Ridesharing giant Uber (NYSE:UBER) recently reported earnings and revenue beats in the second quarter. Unfortunately, UBER stock is down 15% year-to-date in 2021.
Uber investors are likely frustrated with how poorly the stock has performed. After all, people are finally starting to go out and do things again.
Uber is far from a perfect stock, and it is still facing several near-term headwinds. But Morgan Stanley analyst Brian Nowak recently listed five reasons he’s still bullish on UBER stock. I agree with a couple of Nowak’s reasons, but I also have a couple of my own. Here are five reasons I’m bullish on Uber.
1. Delivery Is Exceeding Expectations
One of Nowak’s five reasons to love UBER stock is because Uber Eats growth is holding up very well. I am incredibly surprised Uber’s Delivery segment is growing so rapidly compared to a year ago. In the second quarter, Uber reported $12.9 billion in Delivery gross bookings, up 85% year-over-year. Everyone remembers that virtually everyone was socially distancing in the second quarter of 2020. The fact that Uber was still able to ramp up delivery numbers so much off seemingly impossible pandemic comps is very impressive.
2. UBER Stock Is Still A Great Reopening Play
When I wrote about UBER stock back in December, I mentioned it as a potentially excellent economic reopening investment. I still believe that’s the case, even though the stock has performed poorly this year. In the second quarter, Uber’s Mobility gross bookings soared to $8.6 billion, up 184% from a year ago. Clearly Uber’s Mobility business is benefitting from the reopening. So why is the stock performing so poorly? First, uncertainty surrounding the delta variant of COVID-19 has made some investors concerned of more shutdowns ahead. Second, Uber is currently dealing with a driver shortage as the economy returns to an equilibrium. But make no mistake–when things finally get back to normal, Uber’s business will be booming.
3. Uber Has A Diversified Business Model
As I said in December, the beauty of Uber compared to DoorDash (NYSE:DASH) or Lyft (NASDAQ:LYFT) is Uber’s diversification. If the economy shuts down again, Uber has its booming Delivery business, which includes Uber Eats. If things continue toward a full reopening, the Mobility business will pick up the slack. Uber also generated about 25% of its delivery volume from its subscription Uber Pass service in the second quarter. If Uber is successfully able to convert more of its customers to a subscription model, that will create even more financial stability and customer stickiness, Nowak says. I agree, and I think Uber’s diversified business is one of its strengths.
4. Uber Has A Path To Profitability
As a value investor at heart, the fact that Uber once again generated a $1.19 billion operating loss in the second quarter is troubling. As a rule of thumb, I generally avoid stocks that aren’t profitable. But I do see Uber’s long-term path to profitability. The company said it will become profitable on an adjusted earnings before interest, taxes depreciation and amortization (EBITDA) basis by the end of 2021. Of course, if you make enough “adjustments,” any company can be profitable. For now, Uber is dealing with extremely heavy costs associated with its drivers and building its network of customers. At some point, Uber’s service will likely be nearly entirely autonomous and its costs will drop significantly.
5. UBER Stock Has Underperformed
The final reason I like UBER stock is because of how poorly it has performed. Somehow, UBER stock in 2021 has underperformed other reopening stocks, such as Delta Air Lines (NYSE:DAL), Booking Holdings (NYSE:BKNG) and Carnival (NYSE:CCL). But Uber is the only one of those stocks that reported record revenue in the second quarter. Its second-quarter revenue was up 11.3% compared to Q2 of 2019. Yes, UBER stock is a reopening trade. But it shouldn’t be underperforming stocks that are still well short of pre-pandemic business levels.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.
