Uber (UBER) is set to be one of the worst-performing stocks on Friday after reporting disappointing earnings on Thursday evening. Yet, many on Wall Street are not ready to cancel their trip.
Shares of the San Francisco-based unicorn name fell nearly 9% on the open, heading toward one of the worst days in its short history as losses widen and the path to profitability appears more and more arduous.
However, the silver linings in the quarterly report are actually causing analysts to stand steadfast with bullish targets, with multiple analysts even raising targets.
"At the margin, we come away incrementally more positive on Uber given competitive dynamics improving, take rates on track to move up sequentially, product enhancement driving more multi-offering users, and EBITDA losses lessening," RBC analyst Mark Mahaney advised clients. "Our long term view on Uber is unchanged from our initiation as we see an estimated $2.5 trillion Gross Bookings total addressable market, Uber is the dominant leader in the Global Rideshare Market, gross bookings has held 30% growth levels even as the base has become much larger, [and] we also see significant option value in new business units."
Mahaney added that the inevitable rationalization of competition, the pricing power the company possesses as the largest player, insurance leverage, and expense leverage that improves with scale are all key factors for bullishness in the long term.
He reiterated his "Outperform" rating and set a $62 price target for shares, suggesting significant upside from the opening share price on Friday morning.
Other analysts noted that the one-time impacts of the IPO and reward programs are being overplayed in the market. WIthout these billion dollar charges recurring, the quarter was much more positive than the market is realizing.
That amplifies the look ahead from bullish analysts who are targeting tantalizing technology breakthroughs on the horizon and the sprawling base of operations the company maintains.
"Looking ahead, we expect Uber to roll out new technologies/offerings around its sharing/matching offerings, more sophisticated pricing algorithms, consumer segmentation, rewards and loyalty, and subscription offerings," Morgan Stanley analyst Brian Nowak said. "Over time, we see these offerings leading to a faster growing, stickier user base, higher cross-product frequency and a more profitable platform."
On the back of that long-term view, he raised his price target $1 to $57 per share, adding that the company rightly deserves a premium to its prominent peer Lyft (LYFT) and should be able to reach profitability in the upcoming years.
"It feels early in Uber's optimization efforts as the company is still improving its per unit insurance and payments costs," he acknowledged. "[But] its recent marketing restructuring should lead to more efficient spend, and we expect further leverage in customer service and operations and support as the business scales."
Lastly, Cowen analyst John Blackledge added optimism out of the contentious quarter, also raising his target after parsing the print.
"Our Outperform rating is based on UBER's differentiated position due to its global scale and market leadership in diverse app-coordinated transportation and logistics businesses," he told clients. "Ridesharing platform is profitable on a per-trip basis under our analysis, and the company is poised to continue to gain and retain share in multiple fast-growing geographies and adjacent spaces, which we believe provides significant room to continue growing Gross Bookings and Revenue at a rapid pace."
He declared that despite the noisy quarter, Uber remains the best positioned company to corner the market on the growing trend for app-based ride hailing, logistics, and food delivery.
After the surprising spate of target raises, the Wall Street consensus now stands at $52.25 per share, which could provoke some interesting price action on Friday.
For longer-term investors, the next prescient catalysts include the progression of litigation against the company, regulation both domestically and abroad, the expiration of the company's lockup in November, and of course the upcoming quarter as the one-time hits to profitability pass by.
For now, those following the stock are happy to sit tight ahead of these key data points and not give in to panic on the profitability progression.
"Uber's 2Q report was mixed, with a lot of moving parts in the quarter," Stifel analyst Scott Devitt concluded. "Uber has a long runway on user acquisition, retention, frequency, and share of wallet to achieve long-term growth forecasts, and we are patient in looking for an inflection within the business."
