Shares of Uber (UBER) slipped nearly 5% yesterday on another big down day for broader markets. Indeed, the market was not happy with the April CPI numbers, which were expected to be lower than the 8.3% posted. Like it or not, inflation has shown signs of peaking.
Though it would have been nice to see CPI fall meaningfully below 8%, I don’t think there’s a lot to complain about, as U.S. 10-year note yields fell below 3%.
Though rates retreated, stocks did not. High-multiple growth stocks got pummelled the hardest. Not much can move the needle higher on markets these days. With stock and bond investors feeling pain, it’s not too hard to imagine that many are simply looking to raise some liquidity by offloading some of their biggest losers.
Uber CEO Buying Shares amid Stock’s Tumble
Uber stock has been nearly cut in half year to date, down around over 60% from its all-time high near the $60 mark. Amid the tumble, CEO Dara Khosrowshahi has been more than willing to buy, reportedly loading up on over $5 million in Uber shares.
While Dara’s stock buys do not signal a bottom is near, it is encouraging to see the top boss eating his own cooking. Uber stock has grown to become unbelievably cheap in another week of extreme selling.
At around $22.7 per share, UBER stock trades at a mere 2.1 times sales. Though Uber isn’t sustainably profitable yet, it’s on the right track, even with a growing risk of recession. Unprofitable growth companies like Uber are the new value plays.
As Uber’s profitability push becomes more evident to investors, it will be tough to keep the stock at today’s depressed levels. I am bullish on UBER and think Dara is right to be adding to his stake.
Uber’s Fresh Profitability Focus is a Potential Catalyst
Khosrowshahi recently noted its plans to cut costs in response to the market’s “seismic shift.”
According to a report released by CNBC, the company is now looking to push for free cash flow (FCF) profitability instead of adjusted EBITDA profitability.
Indeed, legendary investor Charlie Munger is no fan of adjusted EBITDA, a metric he’s slammed in the past. So, the recent shifting of the profitability goalposts should be viewed as a positive for value-conscious investors.
Khosrowshahi’s stock purchases are a big vote of confidence that Uber will succeed with its push to FCF profitability. However, trimming away at costs to become a “leaner” version of itself will not be easy. Also, the company’s plans to slow hiring are nothing to write home about.
Undoubtedly, plans to slow on hiring are not a great sign for investors. It has “recession” written all over it. That’s probably why the stock has continued to slip at a rapid pace alongside the broader market. Though a recession is not guaranteed at this time, it certainly feels like Uber is ready to roll with the punches.
This isn’t the first time Uber has had to pivot in response to broader market events. During the worst of 2020, Uber faced one of its toughest headwinds to date. While it was not an easy ride, Uber made it through, and its drivers returned.
Uber recently noted that its driver base has grown to a new pandemic high. With the economy grinding to a slowdown again, investors should buckle up for another bumpy ride as the company looks to cut costs without cutting too deeply into the customer experience.
Wall Street’s Take
Turning to Wall Street, UBER stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 24 Buys and two Hold recommendations.
The average Uber price target is $51.62, implying upside potential of 127.4%. Analyst price targets range from a low of $29.00 per share to a high of $74.00 per share.
The Bottom Line on Uber Stock
It’s hard to tell if Uber is starting to turn a corner. As the company clamps down in an effort to become leaner, questions linger as to whether the firm has to sacrifice anything.
For now, Uber seems content with the current state of its driver base. Uber competitor Lyft (LYFT), which crashed 45% over the past month, is ready and willing to increase its spending on labor. Whether Uber’s cuts will be Lyft’s gains remains to be seen. Regardless, the increased discipline can only be viewed as a good thing for Uber.
For now, Wall Street analysts are staying bullish. The consensus price target suggests shares of Uber could more than double from current levels. The Street-high price target is $74 per share, implying the stock could more than triple.
Though Buy ratings have stayed the same, investors should be aware of potential price target downgrades amid this vicious bear market.
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