Uber Q3 preview: Where next for the Uber share price?

Uber is racing to become profitable before the end of the year, despite the uncertainty posed by the pandemic. We explain what to expect from the earnings and consider how Uber shares could react this week.

Uptrend 3

When will Uber release Q3 earnings?

Uber will release third quarter earnings on Thursday November 4.

 

Uber Q3 earnings preview: what to expect from the results

When will Uber become profitable? That is the key question ahead of Uber’s earnings this week. The company, which once said it may never escape the red, has pledged to turn profitable at the adjusted Ebitda level before the end of 2021.

It has said it expects to remain in the red in the third quarter with an adjusted Ebitda loss of below $100 million and analysts believe Uber will post a loss closer to $47.9 million, which would be narrower than the $625.0 million loss booked the year before and markedly smaller than the losses posted in the first two quarters of 2021 ($359 million in Q1 and $509 million in Q2).

Right now, Wall Street anticipates Uber will achieve its goal by posting adjusted Ebitda of $120.6 million in the fourth quarter – although this is likely to remain highly sensitive to the earnings this week amid the uncertain outlook plagued by the Delta variant, questions over how governments will react to the virus during the winter months, ongoing difficulties finding workers, and skyrocketing  fuel prices for its drivers.

The path to profitability this year has included several twists and turns. The pandemic has understandably weighed on its performance but has had a mixed impact on the business, having decimated its ride-hailing operation during lockdown while simultaneously boosting demand for its delivery business as people ordered more food and groceries while stuck at home. But, since restrictions have started easing, we have seen the recovery of its ride-hailing operation hampered by a shortage in drivers, prompting it to spend more on incentives and sacrifice profitability to attract workers, alongside a slowdown in growth from its delivery arm as people spend less at home and more time out and about.

The ride-hailing operation’s performance in the third should be better than the second. Uber has swiftly recruited hundreds of thousands of drivers in the US alone since February and the need for incentives should have subsided. Notably, Uber said in the last update that many of the 420,000 US drivers acquired between February and June were ‘resurrected drivers’ – former drivers that have returned after going offline during the pandemic. This is significant as Uber said most drivers were hesitant to return because of safety fears rather than financial woes, meaning the significant improvement in vaccination rates should lead to more drivers (as well as customers) back to the platform without the need to spend big on packages to entice them. The fact it also acquired 110,000 US drivers from its acquisition of Postmates will also have helped.

That means profitability of the ride-hailing division should improve in the third quarter, demonstrated by the forecasts for significantly narrower losses. However, travel still remains subdued and consensus numbers from Bloomberg suggest demand will remain ‘at least’ 20% to 25% below pre-pandemic levels.

Meanwhile, the performance of its delivery arm should remain strong considering people have become more accustomed to ordering more food – alongside groceries and other items – online over the past 18 months. However, growth is likely to see a considerable slowdown in the third quarter as it starts to come up against tougher comparatives in the second half following the initial boom in demand last year. Plus, profitability could be strained considering the highly fragmented market and increasing competition.

Uber has said it expects to report record gross bookings of between $22 billion to $24 billion in the third quarter, suggesting there is no problem with demand. That is supported by the fact Wall Street forecasts third quarter revenue will also hit a new quarterly record by rising to $4.42 billion from $3.13 billion the year before and $3.93 billion in the previous quarter – which is expected to be predominantly driven by the recovery in ride-hailing.

Adding further colour to expectations, analysts anticipate Uber’s net loss attributable to shareholders will come in at $636.5 million compared to the $1.09 billion loss booked last year.

Uber shares are likely to find support if the company can surprise the market by delivering positive adjusted Ebitda earlier than expected, although this looks unlikely. Notably, Uber shares tanked after its last update posted a significantly wider loss than forecast. If it remains in the red as expected, then the onus will fall onto the outlook for the fourth quarter.

The pressure on Uber to turn profitable has increased since Lyft won the race in the second quarter when it posted its first profit three months earlier than planned. However, it is important to note that Lyft is a more streamlined operation focused on its ride-hailing business in the US, whereas Uber is also involved in delivery and has stretched into other countries around the world.

Uber shares are currently trading at just over $44, over 8% higher than the start of the pandemic but down over 26% since hitting the all-time highs of $60.63 back in February. Notably, that means Uber is only trading marginally above its $42 IPO price. Although Uber is facing a tough few quarters ahead, markets are extremely bullish on the company’s long-term prospects. The 48 brokers covering the stock have an average Buy rating on Uber and a target price of $67.15, implying there is over 51% potential upside from the current share price and fresh all-time highs on the cards.

 

Where next for the Uber share price?

After rebounding off a yearly low of $38 in mid-September the Uber share price has been trading in a holding pattern. The price has been capped on the downside by $43 and on the upper band by $48.50. 

The price is currently trading at the lower end on the holding pattern between above the 50 sma but below the 100 sma. The RSI is mildly bearish. 

Traders might look for a breakout trade. Sellers are waiting for a move below $43 to bring the $40 round number and $38 year-to-date low into focus. 

Buyers could look for a move over $48.50 to target the June high of $52.45. 

Where next for the Uber share price?

 

How to trade Uber shares

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