Stock Analysis & Ideas

Can Uber’s Super App Power Through Coming Headwinds?

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Uber stock is under considerable pressure as investors weigh the impact of a slowdown. As the company improves its financial trajectory, while pursuing acquisition opportunities, investors may be discounting the firm’s ability to evolve.

Shares of ride-hailing leader Uber (UBER) have been on a tailspin this year, now down nearly 50% year-to-date and 63% off its all-time highs hit back in early 2021. Despite clocking in relatively solid first-quarter results, with expectations of free cash flow positivity for the full year, investors still look hesitant to get back in the name with a potential recession on the horizon.

Undoubtedly, Uber is one of the few firms that has been willing to tell investors what they want to hear. A focus on improving upon free cash flows while improving upon efficiencies could help steer Uber stock back in the right direction. Still, it is easier to talk the talk than walk the walk, with another round of ugly headwinds in the forecast.

From pandemic-era lockdowns to post-pandemic inflationary pressures to another potential recession, Uber can’t seem to buy a break. Though the ride-hailing business could remain under pressure for yet another year, as consumers opt for cheaper forms of transportation, the company’s long-term growth profile still seems to be on the right track.

Uber’s Making All the Right Moves

It’s not just a shift of focus to free cash flow that should have investors excited. The company is adding to its already impressive arsenal of transportation services. The firm enjoys considerable network effects that it can leverage across transportation categories beyond just ride-hailing or food delivery.

Uber is well on its way to creating a super app for all of one’s transportation needs. The firm’s acquisition of online alcohol delivery platform Drizly and logistics firm Transplace bolsters the food delivery and managed transportation businesses. Uber’s grocery delivery business has also picked up a bit of traction.

As consolidation in the delivery-as-a-service industry continues, count me as unsurprised if Uber continues its M&A spree. Instacart or a more niche produce delivery service like Spud appear like intriguing opportunities for Uber to bolster in the arena of grocery delivery — a service that could prove more resilient in dire economic conditions.

Uber is quickly becoming a one-stop shop for all transportation needs. The company has a super app that’s getting more “super” with every acquisition. As the company continues expanding into new delivery niches, its subscription service could become stickier.

Even as economic storm clouds move in, it’s hard not to be bullish on the stock. Wall Street analysts are standing by the firm amid its share slip.

UBER’s Not a Stock for the Impatient

Uber seems to be a “show me” story. The company may be on the cusp of a big move into profitability. Still, so many setbacks — think a coming recession — could stand in the way.

In any case, Uber still has its foot on the gas. Further, with deep enough pockets to take advantage of acquisition opportunities, I expect Uber to rise out of any coming recession with strength.

There’s no question that investors will need to be patient with the company. However, I do think analysts are right on the money when it comes to the name, even as shares struggle to find a bottom.

What About Increased Competition?

Other than Lyft (LYFT), Uber doesn’t face stiff competition in ride-hailing. It’s a tough business to really thrive in. Fortunately, Uber’s robust algorithm and network effects act as enough of a moat to keep new entrants far away.

On the food and grocery delivery front, there’s competition across all corners. Arguably, food delivery is a harder business to be in than ride-hailing. With Amazon (AMZN) setting its sights on GrubHub, with a tiny stake and the perk of GrubHub+ thrown in for American Prime members, one has to think that Uber’s Eats business could be at risk of losing share.

Indeed, Amazon is no stranger to entering new markets and pressuring incumbents in a race to the bottom. I view Amazon’s subtle entry into food delivery as a potential cause of concern. Should Amazon decide to takeover GrubHub, the economics of food delivery could easily worsen. And that’s a major risk for Uber as it seeks to make a sustained move into the green.

Wall Street’s Take on UBER

According to TipRanks’ analyst rating consensus, UBER stock comes in as a Strong Buy. Out of 30 analyst ratings, there are 27 Buy recommendations and three Hold recommendations.

Uber’s average price target stands at $46.86 (106.70% upside). Analyst price targets range from a low of $27 per share to a high of $7 per share. Further, UBER scores an eight out of 10 on TipRanks’ Smart Score rating system, implying that the stock has strong potential to outperform the market.

As per TipRanks, hedge funds are Very Positive on UBER as they bought 19.8 million shares of the company in the last quarter.

The Bottom Line on Uber Stock

Uber stock is a tough hold for anyone but the most patient investor. Though Uber is acquiring (and innovating) its way towards building a super app to take care of all of one’s transportation needs, potential disruptors like Amazon could stand in the way over the next five years.

Amazon isn’t just an e-commerce powerhouse or public cloud giant. It’s a logistics firm that could disrupt Uber’s sizeable moat. Uber won’t go down without a fight, though. It has deep pockets of its own and could outmaneuver Amazon as it looks to get consumers hooked on its incredibly convenient app.

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