If you were lucky enough to get into the Uber Technologies (NASDAQ:UBER) stock IPO back in May 2019, at $45 per share you’re still underwater.
If you bought near the first trade, you’re at breakeven.
Uber stock trades today at about $40. It’s still a substantial business.
It has a market cap of $76.7 billion, on 2020 revenue of $11.7 billion. That’s a rich premium of seven times revenue for a company that only turned its first profit in June and needed an asterisk on it.
The profit, $1.1 billion or 58 cents per share, didn’t come from operations. It came from a $1.9 billion gain in Didi Global (NASDAQ:DIDI), the Chinese ride-hailing firm whose stock tanked after its June 30 IPO.
The highlight of the fiscal 2021 Q4 report was the performance of Uber Freight. Revenue there grew 64% to $348 million.
That’s a tiny part of the whole, but it’s where CEO Dara Khosrowshahi has been putting Uber’s money.
Uber Stock and Growth
It recently bought Transplace, a freight company, from a private equity firm for $2.25 billion. The deal will add $1.5 billion to Uber’s debt, which stood at $9.3 billion at the end of June.
Uber has also bought the rest of Cornershop, a Latin American grocery delivery service. This was a follow-up to its 2020 purchase of Postmates.
Khosrowshahi has also been investing in the company’s tech stack, rewriting its fulfillment system for the first time in 7 years. If there is a secret sauce to Uber, its technology is it.
The moves have Morgan Stanley (NYSE:MS) pounding the table for the stock, calling it one of the best bets outside the Cloud Czars
People Problems
Uber’s biggest problem right now is getting people.
Uber has been trying to simultaneously tell workers it values them, just not enough to give them health insurance.
Its efforts suffered a setback in California, where a judge ruled its Proposition 22 effort last year was unconstitutional. The proposition tried to tie the hands of future legislators.
Uber and its partners plan to appeal and are pushing a similar law in Massachusetts, holding that drivers are just “contractors” responsible for their own welfare.
While they’re not employees, Uber also isn’t above using cameras to follow them around in their homes, through a Columbian subcontractor.
This isn’t sitting well with drivers, at least those who have other options. They’re quitting in droves, in both the U.S. and Europe. Uber has tried to combat the cost crunch by expanding “surge pricing,” but that is causing riders to quit the service in its best markets.
The people problems have some analysts calling Uber’s business model a “fragile proposition,” but there are writers who continue to believe in the stock.
Our Wayne Duggan is one of them. He likes the diversification, believing profits are around the corner and the stock is underperforming. Our David Moadel also says now is the time to buy. He sees growing revenues and good profit prospects.
The Bottom Line
Buying Uber today is as speculative as it was two years ago.
Gig workers who once thought they could make a good living driving for Uber now know better. It’s like being a freelance writer, only without the byline.
The freight and grocery parts of Uber remain a small part of the whole. It’s still basically a taxi company, dependent on willing drivers for its revenue. When competition comes it will be from self-driving drones that are no longer part of the Uber business model.
I could be wrong on this. I have been wrong before. But even if Uber ekes out a profit with higher revenue, I fail to see value at its present price.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
