Is it time to buy UBER stock? Uber Technologies (NYSE:UBER) seems to be on a roll. Despite the disruption the emergence of the COVID-19 caused in the transportation marketplace, UBER seems to be snapping back. During the company’s most recent quarterly earnings call, CEO Dara Khosrowshah stated that the company had achieved total adjusted EBITDA profitability for the second quarter in a row – a huge achievement considering where the company was just one year ago.
UBER’s Business Model
Originally introduced as a ride-sharing service, UBER has expanded significantly since its 2009 beginnings. Nowadays Uber has numerous subsidiaries.
In the Mergers & Acquisitions (M&A) space, Uber has become the 800-pound gorilla in the room. When the COVID pandemic hit, Uber, like airlines and other travel-related industries, took a hit. To survive and thrive, it began focusing on home delivery of food, groceries, and alcohol. Today, it counts among its subsidiaries and investments the following companies:
- Drizly, a liquor delivery service. At the height of the COVID-19 pandemic, Drizly’s sales grew by more than 350%.
- Lime, an electric scooter service. While Lime was hard-hit by COVID, it announced its second quarter of profitability, as well as its intention to go public in 2022.
- Postmates, a food delivery service that grew exponentially during the 2020 quarantine. Postmates continues to be the #1 meal delivery app in the U.S.
- Careem, a Dubai-based ride-hailing, delivery, and payment application. Careem is not yet profitable.
- Cornershop, a Chilean-based grocery delivery service, with annual revenues of approximately $49.3M.
- UberEATS, a food delivery service. UberEATS is hugely profitable and saw revenues of $845.6M.
- Raiser/Rasier LLC, Uber’s legal protection company
- Uber Connect, a same-day delivery service launched earlier this year.
- Uber Freight, a shipping and logistics service. It has an estimated annual revenue of $430.7M.
- Transplace, a subsidiary of Freight. Transplace offers cloud-based logistics services and is highly rated in the freight and logistics spaces.
- Uber Health, providing non-urgent healthcare transportation. This is a growing service.
- Uber Transit, partnering with small and large transit systems to provide enhanced technology. This is another growth opportunity.
Former UBER Subsidiaries
UBER has divested itself from several of its previously owned subsidiaries. Those include:
- Jump, an electric scooter service
- Uber’s Self-driving Unit: Advanced Technologies Group (ATG), now owned by Aurora
- Uber Elevate, an air taxi business now owned by Joby Aviation
Its business model, the multisided platform model, or MSP, is used by many technology companies.
Such a model connects two or more different groups (in UBER’s case drivers and riders) with an intermediary (UBER). The intermediary makes money from fees. Sounds good, but MSPs aren’t always successful. Balancing driver supply with consumer demand is a challenge in one city, let alone many cities and across business segments.
Buy UBER Now? UBER’s Disappointing IPO
When UBER went public in 2019, there was a lot of excitement, but the buzz was short-lived. UBER’s IPO was a bust, and the company made headlines.
In retrospect, UBER now recognizes it over-valued the company at its IPO price at $45 a share. By the end of the day, the stock was trading for $42 per share, a 7.6 percent drop. The entire market fared poorly that day after then-President Trump said there was “no need to rush” trade talks with China. At the time of research, UBER was still trading below its IPO price.
Does Tesla Pose a Threat?
While UBER sold off its Advanced Technologies Group and is no longer in the driver-less car business, tech disrupter Tesla may be a threat. Tesla is hard at work developing a ride-hailing app.
Much of the long-term vision of the “Tesla Network” depends on perfecting Tesla’s driverless car technology. Tesla CEO Elon Musk, always mercurial, recently said he may authorize releasing the app before achieving full autonomy. He would then use a network of Tesla owners to provide ride-sharing services, before launching his robotaxi fleet.
But will Musk’s dream become a reality? Some don’t think so. John Krafcik, CEO of Waymo, Alphabet Inc.’s autonomous car technology company, believes Tesla won’t achieve full autonomy. If that’s the case, the “Tesla Network” won’t fulfill Musk’s goals.
UBER’s Legal Woes
UBER is no stranger to the courtroom. Since its early days, UBER has been beset by litigation. Most recently, in November 2021, the U.S. Department of Justice filed suit, alleging UBER was overcharging passengers with disabilities, many of whom had difficulty getting to the waiting car within the wait time deadline.
In June 2021, more than 200 women filed a class action against UBER, claiming they had either been raped or otherwise sexually assaulted by an UBER driver. A year ago, UBER was fined $59M by the California Public Utilities Commission. Just this month, December 2021, the CPUC settled for a $9M fine.
Even the Supreme Court has weighed in on the ride-hailing giant. In May, it rejected UBER’s attempt to overturn a lawsuit filed by three of its UberBLACK drivers who alleged they should be classified as employees, rather than independent contractors. The suit is now being handled by the Philadelphia-based 3rd U.S. Circuit Court of Appeals. The case is one of many filed by drivers alleging the same thing.
So, Is It Finally Time to Buy UBER?
UBER’s current low price point is tempting. But litigation risks are alarming. However, if you are a risk-seeking investor and want to buy UBER, the valuation of the company has become ever more compelling. Indeed, the consensus among analysts suggests upside of 79%. Of the 35 analysts who cover Uber, 30 rate the stock a Buy while just 5 have a Hold rating and none have labeled it a Sell.