Categories AlphaGraphs, Earnings

A brief look at the pros and cons of investing in Uber Technologies (UBER)

Though the business model followed by ride-hailing companies appears simple and straightforward, Uber Technologies (NYSE: UBER) often faces regulatory action both in the US and overseas markets. Of late, there has been an increase in curbs on the company, mainly for violating antitrust rules.

uber vs lyft historic performance

Uber is not a profitable company yet, and the absence of a proper turnaround plan stresses the need for caution as far as investing in the stock is concerned. The fact that the prospects of the company turning profitable in the near term are bleak calls for a cautious look at its current valuation. Nevertheless, it needs to be noted that the online taxi firm is expanding market share consistently, which in turn strengthens the top-line.

Mixed Results

In the third quarter, revenues surged 30% to $3.8 billion, while net loss widened to $1.16 billion. The bottom-line has been hurt by heavy investments in product development and building of corporate infrastructure. The ambitious growth target set by the management also demands significant marketing spending.

Uber Technologies (UBER) posts narrower-than-expected Q3 loss

While it is generally acceptable in the case of growth companies, the current trend remains a concern as cost-escalation could be an impediment when it comes to shareholder return. Also, Uber faces the uphill task of fighting with rival taxi firm Lyft (LYFT) for market share.

A Long-term Bet

In short, the situation urges the market to stay patient, which also makes the stock an ideal option for long-term investors. If Uber manages to maintain revenue growth at the current levels for long enough, shareholders will be handsomely rewarded in the next two years.

Also see: Uber Q3 2019 Earnings Conference Call – Final Transcript

In what could be yet another setback for the company, a German court this week imposed restrictions on its operations in that country, alleging anti-competitive practices. The ruling bans Uber from providing third-party car-hiring services to customers through its app.

IPO

Uber had a not-so-impressive Wall Street debut. Though the stock remained steady initially, it lost momentum a couple of months after the IPO, as in the case of several tech startups that went public this year. The stock, which is down about 28% since then, traded below the $30-mark this week. However, there has been an improvement since mid-November, after the stock slipped to an all-time low.

Related: Teslaclimbs to new high on tax credit talk

A similar pattern is visible in the performance of Lyft, which traded at $75 post-IPO before falling sharply in the following weeks. Both stocks continue to underperform the S&P 500 index, which has been in the positive territory throughout the year.

We’re on Apple News! Follow us to receive the latest stock market, earnings and financial news at your fingertips

Most Popular

KB Home (KBH): What did and did not work for the homebuilder in the third quarter

Shares of KB Home (NYSE: KBH) were up slightly on Friday. The stock has dropped 40% year-to-date and 35% over the past 12 months. The company delivered mixed results for

Infographic: A snapshot of Costco’s (COST) Q4 2022 earnings

Warehouse behemoth Costco Wholesale Corporation (NASDAQ: COST) has reported a 15% increase in fourth-quarter 2022 revenues, which translated into double-digit growth in net income. Fourth-quarter revenues increased sharply to $72.09 billion.

FDX Earnings: FedEx Q1 adjusted earnings drop; revenue up 5%

Cargo giant FedEx Corporation (NYSE: FDX) Thursday reported a decline in first-quarter adjusted earnings, despite an increase in revenues. The company also provided guidance for fiscal 2023. Net income, adjusted

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top