Uber Technologies (NYSE:UBER) has yet to make any form of profitability. Its latest quarterly release showed that earnings were lousy and cash flow was still negative. Moreover, its cash in the bank fell and long-term debt rose. Don’t expect UBER stock to ever get profitable at this rate. This is despite what analysts are projecting.
Here are the basic highlights from Uber’s Q1 earnings release on May 5. Revenue was $2.903 billion, down $345 million, or 10.6% from $3.248 billion in the last sequential quarter. Moreover, its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was negative $359 million. Despite being a loss, it was still an improvement over last quarter’s adjusted EBITDA loss of $612 million.
But don’t be fooled. The company is bleeding out cash. For one, its cash and short-term investments balance fell again this quarter from $7.077 billion (including short-term restricted cash) to $5.902 billion. That is a drop of $1.175 billion in one quarter, or -16.6%. In addition, its long-term debt rose from $7.56 billion to $7.801 billion. Other long-term liabilities also jumped from $1.306 billion to $1.74 billion.
In other words, higher revenue (compared to Q4 2020), has not led to higher cash flow and cash balances. That is the bottom line with any company and its cash flow.
What Analysts Think
This is not the message you will get from Street analysts. For example, many of them are now projecting Uber to reach net income profitability by Dec. 2022. Seeking Alpha reports that analysts forecast significant earnings per share (EPS) by 2023 ($1.19) and 2024 ($3.70).
But, as one analyst points out, it faces huge competition in the rideshare and food delivery business. Moreover, many employees have been demanding higher wages, and to attract more talent it has had to increase wages and prices.
Moreover, analysts’ projections for net income profits are based on a massive growth in revenues from 2021 to 2024. These analysts project that sales will grow from $15.7 billion in 2021 to $33.8 billion in 2024. The problem is that Uber has barely grown its revenues. In 2018, UBER had $10.43 billion in sales, but the last 12 months (LTM) sales as of March 2021 was just $10.79 billion. That is not growth. it does not support analysts’ growth expectations.
What To Do with UBER Stock
The average of 26 Wall Street analysts’ target price, according to TipRanks, is $72.36, up 47% from its July 9 close price. Similarly, Seeking Alpha reports that 41 analysts have an average target price of $69.73, or 42% higher. Finally, MarketBeat reports an average target price of $67.51 from 32 analysts. That represents a 38% upside. The average of all these analysts is $69.87, or 42.4% higher.
I think the stock will fall 20%, as I think sales will grow slowly. In addition, Uber will likely need to increase its debt to finance its losses. That could lead to a higher equity dilution. In these situations, I use a probability matrix.
For example, let’s assume there is a 30% chance that analysts are right that UBER stock will rise 42%. In addition, let’s say that there is a 50% chance I am right and the stock falls 20% from here. (I like my forecast better than analysts’.) Lastly, let’s say there is a 20% chance the stock will stay flat. What is the expected return (ER)?
First, multiply 40% by 42.2%. The ER for analysts is 16.96%. Next, assuming there is a 50% chance UBER stock falls 20%, the ER is -10%. Lastly, with a 20% chance of a 0% return, the ER is 0%. Therefore, the total ER is 6.96% (i.e., 16.96% – 10.0% + 0%).
Despite analysts’ forecasts, there is only a 7% upside in UBER stock. That’s not worth writing home about.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.