Independent market research for the future investor.

Michael Li (University of Bath), Khalid Nazir

Background: 

Uber Technologies, Inc. (Uber) develops and operates technology applications supporting a variety of offerings on its platform. Its operating segments include Rides, Eats, Freight, Other Bets, and Advanced Technologies Group (ATG) and Other Technology Programs. The Rides products connect consumers with drivers who provide rides in a variety of vehicles, such as cars, auto rickshaws, or taxis. The Eats offering allows consumers to search for restaurants, order a meal and have the meal delivered. Freight connects carriers with shippers on its platform and gives the ability to book a shipment. The Other Bets segment consists of multiple investment stage offerings, including new mobility offering that refers to products that provide consumers with access to rides through a variety of modes, including electronic scooters. The ATG and Other Technology Programs segment is responsible for the development and commercialization of autonomous vehicle and ridesharing technologies. 

UBER		30/06/2019	30/09/2019	31/12/2019	31/03/2020	CURRENT
PRICE/SALES		6.60	4.25	3.88	2.46	3.93
PRICE/EARNINGS		N/A	N/A	-3.78	-3.41	-4.87
PRICE/BOOK		N/A	3.26	3.39	3.40	5.07
DEBT/EQUITY		0.38	0.47	0.50	0.17	0.60
PEG RATIO		N/A	N/A	N/A	-0.073	-0.089
ENTERPRISE VALUE (BIL)		81.35	46.28	45.90	44.58	56.97
ENTERPRISE VALUE/EBITDA		-16.39	-48.46	-53.69	-15.21	-5.87

Overview: 

Uber are trading at $32.81, as of July 15^th, having rebounded from a catastrophic March as shares plunged to the sub $15 level for the first time. Future growth looks healthy due to recent M&A decisions and expansion into both new markets and locations, as Uber looks on course to break the current share price ceiling of $44.53. 

Uber’s successful acquisition of Routematch, who provide technology services to transit agencies, demonstrates a desire to integrate on-demand public transport. However, losing out on US-based delivery service Grubhub to Just Eat was a significant blow to Uber, that saw shares drop slightly in mid-June amid investor expectations. Despite this set back Uber were quick to acquire Cornershop, and soon Postmates which will allow Uber to diversify into the grocery delivery and multi- delivery industry respectively. This shows strong market awareness and evidence of preparation from Uber as they kept their options open and have copied decisions made by global rivals, a strong indicator to investors that the future looks bright. 

As a newly listed company, Uber has consistently seen low Price/Sales (P/S) ratios over the past year. Compare the recent ratio of 3.93 to that of Lyft (2.30), a newly listed ridesharing company, we see both values are similar, but Uber is overvalued in comparison, but only marginally. The ridesharing industry though, is rapidly expanding and is likely investors won’t be put off by the subtle differences in the P/S ratio as Uber is projected to grow 47.4% in terms of annual earnings, far higher than the expected industry growth of 19.3%. This suggest many investors may still consider Uber as undervalued due to their bright future prospects.  

The Debt/Equity (D/E) ratio is a key indicator of Uber’s financial health, through assessing the degree that company growth is built upon debt. The most recent D/E value of 56.97% is considered high by industry values which goes to suggest Uber are managing an unsustainable amount of company debt, jeopardising future security. Furthermore, Uber’s short-term assets ($11.11B) fails to cover its long-term liabilities ($11.14B) which provides additional evidence on paper that long term investment is risky given the situation. However, it is important to note Uber, like all recently listed companies will rely heavily of debt to finance its growth and the strong evidence to suggest uber will become fully profitable within the next 3 years is a positive sign. This analysis with the context indicates the high D/E % is likely to reach a more controlled level in the coming years suggesting to investors to always look beyond the raw data and incorporate context at all levels. 

Again, a similar situation with the Enterprise Value/EBITDA (EV/EBITDA) can be seen. The negative figures initially seem worrying as it is suggesting negative company earnings, but the trend of this ratio becoming less negative over the past year shows strong forecasts for the ratio to break the 0 mark within the next 2 years. As a result, shrewd investors are placed in a prime position to buy shares as they should overlook poor current returns and be optimistic of future returns. 

