Where Next for the Uber Stock Price After Earnings Beat?
May 16, 2022
Uber Technologies, Inc. (UBER) reported its first quarter earnings for 2022 on May 4th, 2022, after the close. Trading on May 4th opened at $27.37, down 7.16% from the closing price on May 3rd of $29.48. The earnings consensus estimates for Q1 of 2022 were about -$0.27. On May 4th, Uber reported earnings of -$0.18 per share, beating estimates by 33.3%. However, their earnings beat was not enough to give the stock price a boost. A pre-Q1 earnings valuation of $27.37 per share was too high for investors given the data that Uber reported, which sent the price down further.
On May 4th, 2022, Uber reported a little more than $6.85 Billion in sales and a net income of -$5.93 Billion. Net income for Q1 2022 was down significantly from the previous four earnings reports. Q3 of 2021 reported net income of -$2.42 Billion and Q4 of 2021 reported net income of $892 Million. Because of the drop in price that we experienced on May 4th, 2022, it is likely that investors were caught off guard by the size of the negative net income that was reported for Q1 of 2022. Investors sold their shares even though Uber beat earnings estimates.
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Uber’s balance sheet for the last five quarters appears nominal and what we would expect for a growing company. Each quarter, for the last five quarters, Uber has reported more assets and more liabilities than the previous year. This indicates that Uber is acquiring assets to grow its business and thereby acquiring more liabilities at a healthy rate. Uber’s sales over the last five quarters appear healthy as well, posting increasing quarter over quarter growth from about $2.9 Billion in sales in Q1 of 2021 to $6.85 Billion in sales in Q1 2022.
However, since Uber is not converting their asset growth to consistently increasing net income, investors are choosing to sell their stock at a faster pace than they are willing to buy. Uber’s stock price has been in a bear trend since February 11th, 2021, when it posted its all-time high price of $64.04, showing us lower lows and lower highs since then. At the time of writing Uber is trading at $24.21, down 62.2% from its all-time high price in February of 2021.
Fig. 1: Price percent change chart of SPY vs. UBER since January 1st, 2022.
Uber’s current price action is pushing new lows that we haven’t seen since April of 2020. Since that time, Uber has continued to increase its sales and acquire more assets. The doubt that inventors have acted on most likely relates to Uber’s inconsistent net income reports. Uber has communicated to investors that its recent net income decrease is due to the investments that have been put into other companies. Such as the Southeast Asian delivery company Grab, the autonomous self-driving company Aurora, and the Chinese based ride-hailing company Didi.
Fundamentally, it is understandable why Uber wants to get in early and big with its competitors around the globe. It is also understandable why Uber wants to invest in self-driving vehicles, to facilitate its ride-hailing and delivery services. The market has been looking for buyers and the $21.51 price level represents an important support level for Uber’s stock price. Given the opportunity that Uber has within its reach, especially with the coming self-driving vehicle era looming, this price level looks attractive to begin building a position.
As Uber’s sales increase, it is likely that Uber will continue to spend and invest in its own industry. That behavior may produce lack-luster earnings reports in the near term. However, if Uber can develop the technology required to reduce the cost of hiring drivers by introducing autonomous self-driving automobiles into their industry, the sales to net income ratio will swing wildly into profitability. If you believe that is possible, the current stock price represents a tremendous value. The alternative is, Uber does not continue to seek out innovation and grow its footprint and as a result crash its stock price into worthlessness.
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