Technology

Buy Uber Stock on the Dip Before Q2 Earnings Because the Worst is Over?

Uber UBER shares have jumped 10% in the last week, as part of tech’s recent surge that was driven by Apple AAPL, Amazon AMZN, Zoom ZM, and others. The ride-hailing firm has been hammered by the coronavirus pandemic, yet investors might want to take a closer look at Uber before it reports its second quarter financial results after the market closes on Thursday, August 6.

What’s the Latest…

Uber posted a smaller-than-expected loss in the first quarter. But its core rides businesses didn’t start to really take a hit until the middle of March. The firm noted that its rides unit tumbled 80% in April, as the pandemic halted travel.

Luckily, things have slowly started to return to normal since then. “Along with the surge in food delivery, we are encouraged by the early signs we are seeing in markets that are beginning to open back up,” CEO Dara Khosrowshahi said in prepared remarks.

Therefore, the second quarter likely marks the bottom for its ride-hailing business. On top of that, Uber has continued to take steps to cut costs where it can, which includes plans to lay off what amounts to roughly a quarter of its workforce. This is part of Khosrowshahi’s broader push to trim employees—not drivers, who aren’t technically employees—as well as move away from non-core businesses in order to become profitable.

The move toward profit has seen the company exit various Uber Eats markets. On top of that, Uber is re-evaluating cash-burning divisions such as autonomous driving and freight—as Tesla TSLA dives deeper into those futuristic spaces. Uber was working to become profitable by the end of fiscal 2020 prior to the pandemic, and its CEO told analysts that “disruption caused by Covid-19 will impact our time line by a matter of quarters and not years.”

In a sign of focus, Uber announced in early July a $2.65 billion all-stock deal that will see it acquire Postmates. The move is projected to help Uber become the second-largest restaurant delivery service in the U.S. by market share, behind DoorDash and ahead of Grubhub GRUB.

The pandemic has helped expand the already-growing food and delivery business that has seen everyone from McDonald’s MCD to Walmart WMT go all-in on the space. One day after the Postmates announcement, Uber said that “users in select Latin American and Canadian cities can now order groceries through the Uber and Uber Eats apps.”

 

 

 

 

 

 

 

 

 

 

 

Outlook

Uber’s 48% climb from the market’s March 23 lows has topped rival Lyft’s LYFT 36%, but it has slightly lagged the broader tech space. This does, however, give Uber over 20% more room to run before it hits its highs.

Our Zacks estimates call for Uber’s adjusted Q2 loss to shrink from -$4.72 in the year-ago period all the way to -$0.78 per share. Peeking further ahead, Uber is expected to cut its fiscal year loss in half to come in at -$3.63 per share in 2020. The firm is projected to see this trend continue, with FY21’s adjusted loss projected to come in at -$1.68.

Meanwhile, the ride-hailing and food delivery firm’s Q2 revenue is projected to fall 31.5% from the prior-year quarter to come in at $2.17 billion. Uber’s Q3 revenue is only expected to slip by 19%.

Uber’s FY20 revenue is then projected to dip 10% to $12.74 billion. And investors might be pleased to note that its fiscal 2021 sales are expected to surge 50% above our current-year estimate to reach $19.07 billion.

 

 

 

 

 

 

 

 

 

 

 

Bottom Line                                                                                                         

Uber is currently a Zacks Rank #3 (Hold) that rocks a “B” grade for Growth in our Style Scores system. The company also trades at a discount against the broader Zacks technology sector at 3.4X forward 12-month sales vs. 4.1X.

It’s also worth noting that Uber shares surged for a month after its first quarter earnings release. And the stock popped following its fourth quarter report. Plus, Q2 likely marked the bottom for its rides business—and perhaps the economy as a whole.

That said, risk-averse investors might want to wait until Uber provides updates on what’s to come amid the uncertainty.

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