Uber Technologies Inc.’s sprawling business can make it hard to unpack trends in individual segments, but analysts saw some encouraging indications for the ride-hailing business in the latest quarter.
“Uber UBER, -6.54% continues to leave tantalizing clues about the near-term profit potential of its core ride-sharing business, with CFO Nelson Chai indicating that ride-sharing’s 2Q contribution loss minus corporate overhead (which includes unallocated technology that benefits the platform broadly) was just $100 million in the quarter,” wrote D.A. Davidson analyst Tom White, who has a neutral rating on the shares and lowered his target price to $44 from $46.
Uber shares dropped more than 8% in Friday morning trading, though Loop Capital’s Jeffrey Kaufman attributed some of the disappointment to “inflated expectations” brought about by Lyft Inc.’s LYFT, -1.35% earnings report a day earlier.
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In general, analysts were willing to look past Uber’s staggering $5.2 billion quarterly loss, which included $3.9 billion in stock-compensation costs and about $300 million more in driver-appreciation awards.
“Results show rides on the road to profitability,” wrote Bank of America analyst Justin Post, adding that the disclosure about ride-hailing’s contribution loss suggests that portion of the business “is much closer to break-even than expected.” He rates the stock a buy with a $53 “price objective.”
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Raymond James analyst Justin Patterson urged investors to consider Uber’s investments in the ride-hailing business differently from how they view its spending on other areas.
“Contribution profit for the core platform more than covers earlier bets like freight and [new mobility],” wrote Patterson, who has an outperform rating on the stock and upped his target to $54 from $50. “We fully acknowledge that Uber has large losses driven by discretionary growth investments. However, we believe 1) these growth investments do have value and create long-term optionality and 2) focusing strictly on Ebitda obfuscates improving core unit economics.”
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Loop’s Kaufman said that while Uber’s latest revenue and contribution numbers were encouraging, he doubts the report will change sentiment much on the stock.
“The investor debate surrounding Uber revolves around the pathway to profitability, long-term competitive dynamics/margin structure and ultimately earnings power,” wrote Kaufman, who rates the stock a buy with a $54 target. “We see little to sway opinions more positive or more negative from the second-quarter report.”
Uber shares are down 10% over the past month, while Lyft shares have lost 0.8% in that time and the S&P 500 SPX, -0.85% has fallen 1.8%.
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