Uber is set to report earnings this Thursday after the close with the stock under heavy pressure and the company seen posting losses. Recent corporate news and a weaker global economy both could weigh.
Many parents of Millennials gave their kids a lesson about the stock market: “Buy the things you know.”
Transportation company Uber (UBER) is one a lot of Millennials know, and they’ve snapped up its shares enthusiastically since the company’s stock debuted in May, according to TD Ameritrade data. However, UBER—which reports earnings after the close of markets this Thursday—hasn’t necessarily convinced veteran market analysts that it can find a way to reach profitability.
There’s a different sort of pressure when a company goes public, and UBER is finding that out. Once you’re public, people expect you to make money.
Despite the big Millennial interest, UBER’s stock hasn’t come close to matching the market performance of some other recent initial public offerings (IPOs). The stock dropped more than 7% on its opening day, and now nearly three months later, still trades well below the IPO price of $45.
Earnings come as UBER wrestles with a couple of recent challenges. First are some micro issues, as the company announced last quarter that its chief operating officer and chief marketing officer were both leaving. UBER also cut one-third of its marketing staff, or about 400 employees. That’s not usually a sign of things going swimmingly, though it might help reduce costs.
Then, even more recently, media reports surfaced that UBER was likely to get a short-term extension of its license in London, not a five-year one. A short-term license would allow UBER to keep operating there for another two years, but it isn’t necessarily a ringing endorsement of the company from one of its key markets. The license in London is temporary and expires next month.
Economic worries are also growing for the entire global economy, and that’s not good for companies like UBER. If things do slow down, people could start walking instead of logging onto UBER or competitor Lyft (LYFT).
UBER is expected by many analysts to remain unprofitable when it reports, but the same is true for other recent IPOs whose stocks got a lot more power out of the gate, like Beyond Meat (BYND). Why is UBER getting the cold shoulder from investors?
One thing that’s hurt both UBER and LYFT, according to a Barron’s analysis, is that once the stocks became public, investors started focusing less on strong demand for the companies’ services and more on questions about how they’d eventually grow profitable.
Two of the paths to profitability—lowering prices for consumers and cutting payments to drivers—could hurt growth by making the services less affordable and turning qualified drivers away, Barron’s said. Some analysts even question whether the business model can succeed.
Shares of UBER didn’t see any real summer recovery after a tough spring, falling 9% in July. UBER’s performance in the stock market so far is a reminder of why investing in IPOs can carry risk as they find their place in the market. Investors may want to keep a cautious outlook and remember the potential downsides of investing in IPOs. It can be difficult to calculate the value of recently private companies that have no trading history or public quarterly financial results. In the end, determining an IPO’s prospects is generally more art than science.
This won’t be UBER’s first earnings report as a public company. In late May, UBER reported that it lost just over $1 billion in Q1 of 2019 on revenue of $3.1 billion. The earnings loss was roughly in line with Wall Street’s expectations, but revenue beat third-party consensus slightly.
One of the metrics to consider watching when UBER reports Q2 results Thursday is gross bookings, which measures the total dollar value paid for its services including taxes, tolls and fees, but not tips. In Q1, gross bookings totaled $14.65 billion, up 34% from the same period a year earlier, UBER said.
In addition, UBER grew its monthly active platform consumers 33% in Q1 to 93 million.
UberEats is another big aspect of the company’s business and might bear watching in Q2. Back in Q1, UberEats saw adjusted net revenue for the segment grow 31% to $239 million. In a potential blow to UberEats, McDonald’s (MCD) said in July it was ending its exclusivity with UBER and adding DoorDash as a new delivery partner.
In Q1, UBER reported an average of 17 million trips per day and an annualized gross bookings run-rate of $59 billion. UBER is likely to report Q2 numbers for those metrics Thursday.
At the time it reported Q1 earnings, UBER noted “less aggressive pricing by rideshare competitors” that continued into Q2, something that might be worth monitoring.
When UBER releases results, it is expected to report adjusted EPS of negative $3.19, on revenue of $3.39 billion, according to third-party consensus analyst estimates. That revenue would be up from the previous quarter.
Options traders have priced in approximately a 7.2% stock price move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.
Looking at the Aug. 9 weekly option expiration, call activity has been high at the 43 and 44 strikes, with put volume concentrated at the 36 through 37 strikes.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
TD Ameritrade® commentary for educational purposes only. Member SIPC.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.