Analysts Back Uber

Analysts Back Uber

over 4 years ago2 mins

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Analysts from investment banks involved in Uber’s May IPO on Wednesday published their initial views on the stock. All but one recommended investors buy Uber’s shares. Thanks to a report by Goldman Sachs, Finimizers can exclusively see what some analysts think.

What’s the investment case?

Ride-hailing is currently a small part of the overall mobility market (think: planes, trains, and automobiles) but one which is growing apace.

The global mobility market’s currently worth $7 trillion
The global mobility market’s currently worth $7 trillion

And Uber’s currently dependent on ride-hailing for the vast majority of revenue.

87% of Uber’s 2018 sales came from ride-hailing
87% of Uber’s 2018 sales came from ride-hailing

When people use Uber’s service, they tend to form a habit – and use it more and more…

Riders from 2015 took almost 3x more rides last year
Riders from 2015 took almost 3x more rides last year

So Uber can spend less on marketing to those customers, helping it grow its revenue per rider and lower costs.

Annual revenue and marketing per active rider
Annual revenue and marketing per active rider

Which analysts predict will help Uber turn a profit by 2022.

Uber’s profit margin should become positive by 2022
Uber’s profit margin should become positive by 2022

Why buy Uber’s stock now?

Analysts considered Uber’s revenue and revenue growth versus its current value – and compared that ratio to similar companies. Uber’s current enterprise value to sales (EV/sales) ratio is the same as peers’ average despite a faster predicted growth trajectory.

Uber valuation compared to peers
Uber valuation compared to peers

Looking at Uber’s gross merchandise value (i.e. the value of sales that go through its platform before it takes a commission), analysts see Uber as more attractive still. It’s expected to grow even faster than peers – and simply raising its commissions could help Uber boost revenue growth further.

Uber’s growing merchandise value faster than peers
Uber’s growing merchandise value faster than peers

What are the key risks?

Goldman Sachs analysts identified four key risks:

  • Competition – Rivals in ride-hailing and food delivery could ramp up marketing spend to win customers
  • Business model – Some regulators have banned Uber’s ride-hailing business and the company faces restrictions that could hamper future growth
  • Driver relations – Tensions between Uber and its freelance drivers, some of which may be granted full employee rights, could escalate – and drivers may leave the platform
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