- Reports Q1 results on Wednesday, May 5, after the market close
- Revenue Expectation: $3.3 billion
- EPS Expectation: Loss of $0.54
Ride-hailing services have become a key indicator for the revival of normal life in this pandemic-hit economy. Bookings collapsed last year as the rapid spread of the virus forced governments to enforce lockdowns along with mass closures of businesses and offices.
That situation pressured the shares of Uber Technologies (NYSE:UBER), the world’s largest ride-hailing service. The stock plunged along with the stocks of all its competitors.
But as the vaccine rollouts gain traction in the U.S. and other developed economies, rides are coming back which means so are cash flows for these companies.
Uber reported last month that its gross bookings in March were the highest in a year. The company’s mobility unit, which handles ride-hailing services, passed a run rate of $30 billion in annualized gross bookings that month, while average daily bookings rose 9% from February.
The company’s food-delivery business thrived during the global health crisis, helping to mitigate the hit coming from people taking fewer rides. Uber’s delivery service, Uber Eats grew more than 150% in March from a year earlier, crossing a $52-billion annualized run rate as more people ordered takeout.
Demand for rides is recovering faster than Uber’s ability to find drivers, the company said, and demand for meal delivery continues to exceed courier availability. Uber plans to spend $250 million to get drivers back on the road and recruit new ones as the coronavirus pandemic eases in the U.S.
Threat of Regulations
Anecdotal evidence suggests that some of the largest U.S. employers are keen to bring back workers to offices. JPMorgan & Chase plans to have 50% of its workers rotating through offices by July.
Said CEO Jamie Dimon at The Wall Street Journal CEO Council:
“We want people back to work, and my view is that sometime in September, October it will look just like it did before.”
Despite the strong booking trends, a rally in Uber’s shares is petering out as investors shift their funds to value stocks and away from high-growth technology names. Uber shares closed on Tuesday at $53, about 18% below the February high.
A global push to reclassify gig workers as employees, which would make them eligible for some work benefits, is a threat that’s making some investors nervous. U.S. President Joseph Biden campaigned on the promise of delivering benefits to gig workers and U.S. Labor Secretary Marty Walsh last week intensified the debate, telling Reuters in an interview that “a lot of gig workers should be classified as employees.”
Due to a recent ruling in the UK that will require the company to classify its drivers as workers, Uber expects to record a significant accrual cost related to these historical claims and other related costs in its first quarter 2021 results.
Still, Uber says it’s on track to reach profitability in quarterly adjusted earnings before interest, taxes, depreciation and amortization in 2021. Wells Fargo Securities in a recent note upgraded Uber to overweight, favoring the company as a long-term play. Its value “remains tied to growth trends that will play out long after coronavirus-driven disruptions have subsided,” Wells Fargo analysts wrote in a commentary.
Bottom Line
Uber’s business model proved to be very resilient during one of the biggest economic shocks of our times. The company is in a sweet spot in the post-pandemic environment, where its food delivery business continues to generate strong cash flows, while rides are returning at a rapid pace.