There’s no point in sugarcoating it, so I won’t: without any hesitation, we can all agree that the most recent earnings report for Uber Technologies Inc. (NYSE:UBER) was awful. Not only that, Uber stock took a beating in the afterhours session upon the disclosure, losing more than 6%.
Let’s take a look at the numbers. Prior to the second-quarter report, analysts forecasted that Uber Technologies Inc would deliver an earnings-per-share loss of $3.19. Instead, the company produced a devastating EPS loss of $4.77. Clearly, that was well off most analysts’ expectations. In the regular-hours session prior to the print, the Uber stock price had gained more than 8%.
But it wasn’t just the red ink that irked investors. Instead, it was the reason for the profitability miss. Primarily, Uber Technologies made several large stock-based transactions following its much-hyped initial public offering. For example, the ride-sharing firm paid $3.9 billion in Uber stock for compensations and expenses in Q2. Additionally, management paid $298 million to drivers using a combination of equity and cash.
Of course, the company must keep their drivers happy; otherwise, this whole ride-sharing experiment falls apart very quickly. However, we must appreciate the stakeholders’ mindset. They want to see earnings reinvested back into the company for sales growth and expansion. Instead, management looks operationally undisciplined, which explains the fallout in the Uber stock price.
Unfortunately, the Q2 report doesn’t do me any favors either. A few months back and just prior to the Uber IPO, I emphasized my belief that this company, along with rival Lyft (NASDAQ:LYFT) represented transformative investments. Now, my support for Uber stock looks silly.
Wall Street’s Looking at Uber Stock Incorrectly
As I mentioned above, I fully realize that the print is ugly. I’m not going to attempt linguistical jiu-jitsu to convince you otherwise. But what I will say is this: most of Wall Street is using the wrong framework when analyzing the Uber stock price.
For a better approach, investors should adopt the same mentality with marijuana stocks. The ride-sharing economy has many components similar to the green plant. Both are paradigm-shifting investments in that they have sparked an unprecedented new market. Both suffer legal and administration concerns that eventually will find some solution. And finally, these two markets have tremendous upside potential but will require patience in the here and now.
Let me stress the word patience again. Recall that e-commerce powerhouse Amazon (NASDAQ:AMZN) wasn’t initially a Wall Street darling. In fact, during its early years following its IPO, Amazon consistently reported bad losses.
Further, imagine what critics said during that period. E-commerce? Random people selling goods to perfect strangers? That would never work in a million years!
Except that it did work, and it only took a couple of years. Although we have hindsight’s perfect vision, you didn’t have to be a futurist to see the writing on the wall. Even back in the 1990s, it was clear through companies like eBay (NASDAQ:EBAY) that the internet would transform commerce.
And I’m telling you that Uber Technologies Inc is the Amazon of the 1990s, or Apple (NASDAQ:AAPL) circa the 1980s. You’ll probably have to suffer through some quirks and ugly earnings reports. But the on-demand sharing economy will disrupt and replace traditional services. Therefore, the panic toward the Uber stock price is unnecessary.
But since human nature is what it is, use this as a buying opportunity in Uber stock.
Q2 Produced Outstanding Numbers
Another reason why I’m very confident about the longer-term trajectory of the Uber stock price is the fundamental mismatch. More specifically, shares went down sharply when the Q2 report produced some tremendously positive results.
Let the bears focus on the earnings print all they want. I’m going to look at an incredibly viable component of the company’s business, Uber Eats. For those that don’t know, this is Uber’s food-delivery service. It is quick, convenient, and reasonably priced (relatively speaking). Uber Eats was the first time outside of ordering pizza that I used a food-delivery service. Certainly, it won’t be the last.
The beauty here is that my anecdotal story has quantifiable validity. According to the Q2 report, Uber Eats’ user base jumped 140% from the year-ago quarter. In addition, 40% of Uber Eats customers had never used the Uber platform before.
I want you to think about that. As an investment, Uber taps into two relevant revenue channels: ride sharing and on-demand food deliveries. Furthermore, each sub-segment evangelizes the benefits of the other. Frankly, I can’t think of another mass-scale service-based company that levers this attribute.
In closing then, maybe the markets should panic and drive the Uber stock price lower. That just gives me an opportunity to pick some up on the cheap.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.