The story behind Uber’s recent share price resurgence
Deutsche Bank recently selected Uber Technologies as one of its “top picks” for 2021, while simultaneously raising its price target for the American company from $54 (£40) to $80 (£59).
It has been a quite remarkable transformation for Uber in recent months, given that until November 2020 shares in the travel company had yet to surpass the $45 (£33) level reached during its initial public offering (IPO) of July 2019. Shares in Uber have soared 65% in the past 3 months and now trade well above this level at $55.52 (£40.87). However, many analysts believe there is further upside for the company’s share price to realise yet.
Uber Eats drives share price growth
Investors may have anticipated that Uber Technologies would have struggled during 2020, as remote working, nationwide lockdowns and other coronavirus restrictions have drastically reduced the need for people all over the world to travel – and in some respects, they would have been right.
Uber’s ride-sharing business has been impacted immensely by the pandemic, with sales in the U.S and Canada – one of Uber’s most important markets – down by 30% in the third-quarter of 2020. The company’s overall revenue also fell 20% to $3.1bn (£2.28bn) in the third-quarter, yet, shares in Uber Technologies returned nearly 60% to investors in the final two months of 2020.
This is predominantly due to the growth in sales that Uber’s food delivery service, Uber Eats, experienced during 2020. Food-delivery revenue increased more than 125% to $1.5bn (£1.1bn) in the third-quarter of 2020, as consumers habits switched from eating out to eating in as a result of the pandemic.
It is an interesting case study for the importance of diversification in a company’s operations, as Uber has benefited from growth in one area of its business, Uber Eats, offsetting losses in another. Food-delivery services have been one of the greatest beneficiaries of the new ‘norms’ created during the pandemic.
DoorDash, an American food delivery service, is another example of this. The company’s shares currently trade at $187 (£137) after being initially priced at just $102 (£75) in the company’s December 2020 IPO.
Management at Uber clearly feel this is an aspect of their business that can continue to create value for the company in the future. The company’s CEO Dara Khosrowshahi even stated its food-delivery service could be as big as it’s ride-sharing platform once the pandemic passes.
Why Uber is viewed as a ‘top pick’ for 2021?
Analysts at many major financial institutions have recently upgraded their price targets for Uber given its growth in food-delivery revenue during 2020. Most notably, Deutsche Bank analyst Lloyd Walmsley upgraded his price target for the American company from $54 (£39) to $80 (£59), and Oppenheimer analyst Jason Helfstein also upped his price target to $62 (£46) from $47 (£35).
Analysts expect the ride for Uber investors to still be relatively bumpy in the near-term, as new strains of the coronavirus continue to place pressures on economies around the world. However, analysts see further upside in Uber shares in the second-half of 2021, with vaccine rollouts acting as a catalyst for strong recovery in the company’s ride-share services. Recovery in this main arm of Uber’s business, as well as continued growth in the company’s food-delivery service have the potential to give Uber a unique edge in the post-pandemic world.
The company’s management will aim through advancement in its technologies that, in a depressed world economy post-COVID, Uber can offer its popular services at even cheaper rates and thus drive profitability upwards, particularly in its food-delivery business. Uber’s revenue is estimated to increase nearly 50% during 2021, and EPS is also expected to rise 59% during the same period.
Commitments by Uber to become a zero-emission company by 2040 have also prompted further interest in the company’s prospects beyond 2021. The company recently launched Uber Green, a service that allows customers to pay a premium to ride in an electric or hybrid vehicle. This is currently available in a limited number of locations, but Uber intends to expand this to all of its locations in the future.
Clearly, therefore, analysts see many reasons to be bullish on the company’s prospects for 2021 and beyond. According to the Wall Street Journal, the company is currently rated as “overweight” with 31 Buy ratings and just 3 Sell ratings.
The company and many of its investors’ hopes in the short- to medium-term will depend on how swift the vaccine roll-out and thus Uber’s ride-sharing rebound can be. However, with CEO Krosrowshahi recently stating his aim for Uber to become the “Amazon of transportation” in the future, investors can have full confidence that the company’s ambitions are very much focused on creating long-term growth for its shareholders.