Analysts Upbeat on Uber's Prospects

Focus on the rideshare company's earnings likely to stay on cash flow with an eye on maintaining profitability in the high-interest rate environment.

Staying In the Green

Despite higher revenues, Uber is expected to report earnings just barely in the green once again as it continues to struggle to contain costs. Back in September, the company announced it would bring on a new CFO, who will start officially on November 13. In the last earnings, outgoing CFO Nelson Chai was exuberant in his comments about generating free cash flow and profitable growth, a key theme for the new management. Investors are also likely to be very keen on this subject as the company's long-term debt has barely budged at $9.3B and maintains an accumulated deficit of $32.7B, making any returns to shareholders difficult.

Still, analysts are upbeat on the company's prospects, with some recently raising their price target to as high as $60/shr (compared to $46.48 on Friday's close). Investors seem to agree in the wake of the latest jobs numbers, which affirmed the narrative that the US economy might avoid a recession, but labour tightness might be easing its pressure on inflation. Given its debt level and propensity to burn through cash to expand, Uber might be among the more prominent beneficiaries of yields normalising if inflation comes under control.

Looking to the Future

The company forecasted to report bookings of $34-35B this quarter and manage an adjusted EBITDA of $975M to $1.03B. That's after it managed almost to triple its EBITDA over the prior year, a testament to the company's focus on profitability and suggesting that the main cost-cutting initiatives have already been done. The consensus among analysts is that Uber will report an EPS of $0.04, down 80% from the prior quarter but significantly better than the -$0.61 reported for the same period last year. Revenue is expected to continue to drift higher to $9.5B, in line with the trend the company has maintained so far this year.

Uber will likely provide guidance for the year's final quarter with a focus on adjusted EBITDA as profitability remains in focus. The relatively smaller Freight division could get attention as it has been growing at over double the pace of the Mobility and Delivery units. The recent launch of advertising on the platform and in rides is also likely to be in focus after it generated a run rate of over $650M last quarter, contributing substantially to the Mobility division's profitability. Typically ad spend increases in the final quarter of the year, which could be a factor in the outlook.

Pullback May Have Completed

Price-wise, if the pullback ended at $40/shr following a flag pattern of some sort, it could send prices as high as $57/shr to fulfil the measured-move projection, assuming bulls manage to stay outside the patterns and take $49/shr and $52.50/shr over. On the flip side, falling back in will increase the chances of drops towards $44.50/shr, eventually exposing $40/shr.

Source: SpreadEx / Uber

Key Takeaways

Uber is expected to maintain profitability in a high-interest rate environment, but the company is struggling to control costs despite higher revenues, resulting in earnings barely in the green. The appointment of a new CFO is seen as a move towards generating free cash flow and profitable growth, with analysts optimistic about Uber's prospects despite Uber's long-term debt remaining high and making returns to shareholders challenging. The recent launch of advertising on the platform is also likely to be a focus.