Uber (UBER) has revolutionized the lives of millions of city dwellers, but its first year as a public company didn’t go so well, as its overhyped IPO, a mountain of red ink and, of course, the onset of the pandemic crushed the firm’s Rides business, explains Mike Cintolo, editor of Cabot Growth Investor.
However, that’s one of the reasons we like the stock in 2021 — even during Q2’s horror show, the Rides business was cash flow profitable, and now the recovery is underway. Indeed, in Q3, Rides-related bookings nearly doubled from the prior quarter, and as the pandemic lessens, that figure is sure to spike.
But the real growth driver these days is Uber’s Delivery segment — Uber Eats — as there’s been a secular change in the willingness of people to use delivery services, be it for take-out, groceries or even prescription medications.
Bookings in this area are accelerating and growing at triple-digit rates, and the firm’s recent acquisition of Postmates only extends the firm’s reach. There’s no question Uber is the leader in both name recognition and size when it comes to Rides and Delivery, both of which should grow nicely in the quarters ahead.
Analysts see cash flow getting to breakeven next year while revenues soar 42%, and both could prove conservative if worldwide economies really take off. And the stock market likes that — UBER broke out of a year-long post-IPO base in early November, kicking off what we think will be a long period of outperformance.
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While there are always potential potholes in any story, it appears little is standing the way of a huge next few quarters for Uber: The combination of the vaccines and yet another stimulus package should goose the economy next year (helping the Rides segment), while the acquisition of Postmates and secular trends should keep the Delivery business humming. If you don’t own any, you can buy UBER here.