Uber picks up UBS analyst with 'buy' recommendation

Uber Technologies Inc’s (NYSE:UBER) looks “poised to scale” into the next big tech marketplace, said analysts at UBS as they initiated coverage with a ‘buy’.

Expanding out from ride-hailing into food-ordering and other services via its family of apps, the company taps into every one of the “key themes” and “investing opportunities” the Swiss bank’s tech team has identified for 2020: scale, secular growth tailwinds, underlying asset value, a management team focused on positive capital allocation and a rising margin profile.

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The UBS analysts, which started off with a US$56 stock price target, forecasts Uber’s ridesharing bookings to grow at a 15% compound annual growth rate between 2019 and 2024, with adjusted net revenue growing at a 17% rate over that time. 

Uber is seen as “the clear #1 player in North America” with stable-to-slightly declining share as well as being the in the top two positions in markets the company operates outside of North America, although ‘battleground’ markets such the rise of rivals such as Ola and regulatory “headwinds” in London or Colombia. 

On the big question of whether Uber, which is reporting quarterly losses above US$1bn, can expand margins and turn profitable on an underlying (EBITDA) basis by 2021, the analysts answer a decisive “yes”.

While seeing an opportunity to expand gross margins over the medium-to-long term, the analysts said they believe “a large contributing factor” to Uber’s path to profitability and achieving long-term adjusted EBITDA margins of 20%-plus “is related to rationalization of  markets and normalizing use of incentives and discounts” as well as how the company “leverages” operating expenses.

Accordingly, UBS expects Uber to turn EBITDA positive by 2021 and forecasts around a 14% adjusted EBITDA margin in 2024.

“UBER’s collection of businesses look poised to scale into the next large cap multi-sided marketplace with improving economics and flywheel effects around supply and demand,” the analysts said in a note to clients on Tuesday.

“While debates will likely persist over the structure/path to end goals of scaled leadership across end demand verticals and value optimization of non-core assets, we see mgmt [sic] committed to unlocking asset value and compelling risk/reward.”

Story by ProactiveInvestors