Uber (NYSE:UBER) Struggles to Keep Head Above Water

Uber NYSE: UBER, the ride-hailing app that revolutionized the taxi cab industry, is in trouble. Shares are down 38% in the six months since they IPO’d and their latest earnings report from Monday, Nov 4th will do little to inspire confidence in investors.

While their Q3 ‘19 results beat revenue estimates, they missed on earnings as losses per share deepened. The main headline made for grim reading; quarterly losses stand at $1.16 billion. Considering the same quarter last year reported losses of $986 million, things are not going in the right direction for this former darling of tech investors.

Some metrics, like gross bookings, showed promise and increased but they still weren’t enough to keep the ship on course towards profitability. Dara Khosrowshahi, Uber’s CEO, was quick to point out that the company is aiming for adjusted EBITDA profitability by 2021, but the question has to be asked; will investors have the stomach to hold on that long?

Efforts to Diversify

In fairness, the company’s efforts to diversify away from being what’s basically a taxi company are starting to show fruit. For instance, there was a jump of over 100% in revenue from UberEats. This is Uber’s food delivery platform which is now one of the fastest-growing nationally in the segment.

Their other initiative, Uber Freight, is also starting to perk up. The company reported gross bookings in that segment grew by more than 80% and there are now more than 50,000 carriers on the books - not bad considering the segment is only 2 years old. However, investors are still being left to wonder how the company is ever going to start making money. 

Lyft NASDAQ: LYFT Struggles Too

Across the street in San Francisco is Lyft, Uber’s top competitor, and investors are watching them closely for any sign of competitive advantage. Lyft had a much-hyped IPO about a month before Uber’s and its shares have performed similarly poorly as well. Their shares are now trading down 53% from highs only seen on the day it went public.

They reported earnings last week and while they gave investors a beat on both revenue and EPS estimates, shares were still down 6% in the face of net losses. Specifically, losses for the quarter deepened by more than 85% compared to the same quarter last year. Combined with Uber’s report, this is not a good look for the industry’s potential.

Is the IPO Bubble Popping?

The lackluster performance of two of 2019’s biggest IPOs is indicative of the growing sentiment that recent IPOs are being overcooked and subsequently haven’t a hope of living up to expectations. We’re seeing similar carry-on in WeWork which recently canceled its IPO on the back of its inability to stop eye-watering losses despite carrying a $47 billion market cap.

Interestingly, or perhaps worryingly, Uber’s lock-up period ends Wednesday, Nov 6th and investors will be watching the ticker tape closely. The lock-up expiry is when restricted shares, typically those granted to executives pre-IPO, are allowed to be traded on the public market for the first time. Given the stock’s fall from grace since they went public, whether leadership starts to sell some of their holdings or whether they hold tight will be very telling.

Buyer Beware

Technically speaking, the stock is trading in a fairly tight range in what looks to be an inverted head and shoulders pattern. Around $29 is where the stock found buyers in early October and up in the $34s is where the sellers have been active and is where the stock was turned back in September and late October. Breaking through this upper range and holding above it will be key to coaxing investors who are on the sidelines to get back in.

That said, any investor looking for more than a quick scalp or two will need to be a big believer in the turn-around and long term potential of Uber. This is a company that has continuously failed to live up to its hype and has yet to even start going in the right direction towards redemption. For now, caveat emptor.