Conclusion: 

Recommendation – Hold 

Although Uber had made a name for itself in the ride-hailing industry the problem is it just simply doesn’t have enough global market share to make the returns that investors are looking for. It was valued as one of the largest start-ups of all time, but it failed on IPO day, dropping 7.6% and to this day the value is still lower than that of the IPO after some volatile movement in the stock price. 

The main cause of concern for Uber is the competition it faces across the globe. Despite being the company that revolutionised the ride-hailing industry, others have caught up, and many are leaving Uber behind in terms. Even in Uber’s home country, the United States, there has been a lot of competition with the likes of Lyft let alone countries like China and Russia where Uber doesn’t really have a presence. The reason being is that other firms have been able to capitalise on their own countries niche, whether that be focusing on their culture or just have better knowledge of what the people want, so what you end up seeing is that Uber really only has a dominant presence in the Western Countries. 

And it’s not just the ride-hailing industry either, the food delivery industry which Uber has entered has seen some fierce competition too. As mentioned earlier, Uber was able to acquire Postmates but were unable to do the same on their primary target, GrubHub.  

UberEats recently lost out as well, to Just Eat Takeaway.com, in Europe, US market share is not too strong, let alone the global share. 

Uber’s past financials aren’t very satisfying either as it’s mainly been a loss-making company overall, especially in their starting years with the exception of 2018 in which they did up making a profit. The problem here is that Uber experiences very high operating costs not having been able to reduce the costs over the years they have been running and as a result there a lack of economies of scale being present. UberEats has also not made the promised return on investments due to the fierce competition. 

Sources: 

1. Editorial, R., 2020. UBER.N – Uber Technologies Inc Profile | Reuters. [online] Reuters.com. Available at: <https://www.reuters.com/companies/UBER.N&gt; [Accessed 18 July 2020]. 

2. Research, Z., 2020. Uber Technologies Inc (UBER) Pe Ratio (TTM) – Zacks.Com. [online] Zacks Investment Research. Available at: <https://www.zacks.com/stock/chart/UBER/fundamental/pe-ratio-ttm&gt; [Accessed 18 July 2020]. 

3. Simply Wall St. 2020. Uber Technologies (NYSE:UBER) – Share Price, News & Analysis – Simply Wall St. [online] Available at: <https://simplywall.st/stocks/us/transportation/nyse-uber/uber-technologies&gt; [Accessed 18 July 2020]. 

4. Partridge, J., 2020. Just Eat Beats Uber To Snap Up Grubhub For £5.8Bn. [online] the Guardian. Available at: <https://www.theguardian.com/business/2020/jun/11/just-eat-uber-grubhub-takeover-food-delivery-service&gt; [Accessed 18 July 2020]. 

5. Ycharts.com. 2020. Lyft PS Ratio | LYFT. [online] Available at: <https://ycharts.com/companies/LYFT/ps_ratio&gt; [Accessed 18 July 2020]. 

6. Investopedia. 2020. Investopedia. [online] Available at: <https://www.investopedia.com&gt; [Accessed 18 July 2020]. 

Industry Jargon: 

• Price/Sales Ratio: The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value placed on each dollar of a company’s sales or revenues. 

• The Debt/Equity (D/E) ratio: The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its shareholder equity. It is used to evaluate a company’s financial leverage (i.e. how much of the firm is growing by using its own equity rather than borrowed funds) 

• Enterprise Value/EBITDA (EV/EBITDA): Enterprise multiple, also known as the EV multiple, is a ratio used to determine the value of a company. The enterprise multiple looks at a firm in the way that a potential acquirer would by considering the company’s debt. tocks with an enterprise multiple of less than 7.5x based on the last 12 months (LTM) is generally considered a good value. 

• Return on Investment (ROI): Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio. 

• Enterprise Value: Enterprise value (EV) is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt as well as any cash on the company’s balance sheet. Enterprise value is a popular metric used to value a company for a potential takeover. 

• Initial Public Offering (IPO): An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering.