Investing in Uber Technologies (NYSE:UBER) stock is a risky proposition currently. If you feel as if you must buy it, it’s best to wait at least a few weeks until after its Q2 earnings have been digested.
Uber faces severe risks following recent news around it and the rideshare sector.
The biggest recent piece of news related to Uber occurred on July 28 when SoftBank (OTCMKTS:SFTBY) sold off 45 million shares in the compsny.
That news sent Uber share prices down more than 4%.
There’s a lot of speculation as to exactly why SoftBank chose to offload the large chunk of Uber shares.
One of the first explanations to be proffered relates to Didi Global (NYSE:DIDI), a rideshare company out of China. The company undertook a tumultuous IPO which proved perilous and unsuccessful.
The company is facing serious trouble with Beijing regulators and investors in the U.S. The DIDI stock IPO has turned into a massive fiasco and cost many investors dearly.
SoftBank was one of Didi Global’s major backers and was looking to cover its losses quickly so it sold 45 million shares of UBER stock.
That was the first explanation offered, and remains the most commonly repeated. That said, there are other potential explanations as well.
One is that there was a margin call at SoftBank which is known to bet big and leverage heavily.
That would certainly explain the sale although I’ve seen no concrete evidence that this is what prompted the move.
Timing Raises Concern
If SoftBank’s sale of Uber shares was a simple issue of meeting margin calls, then my next suspicion is unwarranted. Nevertheless, the idea is worth exploring.
Uber will release Q2 its earnings report tomorrow, which should at least raise a few eyebrows regarding the timing.
The implication here is that SoftBank may have a strong belief that Uber’s second quarter earnings will disappoint. Therefore, it offloaded that 45 million share block in anticipation of decreasing prices.
That is little more than conjecture, but in the absence of any strong evidence that Uber should rise, it at least bears consideration.
On the other hand, all of the downward price pressure represents an inexpensive opportunity for fund managers to establish a position in Uber.
Earnings Expectations
To be fair, though, most analysts aren’t anticipating that Uber will have a strong showing Aug. 4.
Actually, it really depends on what constitutes strength. Analysts expect that Uber will post $3.74 billion in revenues, up from $2.9 billion in the first quarter. That could be argued to be a strength.
Yet, that $2.9 billion in revenue in Q1 2021 was lower than the $3.248 billion in revenue Uber posted in Q1 2020.
Whatever happens on that front it is clear that Uber continues to grow by acquisitions rather than organically.
Transplace Acquisition
On July 22 Uber announced its acquisition of logistics company, Transplace. The deal cost Uber $1.5 billion in cash and $750 million in stock.
Financial particulars aside, it raises the question of where Uber is going.
Uber believes it can overlay its technological knowledge onto strained transportation supply chains and squeeze profit out of it.
As Uber states in its presentation accompanying the acquisition, “Completion of this transaction will enable Uber Freight to serve substantially more customers at all levels of the freight industry and will expand its presence into Mexico and through new capabilities in intermodal and customs brokerage.”
The report goes on to say that the deal should boost the profitability of Uber Freight by the end of 2022.
The takeaway here is that Uber is undergoing change and volatility currently, thus its best to stay away for the time being.
On the date of publication, Alex Sirois 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.
