Uber's End To 'Rock Star-Like Spending,' Aim For Quicker Profitability

A big step toward profitability at Uber Technologies Inc (NYSE: UBER) and a stated interest at the company in ramping toward making money more quickly boosted the ride-hailing company's credibility on Wall Street, prompting sell-side analysts to boost pric

Benzinga · 02/07/2020 14:55

A big step toward profitability at Uber Technologies Inc (NYSE: UBER) and a stated interest at the company in ramping toward making money more quickly boosted the ride-hailing company's credibility on Wall Street, prompting sell-side analysts to boost price expectations on the stock.

Analysts are now more intrigued by the future at Uber with its promise to slow, in the words of one analyst, its "rock star-like spending," and investors also seemed liked it, boosting the stock Friday morning.

The Uber Analysts

Wedbush analyst Ygal Arounian maintained an Outperform rating and bumped the price target from $50 to $52.

Mizuho's James Lee kept a Buy rating on the stock and raised the price target from $45 to $50.

Morgan Stanley's Brian Nowak kept an Overweight rating on the stock but lowered the price target from $57 to $55.

Needham's Brad Erickson reiterated a Buy rating and raised the target price from $50 to $56.

The Theses

Analysts liked Uber's fourth-quarter print with its ramp up of profitability in its ride business and bookings, revenue, and EBITDA that came in above expectations. Revenue beat analysts' estimates by almost 50%.

But what the sell-side really liked was the company and CEO Dara Khosrowshahi's suddenly very aggressive talk on profit goals - the company now is laying out much earlier profit targets.

See Also: Uber Turns In Big Revenue Beat, Says Era Of Growth At All Costs Is Over

No More Rock Star Spending

"The headline from last night and talk on the Street this morning (is) Uber laying out the goals to hit profitability by the end of 2020, a full year ahead of its prior forecast," Arounian wrote in a note. "This was a shocker as we thought best case mid 2021 we could see the red ink disappear and thus we give Uber (and its Board) major credit for finally listening to investors and putting the brakes on its 1980's Rock Star-like spending habits."

Khosrowshahi said in an appearance on CNBC that the plan is completely realistic.

"If you look at our plan for 2020, for every dollar of revenue growth ... we expect to drop 50 cents to 55 cents to the bottom line," Khosrowshahi said. "We think that's absolutely doable, to get to profitability by Q4, but at the same time make the kind of investments that we want to make to keep a high growth rate for many years."

Meaningfully Better Commentary

Erickson said the "meaningfully better forward profit commentary," reinforced the view that Uber can profitably grow, and that investors have been underestimating that.

"We see investors continuing to better appreciate this scarce, attractively valued, global and multi end-market mobility platform," wrote Erickson. And while he tweaked revenue estimates down modestly, he said the higher EV/revenue multiple warrants raising the target price to $56.

Lee noted that Uber's take-rate is improving as competitors offer more rational pricing, and also noted a positive in the company's Uber Eats food delivery business in its decision to leave the India food delivery market, reducing EBITDA losses in the food business by 10%.

One disappointment noted by Nowak was Uber guiding lower on bookings in its rides segment on slower growth, which is what led him to lower the price target on the stock. Ironically, though, that bookings slowdown is related to the company's profit aims - with a focus on more high value rides, and reducing the lower paying ones, such as shared trips.

Still Will Take Time

"Rome was not built in a day and neither will the Uber growth story and regaining back investor confidence," said Arounian. "Although we view these results and the company’s healthy guidance as key swing factors in now finally moving shares higher."

Meanwhile, Khosrowshahi also said Uber isn't seeing a "significant effect" overall from the Chinese coronavirus outbreak. He acknowledged that in parts of China, it may have an effect - airport business in Hong Kong is down significantly, he said. But, "from an overall standpoint with our portfolio it's not material in any way."

UBER Price Action

Uber shares were up about 6% to $39.36 on Friday.