The Uber share seems to have bottomed out for this time

The Uber share seems to have bottomed out for this time

09 January 2020 from Mikael Syding

Soon, the world's best F1 driver will be an autonomous algorithm, an AI, but so far it is enough that the world's best screenwriter and film director is a computer program. No, that's not true at all. Sure, the algorithms are evolving fast, and it came as a shock to many when a computer first beat the world champion, not to mention Go, poker and the computer game Star Craft II. But it is long before an AI creates great art (despite misleading similarities to the originals, people in blindtests intuitively perceive what is AI-created and what is not), and even longer before it is reasonable to release an AI in a chunk of metal that travelrs at a speed of 100 km/h among people.

However, there are already promising trials with carefully self-driving cars in controlled, dry and sunny environments with limited potential for surprises. Alphabet's subsidiary Waymo is clearly the leading company in the field and already operates at "Level 4" of self-driving. However, fully autonomous vehicles are still far away, which makes it difficult to expect any extra value for companies such as Tesla and Uber.

Strictly financially, of course, it is difficult to recoup an investment in Uber whose market value is $ 52 billion. The enterprise value-to-sales (EV/Sales) is at a high 4,0 for rolling twelve months, while the company reports (rising) losses of more than a billion dollars in the quarter. It also doesn't matter that much if revenue increases by 10% from quarter to quarter if losses also rise. It also hardly helps that, for example, according to the Financial Times, Los Angeles is thinking of forcing Uber to use electric cars. Although it is just one city among many, more can follow suit and each increased requirement restricts growth.

Despite the fundamental and regulatory headwinds, the share may still be interesting. After pricing its public offering at $45 and trading of the share started at $42 on 10 May 2019, Uber's share price last quoted at $33,93 (closing price on 8 January 2020) recovering from its recent low. Perhaps the market is on the trail of an interesting track or Uber is simply better priced compared to its alternatives at the moment. Be it as it may, the consensus rating for Uber on Bloomberg as of 9 January 2020 shows that currently 27 analysts set Uber on buy compared to 11 hold and 1 sell recommendation. The average target price is at $43,88.

It is clear that in recent years the stock market has shown great tolerance towards cash-wasting loss machines such as Netflix, Tesla, Uber and WeWork. In the light of this insight, Investors may need to recalibrate for the time being and think more in terms of relative risk than absolute value. For example, Uber is growing at roughly the same rate as Netflix, but is only valued at half the enterprise value-to-sales after last year's decline in Uber's share price. Sure, Netflix is a much cheaper service relative to other options in the entertainment industry than Uber is relative to other transportation services and can therefore more easily raise its prices than Uber. On the other hand, the entry barriers are lower in video streaming and so far Netflix's investment level is sending a clear signal - there are no positive cash flows within easy reach for a good while. If you place Uber next to Netflix, then the Uber share looks like a real bargain.

However, Tesla is perhaps more comparable to Uber as both are in the transportation industry with a view to self-driving. Tesla's EV is about $100 billion, ie twice the EV as Uber, and the EV / S multiple is 4.0, just like that of Uber. Tesla also reports major losses. A major difference is that Uber is growing much faster than Tesla and that Uber's business model does not require the same amount of assets. If demand would allow, it is much easier for Uber to increase margins than for Tesla. Uber can also add revenue sources in a completely different way than car manufacturer Tesla. Uber's debt and cash situation is also far more stable than Tesla's. Thus, one can argue for clearly higher valuation multiples for Uber relative to Tesla.

No, Uber is not the stock market's most fundamentally attractive stock, but relatively many other story stocks have made the fall of the stock a relatively low-valued alternative. In combination with the low having already been reached by the share price and growing hopes for self-driving cars as well as new revenue sources, the Uber share in a positive stock market climate may well outperform the alternatives.


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01/02/2023 13:04:11


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