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Wall Street’s Best Digest Daily Alert - 12/3/20

This ride-sharing and food delivery company just completed the acquisition of Postmates, Inc., making it the second in market share next to DoorDash.

This ride-sharing and food delivery company just completed the acquisition of Postmates, Inc., making it the second in market share next to DoorDash.

Uber Technologies, Inc. (UBER)
From Cabot Stock of the Week

Every year there are usually one or two super-high-profile IPOs, often well-known companies that millions of investors touch and feel on a daily basis. However, the market is a contrary animal, and more often than not, these popular IPOs (after a week or two of upside) will often fall apart, entering a long hangover stage as (a) insiders cash out, (b) sky-high perception wanes and (c) some fundamental warts appear.

However, after a few months (sometimes a year or two) of flopping around, if these top-notch companies can stage breakouts, they often can go on sustained runs lasting a long time. Many of today’s most respected firms (Visa, Facebook, and Alibaba among others) went through this process, and today, it looks like Uber is next in line, as the stock has lifted from a year-long post-IPO haze in recent weeks.

Of course, we don’t buy just because of a chart; that can only get you so far in the stock market. But Uber also has plenty of fundamental plusses that should keep big investors putting in buy orders in the months ahead, the biggest of which is that the company appears to be set for major growth no matter what the economy does. The firm’s traditional Rides segment, which revolutionized travel patterns in urban settings all over the world, gives the firm exposure to the economic re-opening/normalization theme, while Uber’s Delivery is riding a secular, long-term change in more people getting delivery instead of takeout.

The good news is that the arrow is pointed up for both businesses today. Rides, as you’d expect, saw sales fall off a cliff as the pandemic hit (gross bookings fell 72% quarter-over-quarter in Q2), but, interestingly, cash flow in that business remained in the black and the recovery is well underway, with bookings up 94% in Q3 vs. Q2 and strength continuing in October (bookings up 10% from September). While current COVID case counts are rising, the market seems to be looking six months ahead to an end (or at least a major lessening) of the pandemic as vaccines hit the mainstream.

That alone should bring about a big rebound in Uber’s results next year, but there’s just as much excitement about the firm’s Delivery business, which is the fastest-growing food delivery operation worldwide. Even as countries opened up somewhat, gross bookings here grew 23% sequentially (up 135% from the year before) and the EBITDA loss continued to shrink. There’s no sign of any slowdown, either, especially as Uber is moving into adjacent areas (such as grocery delivery, which is now up and running in 30 markets with a $1 billion run rate, and business delivery services).

Another positive came from the election, as California voted to allow Uber (and Lyft) not to classify drivers as employees, effectively given the firm a green light to operate as normal in the most populous state in the country.
Looking ahead, Wall Street sees the top line rising 40% in 2021 and, importantly, management continues to stand by its forecast that the overall company (Rides, Delivery and the corporation as a whole) will be EBITDA breakeven sometime next year as it focuses on profitability. Given recent trends, our guess is even these figures will prove very conservative as increased business falls to the bottom line.

Back to the stock, the election referendum helped the stock pop above resistance November 4, ratchet higher in the days that followed, and then the bullish Q3 report sparked a push as high as 50. It’s since chopped around just below that figure, and some near-term wobbles wouldn’t surprise us. But the top-notch growth profile, the long post-IPO base and the recent upside power all bode very well for the months to come.

Timothy Lutts, Cabot Stock of the Week,, 978-745-5532, November 23, 2020