As inflation concerns have picked up, various businesses have been put in the spotlight. Many investors are starting to believe that the inflation we’re seeing materialize may not be as transitory as the Federal Reserve would have us believe.
One such company that has been pointed to by inflation hawks as a sign that times are a changin’ is ride-sharing company Uber Technologies, Inc. (UBER).
Surging fees for customers using ride-hailing platforms have brought a mix of excitement and angst to investors.
Indeed, these rising fees haven’t gone unnoticed. Uber users have become accustomed to achieving their transportation goals for much less than the traditional taxi fare. Recent price hikes in major markets has actually made taxis the more affordable option during peak hours. Who would have seen that coming? (See Uber stock charts on TipRanks)
That said, many will note that these rate increases were a long time coming. Uber has been growing its market share and subsidizing its business for a long time, using equity financing. Equity investors have begun to demand returns on their capital, and the company appears to be getting the message.
Now, the question is: will Uber be forced to go back to its money-losing ways to avoid market-share deterioration? Or is it party on for investors?
Let’s dive in.
Earnings Suggest Improvement for UBER Stock
Uber reported otherwise solid earnings this past quarter. The company brought in revenues of $3.9 billion, representing year-over-year growth of 105%. Any triple-digit growth rate is notable for hyper-growth investors.
Additionally, on a sequential quarter-over-quarter basis, Uber grew revenues by 35%. This was an important bounce-back quarter for the ride-hailing company, after rather dismal results in Q1.
That said, adjusted EBITDA remained very negative, at a loss of $509 million, down from the $359 million loss in Q1. These numbers suggest that Uber is still bleeding cash, and may need additional financing moving forward. Investors banking on seeing a small EBITDA loss, or even an EBITDA profit, were once again disappointed.
At this stage in the game, it appears investors are taking the view with Uber that this is a company that needs to be profitable at the operational level. Given the fact that this ride-sharing company continues to have profitability problems, investors may want to wait and see when it comes to owning this stock.
In a way, this conundrum is not unique to Uber. Indeed, other high-profile growth stocks have gone through phases like this; where profits were less of a concern than top-line growth. Should investors vote with their pocketbooks, Uber may need to increase fares further. Such a move may have detrimental impacts in the near-term to the company’s growth story.
What Analysts are Saying about UBER Stock
According to TipRanks’ analyst rating consensus, UBER stock comes in as a Strong Buy. Out of 22 analyst ratings, there are 20 Buy recommendations and two Hold recommendations.
The average Uber price target is $68.76. Analyst price targets range from a low of $48 per share to a high of $81 per share.
Uber appears to be between a rock and a hard place. It’s not clear what investors are presently demanding. Indeed, Uber’s management team has clearly made efforts towards profitability. This past quarter, these efforts don’t appear to have hurt the company’s top-line results.
However, the jury’s still out on how this stock will perform going forward. Growth investors may want to give this stock a shot at these lower levels.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.