Uber Technologies’ Return to Greatness Hinges on Business Diversification

Here’s something that probably nobody expected. Folks who held shares of California-based ride-share platform Uber Technologies (NYSE:UBER) in 2020, the year of the Covid-19 pandemic’s onset, actually had a great year. Then, oddly enough, UBER stock tanked in 2021, even while the nation’s economy largely recovered from Covid-19.

The Uber (UBER) logo is displayed on a smartphone on top of a map background.
Source: Proxima Studio / Shutterstock.com

It just goes to show that stock-price movements aren’t always logical or predictable. Perhaps as well, it’s evidence that the ride-hailing business isn’t easy to navigate.

Fortunately, UBER stockholders aren’t relying solely on a turnaround in the ride-hailing market. Indeed, there are other business ventures at work here, and they could prove to be quite lucrative.

After all, the Covid-19 pandemic did create some intriguing business opportunities, particularly in delivery services. So, even if 2021 was disappointing, there may be a value play for enterprising investors here.

A Closer Look at UBER Stock

Checking on the technical aspects of the trade, a crucial resistance level asserted itself early last year with UBER stock.

As it turned out, the stock ran up to $60 not just once, but three different times in 2021. This happened in February, March and April.

After that, it was a long, downhill ride. By late January of 2022, UBER stock had sunk to $34 and change.

There’s a glimmer of hope, though. The stock was trading at that same price point in late 2020 before an epic bull run commenced.

Therefore, a revisit of $60 might be in the cards. Just don’t go all in on UBER stock, as it’s still desperately trying to find its footing.

Trucks, Groceries and More

Interestingly, some investors might not even realize how diversified Uber’s business model actually is.

Sure, the company’s core business is its ride-hailing app. Yet, there’s more to Uber than meets the eye.

For example, there’s the trucking-focused Uber Freight. Morgan Stanley’s transportation research team, headed by Ravi Shanker, have valued Uber Freight at a hefty $3.5 billion. Furthermore, they envision the the total available market (TAM) as a $900 billion opportunity.

Plus, the segment’s “extensive offering to both carriers (scale advantages, drop solutions and bundling) and suppliers (real-time pricing, tracking, self-serve platform) allows Uber Freight to address over 50% of the US trucking TAM,” according to the Morgan Stanley analysts.

Of course, we can’t forget about the company’s food-delivery business, Uber Eats. In addition, there’s the company’s grocery-delivery business, which appears to be expanding.

As evidence of this, Uber announced a new partnership with Smart & Final Stores to expand its on-demand and scheduled grocery delivery to customers across the West Coast of the U.S.

With this partnership, 173 Smart & Final stores across ArizonaCalifornia and Nevada are available for customers to shop through Uber and Uber Eats. Moreover, there are plans to onboard all of Smart & Final’s 254 locations.

Providing a Sturdier Floor

As Uber expands into multiple business segments, one Wall Street expert is leaning bullish even if the share price is sinking.

In fact, Needham analyst Bernie McTernan went so far as to identify Uber as a top pick for 2022. With that, the analyst issued an ambitious $75 price target and a “buy” rating.

Even with that vote of confidence, McTernan acknowledged the challenges inherent in bottom fishing with this company.

“Calling the floor in UBER has been difficult given a reliance on EV/Sales multiples. UBER looked cheap to us from 6x sales all the on its way to 3.5x currently,” he admitted.

Still, 2022 could be the year when Uber finally turns a corner. To that end, McTernan expects to see the company’s adjusted earnings before interest, taxes, depreciation and amortization “improving from -$800M in ’21E to $1.3B in ’22E to $3.3B in ’23E.”

That would be quite a turnaround, if it happens as predicted. Nonetheless, McTernan stands by his expectation that Wall Street will re-evaluate Uber this year.

“UBER is on the brink of investors being able to put a multiple on a fairly close annual metric, which should provide a sturdier floor for valuation,” he explained.

The Bottom Line on UBER Stock

Getting to the price target of $75 won’t be easy. Don’t expect this to happen next week or next month.

Yet, UBER stock could get there as the company aggressively expands its business segments beyond basic ride hailing.

Like ride hailing, floor calling is a tough business. With time and patience, though, Uber’s intrepid investors could have an enjoyable ride in 2022.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2022/01/uber-stock-return-to-greatness-hinges-on-business-diversification/.

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