It has been nearly a decade since ride-sharing firm Uber (NYSE:UBER) disrupted the world of taxies by rolling out an app that would transform the way people travel. Since that time, Uber stock has been a hot topic among investors, but its debut on Wall Street was less than ideal with the share price losing more than 10% over the course of two days.
The firm has faced several obstacles, to be sure, with pushback from unions and concerns about the safety of its passengers. However, the larger issue that investors have been focused on is rising competition in the ride-share space, and whether it’s a feasible business model. Uber execs know that, and for that reason they’ve been working to carve out a moat that sets Uber apart from rivals, but will that be enough to keep the share price from crumbling further?
Like many companies making their way onto Wall Street, Uber stock saw its share price slide exponentially following its IPO. On the first trading day, Uber lost more than 7% of its value and shed an additional 10% the following day.
A big reason Uber’s stock price is significantly lower than its offering price is the fact that the firm has been forced to spend big in order to keep the competition from stealing its customers, that means the firm isn’t expecting to turn a profit just yet and investors will have to trust in management’s future growth plans.
The trouble with that is Uber’s growth is slowing significantly … especially when you compare it to rivals. Uber is expecting to see a 19% increase in revenue during the first quarter of 2019, that’s a huge decline from last year’s 42% increase.
Monthly active users, the holy grail of any app-based business, rose by 35% in 2018. That’s not too shabby, but competitor Lyft (NASDAQ:LYFT) saw its MAU’s rise by 46%. What’s to keep people from switching between the two? Essentially, nothing at this point.
In an effort to build out a differentiated ride-share experience, Uber announced a new set of preferences that its premium riders can use to customize their ride. Among other things, riders can alert drivers of their mood — “happy to chat” or “quiet preferred.” The new options also go beyond social graces — riders can also choose temperature settings as well as an option to have help with their luggage ready and waiting.
Sure, it doesn’t sound like much, but the new settings could take Uber’s premium accounts to the next level. Having the ability to customize your ride by selecting everything from the car type to the inside temperature makes a premium membership more appealing. It gives Uber an elite status that its competitors don’t have.
Enough to Save Uber?
While the preferences have certainly drawn a buzz for Uber, I wouldn’t say they give Uber stock any additional appeal. Those features seem easy enough to copy and they don’t address worries about how the ride-sharing market will change over the next decade as more players get involved. Not only are the likes of Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) working to develop automated taxis, but automakers themselves are likely to start rolling out their own ride-share networks.
Perhaps the only savior for Uber stock at this point would be a breakthrough in the self-driving car space. The firm has made big bets on its autonomous driving arm, and its success could be a boon for Uber in the future. After a fatal accident in Arizona, the firm has required the majority if its self-driving cars to be manually operated, with only a small fleet of cars operating autonomously in Pittsburgh.
The Bottom Line on Uber Stock
It doesn’t look great for Uber stock right now. The company’s future looks extremely uncertain at present and investors will likely have to wait a long time before an autonomous driving breakthrough is possible. Unless Uber finds a way to set itself apart by building an ecosystem that its customers are reluctant to leave, I don’t see it having an edge over competitors. At $41 per share, I believe Uber stock is fully valued so I’m staying on the sidelines.
As of this writing, Laura Hoy was long AMZN.