Despite a thriving food delivery business, Uber (NYSE:UBER) stock took a hit in 2020 as a result of limited social gatherings and low demand for its ridesharing services. However, the company is back on investors’ radar as states, businesses and workplaces look to reopen in the coming months.
Adding to the economic recovery, Uber stock is well-positioned to reclaim its title as the premier ride-sharing service.
The company has a super-app in the works and a $250 million stimulus plan to bring back drivers.
This resurgence in demand will help offset any potential headwinds for Uber Eats in the coming months. If you are looking for a good recovery play, Uber is one of your best bets right now.
Uber Stock Hits the Accelerator
As pandemic restrictions ease in the U.S. and across the globe, Uber is gearing up for a strong comeback. The reopening of states signals a return to normal life as people make their way back to restaurants and other social venues.
For Uber, this will result in a massive surge in demand for its ride-sharing service. Needless to say, the company is well-positioned to be one of the primary beneficiaries of the post-Covid era.
According to Uber, the company saw a decrease in the number of drivers on the app as a result of lower demand for its ride-sharing service. However, with demand expected to spike again, the company is now looking for new ways to bring back drivers.
This month Uber introduced a $250 million stimulus plan to support its current drivers while incentivizing new drivers to join.
The stimulus will be put towards helping drivers achieve higher earnings if they meet specific milestones. As reported by CNBC, drivers in Austin will be guaranteed $1,100 if they complete 115 trips.
The hope is that this will encourage drivers both new and old to spend more time on the app, but as more drivers join the app, the higher earnings will eventually decrease.
Building an App of the Future
Ride-sharing and food delivery may be Uber’s core services but the company aspires to become the go-to app for all things mobility. A super-app is currently in the works to make this a reality.
From groceries to prescription drugs, Uber aims to become the premier delivery service. Uber’s CEO, Dara Khosrowshahi says that while Amazon owns “next day delivery” Uber will own “next hour delivery.”
Uber combined its Uber Eats and Uber app to integrate its services. During the pandemic, the company experienced a surge in demand on its food delivery app as indoor dining remained closed.
Now, as eateries reopen, Uber hopes to see an increase in ride-sharing activity as well. However, Uber Eats is likely to face some short-term headwinds as people dine out more.
Analysts continue to remain optimistic about the future prospects of Uber stock. Jefferies gave the company a favorable rating as it believes Uber stock can gain as much as 65% with the vaccine rollout and the return to normal life.
Given that this segment is also its largest revenue generator, an increase in its demand will help offset any losses from the food delivery business. Truist analyst Youssef Squali maintained his “buy” rating, giving the stock a price target of $66.
The Bottom Line
Uber had a tough 12 months, but with the economy all set to reopen the ride-sharing service is on to better days. This resurgence in demand for its core business as social gatherings resumes will help the company add to its bottom line.
This will be amplified with Uber’s $250 million stimulus payment, which will incentivize more drivers to get on the app. Furthermore, as the company expands to new verticals in its delivery service, usage rates on the app will increase in the long haul.
This in turn will drive customers to its other services as well. Uber stock is poised to generate some strong returns this year making it a great recovery play.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.