Uber Technologies (UBER) carries our highest investment ranking of 5-STARS, or Strong Buy; this opinion reflects our view of growth prospects ahead, suggests analyst Angelo Zino in CFRA Research's flagship newsletter, The Outlook.
Although the Covid-19 landscape remains challenging in the early part of 2021, we expect gross bookings to return to growth in the first quarter, reflecting robust Delivery demand, while UBER’s higher-margin Mobility segment will likely see a recovery beginning in the second quarter.
We think investors should applaud recent moves by UBER (e.g., Postmates and Drizly deals while selling/exiting non-core assets/markets like its autonomous driving unit), which we think positions the company to significantly expand its addressable market in areas such as groceries and alcohol.
We still see adjusted EBITDA profitability in the second half, which could act as a catalyst to shares, as UBER’s higher-margin Mobility business ramps while UBER benefits from a more attractive cost profile.
Ridesharing services, currently in early phases, will witness significant growth potential over the next 20-30 years, by our analysis. The ride-hailing space has been among the fastest-growing mobility services over the last decade, creating a new mode of transportation (defined as Transportation-as-a-Service or TaaS), disrupting the taxi and rental car industries.
We like prospects within Eats, given a rising installed base and, opportunities to improve the take pay; additionally, we forecast industry consolidation benefiting UBER.
In February, UBER announced its intent to acquire Drizly, the leading provider of on-demand alcohol delivery in the U.S., for $1.1 billion in stock and cash (over 90% stock). The deal is seen closing by midyear and Drizly will become a subsidiary of UBER, eventually being integrated with the Uber Eats app.
We positively view the Drizly announcement, as it instills another growth opportunity to the UBER Eats business at a minimal expense. While Drizly increased bookings by more than 300% last year, we forecast even more growth opportunities, benefiting from UBER’s large installed base of customers.
The key factors that will likely drive the growth of the global ridesharing service industry include a growing population, lower rate of car ownership among millennials, the rising trend of ondemand transportation services, and a growing supply of drivers.
We estimate sales to grow 45% in both 2021 and 2022. Sales fell 16% in the fourth quarter (bookings down 5%), as a 52% decline in Mobility was partly offset by a 224% increase in Delivery.
In December, UBER acquired ondemand food delivery competitor Postmates, which brings more than 10 million active customers, with geographic strength in the Southwest; we also like Postmates’ subscription-based program.
Our 12-month target price of $75 is based on discounted cash flow analysis. We apply a weighted average cost of capital of about 8.5%, a beta of 1.1, and a terminal growth value of 3%. Potential upside from other bets and more stable spending on autonomy/strategic investments will likely bode well for profits and cash flow as we see scale benefits for UBER.
