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  • Writer's pictureIshfaaq Peerally

Time to BUY UBER STOCK? ๐Ÿš—

The markets $SPX500 are slightly down by about 0.3% with the main event being Fed Chairman Powell testifying in Congress. Our portfolio is having an average day despite Skyworks Solutions down by 4%. $SWKS beat earnings and revenue expectations but Wall Street for some reason is disappointed. My long-term outlook on $SWKS didn't change at all. What's keeping our portfolio up? Polymetal $POLY.L is recovering after days of loss with higher gold $GOLD and Silver $SILVER prices.Diageo $DGE.L also having a great day with lower $GBPUSD . Facebook $FB , Apple $AAPL and Concho Resource $CXO also doing well. That's why it is important to have a portfolio with securities having low correlation with each other.

Time to BUY UBER STOCK? ๐Ÿš—

It has already been six months since the IPO and Uber Stock $UBER is not doing great. This is not unusual. Stocks of most companies underperform a few months after the IPO. It happened with Facebook $FB in 2012. If we had invested then in $FB, it would have been a great investment. Should we invest in Uber today? There's another reason why we need to look at Uber. The lockup period have expired and now insiders can sell their shares. The earnings were also better than expected.

There are now an additional 763 million Uber shares that may be available for sales. These are equivalent to $20 billions worth of shares. The founder of Uber, Travis Kalanick, already sold some of this shares. One of the largest shareholders that can have a real impact on the stock price if they sell is SoftBank. They are already losing money from WeWork and may have to sell Uber. Another big investors we should be careful about are Goldman Sachs $GS and Morgan Stanley $MS . They were the main underwriters for the IPO. They are banks are if they see that it is already time to take profits, they will do it.

Uber recently restructured its business segments. Now, they report Rides, Eats, Freight and other bets. In the past Uber Rides and Uber Eats were reported as one segment. Ridesharing is still the main business segment but Uber Eats is growing at the fastest rate. In the future, they may develop their own fleet of autonomous vehicles and air taxis. One metric that Uber uses to measure their performance is Monthly Active Platform Consumer (MAPC). They are trying to have maximum number of users on their centralized platform. This is a good business model.

However, Uber is still losing money. They uses Adjusted EBITDA to measure their performance, which I believe is misleading. They also uses Adjusted net revenues. If we look at Free cash flow, they had a negative FCF of about $3 billion last year and this year, it will be only a little better. On the balance sheet, we can already see improvements. The main problem about Uber is that it is not generating enough cash flow from its fast growing revenues.

They have a good business with low competition. Lyft $LYFT doesn't have much market share compared to Uber, which has operations in several countries. Uber also wants to have its own fleet of autonomous cars(something that Tesla $TSLA also wants to achieve). There are two scenarios that can happen with Uber:

1. They keep the same business and become profitable by 2022 with margin of 20%. Eventually, their growth will slow down like with any company

2. If they can achieve to diversify in other businesses and even compete with Tesla, they won't be able to have a profit margin of more than 10%. The car industry is a capital intensive industry and very competitive. But this way, they can still grow.

Whatever direction they are going to take, I believe that eventually they can become profitable. But we always need to discount future cash flows and when I did that and applied the right margin of safety, I will need Uber stock price to by $11/share for me to consider making an investment.

There are so many opportunities of companies to invest all around the world. Uber and Tesla might be famous companies with bright futures but there are many companies which are less famous but a higher probability of making a good returns on investment.

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