Uber Stock Q1 Earnings Review: Rough Roads Ahead

Whenever a company comes along and changes the way that people go about their daily lives, it should pique your interest. For an example, look no further than Uber Technologies Inc (NYSE:UBER), a company that is transforming the way that people get around. The ride-sharing company has altered the transportation industry thanks to its user-friendly mobile application that conveniently connects clients with a driver. Although their business model is compelling, Uber’s financial performance since its IPO hasn’t been as positive as investors might have initially expected.

Every new company will experience some growing pains on its way to becoming profitable, but it remains to be seen if Uber will ever live up to its profit potential. If you are a shareholder of Uber or are thinking of adding some shares to your portfolio, this article should help you gain some clarity as we take a look at Uber’s earnings report and discuss the company’s latest headlines.

Let’s assess Uber stock below and decide whether or not there are rough roads ahead for the ride-sharing company.

Q1 Earnings Loss

Uber reported their Q1 earnings last week and beat analyst estimates on revenue figures but missed hard on EPS estimates. The company grew revenue by 14% year-over-year and increased Gross Bookings to 15.8 billion, an 8% year-over-year increase. However, Uber took a massive $3 billion loss on the quarter and is still struggling to attain profitability. A lot of the loss was attributed to stock-based compensation and pre-tax impairment write-downs, which likely won’t be recurring expenses for the company going forward.

Although revenue figures were solid, it’s very likely that Q2 will be ugly for Uber. With the global pandemic still in full swing, Uber is experiencing a sharp drop off in the number of rides taken. There are big question marks about how soon the demand for ride-sharing services will come back to pre-pandemic levels. With that said, there were some positives to take away from the Q1 earnings. It appears that the Uber Eats segment of the business is growing rapidly, with a 54% year-over-year growth rate. A lot more people are ordering food from home as the global health crisis continues, but don’t expect the Uber Eats demand to offset the sharp decline in ridesharing revenue this quarter.

GrubHub Acquisition: Smart Business, Bad Optics?

We know that one of the fastest-growing segments of Uber’s business model is its Uber Eats service, which allows users to have food delivered to the location of their choice via a mobile platform. It seems that Uber is committed to becoming the leader in meal delivery services, as the company made headlines this week with an acquisition offer for major food delivery competitor GrubHub (NYSE:GRUB). The company also announced that it plans to issue a $750 million debt offering that will likely fund the deal.

Under normal circumstances, this type of move would likely be met with universal positivity, since it allows Uber to continue growing their Uber Eats service and take market share away from a major competitor. However, there has been a lot of backlash regarding the proposed deal, especially since Uber just laid off 14% of its corporate workforce in order to cut costs.

It appears that this deal is still a long way from being completed, with both companies far apart on a price for the acquisition. If the deal does eventually go through, it is certainly a positive for Uber. However, the bottom line is that although the deal might make sense from a business perspective, it’s a long way from going through and is terrible for the company from a public relations standpoint. Keep in mind that Uber is no stranger to negative headlines, which is something to keep in mind if you are thinking about investing.

Roadblocks Ahead

If you are interested in becoming an Uber shareholder, understand that the share price is trading with a very high valuation considering all of the near-term risks. Uber shares have rallied nicely off of the March lows and doubled in price, which is why you should be even more cautious about opening new positions at this time. This innovative company is likely to bounce back strong when the economy and the world return to normal, but any delays in reopening the country or spikes in virus cases can lead to big downside for Uber shares.