Why Uber Still Has $100 Billion Potential

Call it poor timing, unfortunate circumstances or just hype gone bad, but Uber Technologies Inc. (UBER) has had a dreadful debut as a publicly-traded stock. The company was down by as much as 10.6% on Monday, extending a brutal Friday selloff that has been described as ‘embarrassing’ by the likes of Yahoo Finance.

Uber: Assessing the Flash Crash

After a much hyped initial public offering, Uber’s share price fell 7.6% on Friday to close at $41.57. Just one day prior, the ride-hailing business had priced its stock at $45, which would have given it a market share of $82.4 billion.

The stock is now priced below $38.00 for a total market cap of $63.3 billion. This figure is likely to fluctuate wildly throughout the day as investors assess a flurry of macroeconomic and political risks impacting U.S. and global equity markets.

President Trump’s Twitter tirade and the escalation of a tariff war with China has obviously impacted UBER shares. After the open on Monday, the U.S. stock market was down more than 2% and receding fast after China announced counter tariff measures.

Lyft’s Dismal Performance

Sour grapes over Lyft, the ride-hailing rival that has also gone public, may have hastened Uber’s precipitous drop on Friday.

As Wired recently reported, Lyft’s annual loss amounted to $911 million in 2018. After publishing its first quarterly earnings report last week, Lyft said its loss in the first quarter of 2019 amounted to a staggering $1.13 billion. That’s a 386% increase over year-ago levels.

The company tried to ease the market’s anxiety by claiming that $894 million of the loss may have been attributed to factors related to its IPO – things like stock-based compensation packages and taxes. Lyft’s chief financial officer Brian Roberts also said it wouldn’t be long before the company becomes profitable.

“We anticipate 2019 will be our peak loss year,” he said. “We are on day one of a $1.2 trillion market opportunity.”

Lyft’s stock has declined by more than a third since its debut.

Where Does Uber Go from Here?

Wall Street analysts are still bullish on Uber because they believe the ride-hailing business has enormous potential.

This view was recently expressed by Dan Ives of Wedbush Securities, who told Yahoo Finance that Uber can still become a $100 billion company.

“We are not worried the stock is turbulent today on its first day of pricing and we continue to believe on a sum of the parts valuation this stock is worth a $100 billion+ and we would be buyers here despite the choppy tech tape and general market worries,” Ives says. “We believe this weakness in shares of Uber will be not be elongated as the core value of this franchise is markedly higher than these levels in our opinion.”

It took Uber just a few years to revolutionize the transit industry. It was able to do so by pioneering a mixture of emerging technologies such as cloud computing, mobile applications and data analytics. This means it is not unlike Amazon, Facebook or even Apple – companies that are true pioneers in their industry. If Uber is indeed a true number one, then its dismal debut could soon be forgotten. In the meantime, investors should focus on the company’s forthcoming earnings reports.

Disclaimer: Author holds no investment position in Uber Technologies at the time of writing.

Featured image courtesy of Shutterstock. Chart via Yahoo Finance.

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