Ride-hailing company delivery operation Uber (UBER) made a name for itself before the pandemic started. It may have shifted around a bit, but it built on that name during the pandemic as well.
Now, with the post-pandemic period kicking in, and people going out again, Uber finds itself at a crossroads. New reports suggest that it’s planning to refocus its operations to address a “seismic shift” among investors.
With Uber down 3% in premarket trading on Monday — and those losses periodically getting worse in the morning’s trading session — it’s clear something needs to be done. I’m still bullish on Uber, because it’s got a solid platform to work with, and possibly one of the best in its field.
Uber has been in a state of decline since this time last year. Several times, the stock attempted recovery, but each attempt proved unsustainable. Ultimately, Uber lost nearly half its market value between June 2021 and today.
The latest news may prove helpful, or it may suggest the start of a death spiral in the making. Uber CEO Dara Khosrowshahi noted that the company was in the midst of a market facing a “seismic shift” and that it needed to “react accordingly.”
This includes a reduction in incentives, huge cuts to marketing, and treating hiring as a “privilege,” meaning the company will be “deliberate about when and where (it) add(s) headcount.”
Wall Street’s Take
Turning to Wall Street, Uber has a Strong Buy consensus rating. That’s based on 26 Buys and two Holds assigned in the past three months. The average Uber price target of $51.12 implies 115.9% upside potential.
Analyst price targets range from a low of $29 per share to a high of $74 per share.
Investor Sentiment Looks Broken
The investor sentiment picture for Uber could look better. It has a few bright spots, but the overall picture isn’t positive.
The biggest problem is with hedge funds. Based on the TipRanks 13-F Tracker, hedge funds slammed on the accelerator getting out of Uber shares.
While there was a decline between September and December 2021, that decline was about seven million shares out of the nearly 115 million shares owned total. The decline from December 2021 to March 2022, meanwhile, went from just over 107 million shares to just under 24 million.
A brighter spot, of sorts, comes from insider trading. While the best word to describe it overall is brisk it’s been that way in both directions. In the last three months, buy transactions led sell transactions 11 to seven. Meanwhile, over the last year, sell transactions just barely edged out buy transactions 49 to 46.
As for the retail investors who hold portfolios on TipRanks, the picture is a bit more mixed overall. While portfolios that held Uber were up 0.7% in the last 30 days, they’re down 1.4% in the last seven days.
Sufficiently Diversified for Boom and Bust
Uber demonstrated its diversification chops when the pandemic hit. When people were no longer able to go out, Uber effectively pivoted to cover the new, massive stay-at-home market. Then, when people started to return to more normal lives — depending on location — Uber was there to pick up where it left off.
Better yet, it could also continue offer its delivery services. Uber Eats became just as much a part of life as Uber proper, and that’s good news for Uber as a whole.
Yet hearing Uber talk these days doesn’t sound like a company doing well at all. Planning to cut marketing is a good way to ensure that new users don’t hear your message, and try your product or service accordingly.
A Fortunly study found that 14% of small businesses fail due to poor marketing skills, and most fail because the market simply doesn’t need the product or service in question.
Hearing Uber talk about hiring being a “privilege” doesn’t exactly ring positively, either.
Still, it’s hard to forget Uber’s basic underpinnings. Granted, the pandemic and lockdowns did a fair job of approximating a recession. People weren’t going out. Sure, this was for much different reasons than a standard recession, but the effect was similar. Uber’s pivot to delivery was a huge help.
Further granted, delivery won’t be quite so prized in a regular recession. People will cook at home and get their own groceries instead. Yet here, the effect will be a bit more diffuse. Those still working will go out about as much as they did before.
Concluding Views
The best part about Uber right now is that it’s well diversified. It has its ride-hailing business, and it has the delivery business as well.
Shaky investor sentiment doesn’t help, and Uber’s talk about cutbacks sounds more like the beginning of a death spiral than a revitalizing effort. However, the fact that Uber is trading well below its lowest price targets suggests huge potential upside to come.
The chances that regular investors can get in on that improvement, meanwhile, leaves me somewhat bullish.
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