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Uber Technologies: Burning Cash and Overvalued
Stock Analysis & Ideas

Uber Technologies: Burning Cash and Overvalued

I am sure that Uber Technologies (UBER) needs no introduction. Whether it’s a quick ride somewhere or a food delivery from your favorite restaurant, it’s more than likely that you have used one of Uber’s services. To define it, however, Uber is a technology platform that uses a massive network, leading technology, operational excellence, and product expertise to power movement from point A to point B, as the company states. (See Analysts’ Top Stocks on TipRanks).

In my view, while the company has certainly contributed to mobility innovation, and while its brand recognition could power its growth over the long term, the stock is highly un-investable, based on Uber’s current cash burn rate and valuation multiple. As the stock is highly unpredictable, though, I am neutral on the stock.

Setting Cash on Fire

In my opinion, Uber has a tremendous cash problem. The company loses billions of dollars every quarter, with few to no indications of a turnaround story. In Uber’s latest quarterly report, the company showed that it had managed to deliver its first substantial profit of around $1.12 billion. But don’t get your hopes up: net income benefited from unrealized gains of $1.4 billion and $471 million due to the revaluation of Uber’s equity investments in Didi and Aurora, respectively.

In other words, the company once again essentially lost money, with adjusted EBITDA coming in at a negative $509 million.

Source: SEC filings, Author

Uber is now left with around $5 billion in cash. For a different profitable business with Uber’s $90 billion market cap, this would be a proper liquidity position. However, for Uber, this pile of cash could hardly keep the company running for long. By normalizing Uber’s artificial net income of last quarter, Uber has lost more than $2.5 billion of cash over the past four quarters. Hence, the company’s current position is barely adequate to sustain two more years of operations at the current burn rate. It’s clearly not sustainable.

For this reason, Uber will have to continually raise additional funds either through debt or equity. The company’s long-term debt position does not look that healthy already, currently standing at around $7.8 billion.

Due to Uber’s profitability worries, creditors have not been very carefree with Uber. To demonstrate, Effective Interest rate for Uber’s 2023 senior note stands at 7.7%, while its 2026 and 2027 senior notes have Effective Interest rates of 8.1%, and 7.7%, respectively. One of the most recent capital increases included Uber pricing a $900 million senior notes offering of 7.5% senior unsecured notes, due 2025. Uber’s balance thus becomes more indebted, which in turn further delays profitability due to higher interest expenses.

The Valuation is Absurd

At the stock’s current price of around $45, Uber’s valuation is ludicrous. Analysts expect the company to report EPS of $0.27 in 2023. In other words, Uber is currently trading at 172 times a very speculative, potential net income that may be the case two years away from now. This is a crazy multiple for a company that has shown no real strategy towards profitability, and with dilution over the next few years set to certainly deteriorate shareholder value. In my view, Uber is massively overvalued for this reason.

Wall Street’s Take

Turning to Wall Street, Uber Technologies has a Strong Buy consensus rating, based on 23 Buys, 2 Holds, and 0 Sells assigned in the past three months. At $68.08, the average Uber Technologies price target implies 49.6% upside potential, with Wall St. having quite a different opinion than mine on the stock.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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