Bullish Sell-Side Unfazed By Uber's Big Quarterly Loss: 'A Clear Path To Profitability'

Uber Technologies Inc UBER disappointed investors by missing top- and bottom-line expectations Thursday, but several sell-side analysts found reasons to remain bullish on the stock.

Uber reported a second-quarter loss per share of $4.72, larger than expected, on lower-than-anticipated revenue of $3.17 billion. Investors reacted negatively to its $5.2-billion loss during the quarter, with Uber shares dropping 8% in premarket trading Friday and continuing downward after the open. The company mostly attributed the loss to stock-based compensation.

Uber CEO Dara Khosrowshahi said in a CNBC interview the company eventually will be profitable, with losses ending in 2020 or 2021.

The mood on the sell-side remained upbeat, with analysts continuing to recommend buying.

The Analysts

Wedbush analyst Ygal Arounian maintained an Outperform rating on Uber and lowered the price target from $65 to $58.

Bank of America Merrill Lynch analyst Justin Post reiterated a Buy rating and $53 target price.

SunTrust Robinson Humphrey’s Youssef Squali kept a Buy rating and $56 price target on Uber.

Oppenheimer’s Jason Helfstein maintained an Outperform rating with a $55 price target.

The Takeaways

Wedbush’s Arounian found positives in Uber’s numbers, noting that when excluding foreign exchange headwinds and a one-time driver appreciation award, bookings and the rideshare take rate bested expectations.

UberEats also had a better take rate than expected, offsetting any negative impact on demand, the analyst said.

Arounian and others also noted that in the United States, Uber is doing well, reducing discounts and focusing on higher-value rides.

Bank of America's Post also found positives, calling the top-line metrics “a little soft,” but noting that EBITDA was well ahead, “suggesting rationalization of investment spend (impacting top line) went a long way to improve the bottom line.”

International, Uber Eats Pressure Profitability

Analysts said Uber continues to be in an investment mode in international markets, and this — along with the developing Uber Eats food delivery business — is pressuring profitability.

Oppenheimer’s Helfstein said Uber is seeing mixed results in Europe, and while Uber Eats is doing well in Japan, rides are slower. Business is “promising” in Japan and Germany, he said.

Helfstein even called Uber’s second-quarter results “solid,” noting they were ahead of expectations after adjusting for the IPO-related driver awards, and cited the organic adjusted net revenue acceleration metric.

SunTrust’s Squali also urged investors to continue to consider Uber a buy, noting that core platform contribution profit returned to positive territory, “demonstrating leverage and a clear path to profitability.”

“We remain positive on UBER post solid, though noisy, 2Q19 results,” Squali said in a note.

“The top line continues to be powered by the secular growth in ridesharing and success in newer markets, while the bottom line is driven by a stable-to-improving competitive environment and strong execution … UBER remains a generational company compounding at scale, taking advantage of a massively inefficient transportation market.”