Uber On Fire After California Vote

Uber Technologies Inc. (UBER) soared more than 10% overnight after California voters passed Proposition 22, allowing ride-share drivers to continue classification as independent contractors, rather than employees entitled to a host of benefits. The company and rival Lyft Inc. (LYFT) argued the measure would undermine their fragile business models, forcing Californians back into taxis and other traditional riding methods.

Uber Earnings On Tap

The timing couldn’t be better. Uber reports Q3 2020 earnings after Thursday’s closing bell, with analysts expecting a loss of $0.49 per-share on $3.18 billion in revenue. The company expected to post its first profit at the end of 2020 but the pandemic delivered a knock-out blow, inducing thousands of customers to avoid the service. Fortunately, UberEats has picked up the slack, with at-home food delivery orders surging as result of social distancing.

Market watchers will be listening closely to the conference call, hoping Uber forecasts a new profitability date. CEO Dara Khosrowshahi recently suggested that milestone will take longer than expected, guaranteeing new protections to workers if the measure passed, including 30 cents per mile for gas and other vehicle costs, healthcare subsidies for drivers who work 15 hours or more a week, and occupational-accident insurance coverage while on the job.

Wall Street And Technical Outlook

Wall Street has grown increasingly bullish on the company’s long-term outlook in 2020, with a consensus ‘Strong Buy’ rating based upon 20 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $34 to a Street-high $50 while the stock is set to open Wednesday’s U.S. session about $1 below the $41 median target.

A rally into February 2020 stalled six points below 2019’s all-time high at 47.08, giving way to a steep decline that posted an all-time low in the teens in March. The subsequent bounce ended in the upper 30s in June, yielding 5 months of sideways action, followed by a post-election uptick that’s now reached within 40 cents of the February peak. Accumulation readings are testing 2020 highs at the same time, raising odds the stock will head into a test of resistance in the upper 40s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held Uber shares at the time of publication.

 

 

Uber Beefs up for Food Fight with $2.65B Acquisition

After the announcement, Uber’s stock jumped six percent on Monday, bringing its advance to nearly 129 percent since its record low on March 18. Having gained over 10 percent since the extended 4th of July weekend, Uber’s shares have also outpaced the week-to-date gains seen respectively in the S&P 500 and the Nasdaq.

Shareholders are hoping that this acquisition would also bolster Uber’s plans for reaching its first-ever quarterly profit, with such ambitions derailed after its global ride-hailing business fell by 70 percent in the wake of the pandemic. Gross bookings registered its first-ever quarterly drop in the January-March period this year, as the orders to stay at home dealt a massive blow to the travel and transportation industry.

Growing appetite for food deliveries, and more

The pandemic however boosted demand for food deliveries, which soared by 52 percent in gross bookings to US$4.68 billion in Q1. The segment also accounted for 23.1 percent of Uber’s gross revenue for the quarter, higher compared to the 18 percent contribution in the prior three-month period, according to Bloomberg data. Postmates’s food-delivery bookings rose about 67 percent in Q2, according to Uber CEO Dara Khosrowshahi.

Set against such a context, it’s of little wonder that Uber is willing to place a bigger bet on the food deliveries segment, as its core offerings contend with the strong headwinds stemming from the pandemic. And with this consolidation in the food deliveries space, there could eventually be some upward pressure on prices as the market discovers its new equilibrium, which bodes well for this Uber segment’s top line.

Beyond bolstering its food deliveries segment, Uber is also hoping to leverage on Postmates’s strength in its online delivery offerings, which brings groceries and daily essentials, among other things, right to customers’ doorsteps. Also this week, Uber rolled out its in-app grocery delivery services for select Latin American and Canadian cities, as it partners with Cornershop, the Chile-based grocery delivery startup in which Uber agreed to take up a majority stake last year.

Uber’s emphasis on delivery-as-a-service should give the company another leg to stand on in its quest for profitability, especially if changed consumer habits from the lockdown-era (i.e. customers are less wiling to venture out of their homes) become sticky.

A sure path to profitability?

Back in May, Khosrowshahi said that the initial timeline for churning out the company’s first-ever adjusted quarterly profit has been pushed back from this year to 2021. To hasten its path to profitability, Uber has reduced over US$1 billion in expenses, getting rid of some non-core businesses while having shed more than a quarter of its staff.

While awaiting the potential synergies to materialize from this combo of profitless companies, with the deal only expected to be sealed in the first quarter of 2021, shareholders are likely to keep themselves busy in the interim, assessing how Uber is faring amid the double-edged sword that is the global pandemic. The impact of Covid-19 is likely to be more pronounced in Uber’s Q2 earnings release slated for August.

It remains to be seen whether shareholders will have the patience to wait for the promise of things to come, and potentially send Uber’s shares much higher from current levels. If it’s anything like I’ve discovered during quarantine, the wait can sometimes be agonizing, akin to trying to supress one’s hunger pangs while waiting for the food delivery order to arrive.

Written on 07/09/20 09:00 GMT by Han Tan, Market Analyst at FXTM


For more information, please visit: FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Europe and US Join in on China’s Rally, Home Builders Jump

Europe

A securities journal that is controlled by the Chinese government ran a front-page editorial which mapped out the prospect of a bullish run in stocks, and that triggered buying in domestic equities. The CSI 300, rallied over 5%, and it closed at its highest level since 2015. The positive mood from China influenced dealers in this part of the world, even though the health crisis is still a major worry. On Saturday, the WHO claimed there was over 212,000 new cases of Covid-19, a new daily record. The Beijing authorities can’t talk up their own market forever, so it is likely in the next few days, the pandemic will be back in centre-stage as far as traders are concerned.

The UK house builders are enjoying a positive move today as it is believed the government will change the stamp duty rules in a bid to encourage activity in the sector. Under the existing scheme, if you purchase a property in England or Northern Ireland worth more than £125,000, you incur stamp duty, unless you are a first time buyer. There is talk the threshold could be raised to £500,000, and it might last for up to six months. There is talk that Rishi Sunak, the Chancellor of the Exchequer, will reveal the plans on Wednesday, with the intention of it being a part of the Autumn budget. Redrow, Vistry and Persimmon shares are in demand today.

Sticking with the house builders topic, Barratt Developments, confirmed that annual completions tumbled by over 29% to 12,604. Average selling prices were a touch higher at £280,000. The lockdown was blamed for the drop-off, but it in starting the new financial year with ‘cautious optimism’, as the full year order book stands at 14,326, up from 11,419 last year. The company has over £300 million in cash, it has access to £700 million in a credit facility, and it is eligible to tap into the Covid Corporate Financing Facility, so it is well positioned to work its way through its busy order book.

Rolls Royce shares clawed back some of the ground it lost on Friday when it announced it was reviewing potential options to strengthen its balance sheet. The engineering giant was already in a weakened position in advance of the pandemic on account of the issues in relation to the Trent 1000 engines.

The company supplies aircraft engines so the travel bans and the bleak outlook for the aviation industry compounded the firm’s problems. At its update in April, the group confirmed its liquidity position stood at £6.7 billion – which was a result of two rounds of financing. The group is clearly comfortable in terms of liquidity, and it seems like some restructuring is in the pipeline. Keep in mind, it warned about cutting 9,000 jobs in May.

DS Smith shares are in the red today as Jefferies downgraded the stock to hold from buy, and cut the price target to 310p from 350p. Last week the company posted a 5% increase in adjusted pre-tax profit, but it cautioned it was too soon to return to paying dividends.

Antonio Horta-Osorio, the CEO of Lloyds, will step down in June 2021. