)
dpwroc profile picture
That buy point, was an obvious trade, timed with the article... but the subject of this article and with Uber in general is their overall health for survival. This stock, like any other will fluctuate with trade oportunites, within it's mechanism. I does help to trade a buy, in perceived doom, when Dara K. steps onto the widows walk to host a cheerleading session to highlight and offer Uber-speak to keep its equity from drowning.

A good time to write an article as well offering the same.
WolfpackCapital profile picture
Totally agree with Dilantha on all points. Also respect your courage in writing something favorable as a result of critical thinking, which unfortunately makes you “contrarian” in this environment. I have a ton in UBER and I’m very excited for the future. Can’t wait to see your article when they hit $50. Keep it up Brother!
Yes, it is a buy, but at around $28, were I was buying it a few days ago. This run up on hardly anything is kind of silly!
"The macroeconomic outlook is favorable"

you might be kidding, right?
Dilantha De Silva profile picture
@ludicrous_display No, I am not. The thing here is that you're looking at the next few months whereas I'm looking at the next few years. So what you look at as the macro-economy is not what I'm looking at.
i adore people who can't predict tomorrow but see clearly the things in several years' distance =)
dpwroc profile picture
Macroeconomics can really though, be guaged in 6-9 month overlapping periods, to be used for anything useful, unless one has a chrystal ball.

In which case, using Uber as an example, for ME contribution to Uber share price at any given point in time, mention of ME as a qualative and reliable guage of an equitie's fair value standing is only highly speculative, and very 'forward-looking.'

For instance, CoronaV has altered their market permanently in a few ways, but significtly in others, so contributive macro's to the Uber universe are altered altogether, moving forward.

So, predictably rosy evaluation to Uber and with regard to ME in February as a central pont in time to analyse from has been even, permanently altered. Futhermore, Uber, more specifically, is existing in technologically influenced market dynamicies which present to it and its competitors, a situation where those same dynamics compete directly with any macroeconomic envorinment to be dreampt up about any future time period. So what I am saying is if the technological clouds, or interests in M and A which are part of tech were to move against the favor of Uber, it just doesnt matter what the economy is doing in any sense, for Uber, macroeconomically or otherwise. So really, mention of a permanent ME high pressure zone in perfect tropical weather with rainbows and butterflies all around in the Uberverse makes about as much sense as expaining the weather in say Denver, CO for all of 2022 and would be fairy deemed once again, "forward looking" statements... Or thought processes, in this case, by comparison.
Uber, Uber Freight, Uber eats, and anything they have up there sleeves it’s the future. Buy some now
Great article. Long $UBER
Jesse S1455 profile picture
I bought just after your first article. Up 28%. Thanks
Dilantha De Silva profile picture
@Jesse S1455 This is some great news! Good luck with your investment
blacky_ profile picture
Uber was a hard "sell", and that was before COVID. Not a single quarter of organic profits, only a lot of equity destroyed.

With the equity write off you can also have a look at their investment history and -performance - careem will be no exception: why would anybody pay 3 billion in cash for a business that does only contribute to losses. It is actually almost like a joke.

Not even to talk about the cash drain. 2,5 billion USD in Q1/2020; Q2/2020 will be worse.

Uber will run out of cash within 2020. In any case, the very best of luck for you!
solucky profile picture

" Uber will run out of cash within 2020 "

I am sceptical..at least in europe the business is based on low wages and avoiding social payments.

And under such conditions i am surprised that they still lose a bunch of money.
Dilantha De Silva profile picture
@blacky_ I respect your views of Uber, but I do not agree with them. We pay a certain amount for Uber today not because of what it is bringing now, but because of what it will bring in the future. Uber still is in the first phase of its business operations where the company is optimizing its business structure in a way that enables them to be the dominant player in all the markets it operates. The next phase would be the one where the company reaps the rewards. Also, Uber has $9 billion in unrestricted cash, which would be sufficient to remain solvent this year plus some.
blacky_ profile picture
thanks for the feedback. However 9 billion cannot be the case as of now - Uber paid 1,7 billion in cash on 15.04 due to the careem purchase. also they will invest further money (low hundreds of millions of USD) in Line. That is already two billion USD gone.

Before the actual hit of Q2/2020.

But thanks for your elaboration. we do not need to agree here, and I respect your contribution a lot. Have a good day.
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