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Uber Struggles Through 2017: Who Cares?

|Includes: Apple Inc. (AAPL), F, GM, GOOGL, TM

Summary

Scandal ridden 2017 yet not necessarily losing riders or drivers.

2019 IPO still very much on the table.

Uber’s Investment in autonomous driving could mean stock dips for other autonomous players and car manufacturers.

Uber has faced a number of challenges in 2017 – to the point where it seems like they are intentionally releasing bad press in order to start anew. The sexual harassment case, a new CEO, issues among the board of directors, a recent data-hack that was intentionally covered up, and drivers who, for the most part, are not happy. You name it – the company is facing pressure from all angles. Yet, amongst the adversity, the company is still growing, and was valued at $69 billion by Softbank in their recent rumored round of financing (Value may change in reaction to the "data breach," but no news yet). So what has all this hoopla truly done to Uber – did it just cause internal chaos, or will there be external consequences as well?

Unfortunately, there is too much news about Uber being released right now to predict definitively how consumers will react, and whether their valuation will be impacted. Yet, even though the sexual harassment case caused changes to their internal governance, it has not yet significantly affected the number of their users or drivers. They still have 40 million users/month in the US, 77% of the US ride-hailing market, and 1.5 million drivers globally. In other words, they are still dominating the ride-hailing marketplace despite their internal struggles, and given their lead and dominance over their competitors, it likely won’t change.

With that being said, Uber will almost certainly issue an IPO in 2019. They are still valued at $69 million, they still have users, they still have drivers (for now), and while they are working through internal struggles, they should be figured out within the year. Given this, and given that their new CEO is a strong supporter of an IPO, 2019 seems very realistic even as they refine their business model, welcome autonomous vehicles, struggle internally, and face external public pressures.

More importantly though, regardless if they IPO in 2018, 2019, or 2020, Uber will continue to invest strategically in autonomous driving technology and autonomous vehicles throughout 2018, and into 2019. A rumored deal with Volvo highlights this initiative and could change the face of the auto-industry.

Should Uber win the lawsuit against Waymo, or settle and still be able to use their technology, Uber and Volvo will be ahead of everybody, except for possibly Tesla, in the autonomous car race. This could mean dips in stock prices for Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL), as well as other companies working on autonomous driving technology, and drops in stock prices amongst the leading car manufacturers, namely GM (NYSE: GM), Ford (NYSE: F), Toyota (NYSE: TM), and BMW (ETR: BMW).

Additionally, investors may want to invest in Volvo when they get the chance. The Uber-Volvo deal is rumored to come in around $1 billion, as Uber contracted with Volvo to build 24,000 autonomous XC90’s. Although this deal alone will significantly bolster Vovlo’s top line, this is just the beginning. Uber has 1.5 million drivers globally, meaning they will need way more than 24,000 autonomous vehicles if they are going to have a fully-autonomous fleet. In other words, Volvo’s deal with Uber could be quite lucrative for years to come. Additionally, this partnership could help motivate Volvo’s management to file for an IPO as well, and if they do go public, Volvo would offer a less risky investment play into autonomous driving than Uber.

All in all, Uber’s ride sharing network has remained unchanged amidst their recent allegations largely because of their size, and significant lead over their competitors – their network of riders and drivers has simply grown too powerful to overcome. As a result, Uber’s valuation will continue to rise because they are valued based on their network, and the potential of future earnings it will enable – not on their current bottom-line results. Therefore, as long as they continue to innovate, and continue to gain share of the ride-hailing marketplace, they will continue to appreciate in value despite their internal challenges and have a great IPO story come 2019.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.