During earnings season, I spend a lot of time here writing about some stocks’ illogical short-term reactions to results. That may be a drop on an earnings “miss” that hides good underlying growth, or an initial jump on a beat prompted by a short-term influence that tells you nothing about the longer-term trajectory of a business. What I try to do in those situations is to find a disparity between the short-term influences that drive a stock’s reaction to news and the long-term factors that are at play. Opportunities like that, to basically buy something at a discount because short-term factors push a stock lower, are what makes earnings season such a great time for long-term investors. There are sometimes bargains to be had.
That is how I felt this morning when I saw the premarket price action in Uber (UBER), following their Q3 release. The headline was straightforward enough: The ride share and delivery company missed on the bottom line, recording EPS of $0.10 versus a consensus forecast for somewhere around $0.13, and also fell a bit short of expectations for revenue. That is bad upon bad, so it was no surprise to see the initial drop in the stock:
As you can see from the chart above, though, UBER bounced back strongly after that initial markdown, hitting a level that represented a gain, before edging lower again to open at a level a little more than one percent below yesterday’s close then moving higher still in early trading. Clearly there are two ways of looking at the results, which comes down to the fact that, while they didn’t meet expectations, they did show growth year on year. That is a classic short-term versus long-term conundrum. The short-term view is bad, but the long-term is encouraging, and that is what should concern investors, rather than traders.
Ride-share and food delivery are intensely competitive markets. Consumers are faced with a plethora of local options for both, alongside the big, nationally recognized names like Uber and Lyft (LYFT) for taxi rides and Uber Eats and, say, GrubHub, a part of the Just Eat Takeaway Food Company (ADR: JTKWY), in the delivery space. Given that, brand recognition and app usage become important factors in the long term, and on those fronts the news from Uber was encouraging.
Uber’s monthly active platform users climbed to 142 million last quarter, up 15% from the same quarter last year. That is what matters going forward. If Uber is the default platform for users, whether ride seekers or delivery customers, they obviously have an advantage. Then add in the fact that Uber has actually turned a profit in a competitive industry with huge marketing and promotional costs in three out of the last four quarters, and the future looks bright.
If there is a problem with the stock at these levels, it is that a lot of that bright future is fully priced in. UBER is trading at a forward P/E of 60+, which can hardly be called “value” at any time and, with an uncertain economic future, could even be said to look a bit steep. Still, if you feel that a global recession can be avoided or will be short and mild if it comes, which seems to be the prevailing view right now, then the stock is at worst fairly priced and probably represents a decent buy and hold prospect.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
Read Martin's Bio