Every newly public stock must go through what is called a “quiet period,” during which Wall Street analysts must not say anything about the stock, to avoid premature price manipulation and protect early investors. For Uber (NYSE:UBER) stock, this quiet period just ended, meaning that for the first time ever, Wall Street can finally voice its opinion on Uber stock.
Wall Street is telling investors to buy Uber stock and hold it for the long-run.
According to data from Bloomberg, there are now 26 ratings by Wall Street analysts on Uber stock. Over 80% of those are “buy” ratings. There are only six “hold” ratings, and zero “sell” ratings. The average price target on Uber is $54. That’s 20% higher than today’s price tag.
In other words, Wall Street is very bullish on Uber in the wake of Uber IPO. Not only do Wall Street analysts think the stock is a strong buy, but they also think it can rally 20% over the next twelve months.
They’re right. Uber is growing rapidly and is in the first few innings of its growth. Over the next several years, its revenues will march higher, its high losses will turn into big profits, and Uber stock will more than grow into its high valuation.
All in all, I’d follow the analysts on this one. The recent weakness of Uber stock is overdone. Over the long-term, this stock is going way higher.
Why Wall Street Is Bullish
Pretty much everyone on Wall Street is bullish on Uber.
Cowen initiated coverage of the stock with an “outperform rating” and a $58 price target. Mizuho started Uber at a “buy” rating with a $50 price target. Loop Capital has a “buy” rating and a $54 price target. Goldman Sachs, Bank of America Merrill Lynch, JMP Securities, Oppenheimer, and RBC Capital all have “buy” ratings, too. All of those firms also have price targets north of $50. Meanwhile, BTIG is the biggest bull on the Street with an $80 price target.
Broadly, then, pretty much every Wall Street analyst likes Uber stock, and they all think that the stock can and will rally above $50 over the next twelve months.
What’s driving this bullish sentiment? Wall Street’s bull thesis can broadly be summed up in two paragraphs.
Uber dominates the ride-sharing and online-food-delivery markets. Both of those markets are under-penetrated domestically and globally, and are positioned for robust growth over the next several years, thanks to the rapid growth of the “sharing” economy.
Uber has liquidity, size, reach, and technology advantages over its competitors, and those advantages should enable the company to maintain its market leadership position for the foreseeable future. Those advantages will also enable Uber to successfully dive into tangential growth markets like Freight.
Its core ride-sharing business is already profitable, and will become more profitable over time and as it grows. Uber’s other businesses will undergo a similar process.
Uber is positioned for huge revenue growth over the next several years. All that revenue growth will help reduce its spending as a percentage of its revenue, and eventually produce enormous profits. The value of those profits is presently being underestimated by the market, so investors should buy Uber stock.
Why Wall Street Is Right
Wall Street is spot on when it comes to Uber stock. There are really four important aspects related to Uber:
- Non-cyclical growth tailwinds will power enormous growth throughout the entire sharing economy. The global economy is pivoting to a sharing model, and that means that consumers are increasingly utilizing sharing services like ride sharing. Ride sharing currently comprises only about 1% of total vehicle miles traveled globally. Over time, that number will rise by leaps and bounds, as rising traffic problems and car-ownership expenses will increasingly push consumers towards ride-sharing services.
2. Uber is the big dog in the sharing economy, and size is a great defense. Uber has north of 60% market share in pretty much every market in which it operates, and 70% market share in the important U.S. market.Thus, Uber is the big player in ride sharing. Importantly, when it comes to ride sharing, size is a great defense. That’s because ride-sharing models are built on liquidity networks. Specifically, the more drivers a company has, the lower the wait times are, the more riders it attracts and the more riders each driver gets. More riders, in turn, attract more drivers. Uber has the most drivers by a long shot, and that larger pool of drivers is a sustainable advantage.
3. The company can and will benefit from economies of scale and market rationalization. Uber generates huge losses right now. But its core ride-sharing business does have positive contribution margins. Further, the ride-sharing market will rationalize over the next several years as the the market matures and discounts become less abundant. That will drive margins higher. At the same time, Uber will benefit from economies of scale, and that will provide an additional boost to its margins. Its margins are negative now, but they will march significantly higher in the long-run.4. Uber has so many tangential growth verticals. Ride sharing and food delivery are just two of the multiple growth markets that Uber can eventually enter. It can easily dive into Freight, last-leg logistics, scooters, and much more. The sum of all those markets makes Uber’s growth outlook compelling, even after the ride-sharing and food-delivery businesses have run their course.
The Bottom Line on Uber Stock
The Uber IPO was rough, and not all Uber news over the last six months has been upbeat. But don’t think that just because the Uber IPO was rough, Uber will not be a good stock. Wall Street is telling investors to buy this stock because it’s a long-term winner and Uber news will eventually be quite positive. They are right. This company is in the first inning of long-term growth which will, over the course of the next several years, push Uber stock materially higher.
As of this writing, Luke Lango was long UBER.
