I have been a fan of UBER’s service, but not much on the company and its management. I will give high scores on the services they provide, creating more jobs for the average joes to sustain the high cost of living. For some reason, I am not keen to build a significant position of UBER in my portfolio until COVID19.
I can see the importance of UBER and its services, generating more traction from delivering food than passengers during the pandemic. At the core of UBER’s business lies a two-sided network- drivers and passengers. UBER acts as a switchboard (a software system) that connects passengers and drivers. While other players in tech space generate revenue, UBER was not that lucky with a headline loss of $8.5 billion in 2019.
Currently, demand for ridesharing has reduced. Companies allow employees to work remotely, leveraging video conferencing tools, digital documents, and cloud space. I haven’t needed to refill my gas for the longest time as I only travel to get necessities. Some companies recently announced the extension to work remotely till 2021. To a certain extent, I see the correlation between the growth in ridesharing and closure of businesses during the lockdown. Like any other transportation company, UBER may need to enforce new safety rules and guidelines (i.e., .limit number of passengers, regular health check for drivers and passengers).
UBER eats (new business model – less than two years old) is what I am interested in right now. UBER eats generated $15 billion in bookings in 2019 (customer food orders and fees), with revenue of $1.3 billion and losses of $1.3 billion. COVID19 will test the strength of businesses in this space, and like any other industry, the companies are expected to lose money. UBER stands to have the best financial amongst other players. Best case scenario, the weaker players will be acquired. If not, they will fold as they burn through their cash. Either way, most likely, this industry will consolidate with UBER taking the throne. UBER’s proposed takeover of Grubhub would catapult UBER into being the largest U.S food deliver service.
COVID19 pandemic is a real test of the balance sheet and the effectiveness of the business continuity program. In my opinion, UBER, a disruptive company has a financial and technological advantage to go through the intense competition over the next few years. UBER’s technology and network liquidity are better positioned than peers to capture additional market share during and post COVID19. UBER has $12 billion of cash with $6 billion of debt with maturities starting in 2023 and extending to 2026.
The above is my speculation as I go through my first financial crisis as an employee reaching his first decade of working experience. Currently, the share price is $32, and I am bullish on this share with a target price of $45 on the basis that they will survive this pandemic coupled with future expansion of their services to underpenetrated countries.
I am not a financial advisor, and this is something that I like to do on my weekends. Stay safe, wash your hands, and invest only with money that you are willing to lose.