Uber Stock Looks Promising, But It Is a Coin-Flip Buy Ahead of Earnings

A negative image has held back Uber Technologies (NASDAQ:UBER) stock since its 2019 IPO. Uber is addressing the problem now. It is even making money.

CEO Dara Khosrowshahi has been in charge for four years. He left a highly-paid gig as CEO of Expedia (NASDAQ:EXPE) to replace founder Travis Kalanick.

Khosrowshahi has cultivated a non-threatening image. He is the “dad of Silicon Valley” in the words of Maureen Dowd at The New York Times.

Uber delivered a profit in its June quarter, $1.14 billion or 58 cents/share fully diluted. Half its revenue now comes from delivery services like Uber Eats. Revenue is expected to grow 37% next year, but Uber’s problems haven’t gone away. A profit is not expected when it next reports Nov. 4 .

A Closer Look at UBER Stock

There is now a bullish case for Uber stock.

Uber is on track to deliver a record $16 billion in revenue this year. Analysts expect $22.5 billion in revenue next year. That growth has 23 of 24 analysts at Tipranks recommending the stock. Their average price target is $68.83, significantly higher than its current price of $48 and change.

Uber is worth $87 billion, trading at about 5.4 times annual revenue. That seems a fair price if it can grow the top line 37% next year, as expected.

Uber has found growth through food deliveries. Uber Eats has been gaining share against rival Grubhub (NASDAQ:GRUB).

Khosrowshahi added rival Postmates, grocery delivery service Cornershop, and Drizly, a liquor delivery service that cost $1.1 billion. Uber also unloaded its autonomous car unit, which drew praise.

You can see what this has meant on Uber’s quarterly report. Delivery represented 60% of revenue during the second quarter. Uber Freight added another $385 million in revenue and is growing at 65% per year. Uber has integrated food and ridesharing into the same driver app.

This means more regular work and money for drivers. It also means positive publicity, as in this study praising the “uberization” of healthcare and medicine. Getting people to doctors’ appointments and making sure their medicine arrives turns out to be a good thing.

Khosrowshahi still faces major challenges.

A Carnegie Mellon study still shows Uber offloading the “soft costs” of transport onto drivers and communities. Driver idling and congestion from individual riders mean more traffic congestion and pollution, the study concluded.

Drivers aren’t entirely happy, either. Unions are suing over its driver facial recognition app, which they call racist. Others say they’re being downgraded or even fired for enforcing COVID protocols.

Then there’s inflation. Drivers are suddenly in short supply. So is fuel. Higher prices are the inevitable result. Uber could become a luxury good if Khosrowshahi can’t implement some solutions.

The Bottom Line

The good news is that Uber is still a technology company. Problems like airport pickups can be solved with software and cooperation from airport authorities.

But not all of Uber’s problems can be fixed by software, acquisitions or even advertising. Driver and fuel shortages are going to hit growth. Even after gas prices start to fall and more drivers have electric rides, the U.S. is getting older. There’s going to be less slack in the labor force, making it more difficult for Uber to operate.

Based on its growth Uber is underpriced. Buying that argument is a bet on Khosrowshahi, who has done an admirable job against the company’s sea of troubles during the pandemic. If he can beat estimates in the next earnings report, this stock is going to fly, but that’s not guaranteed.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.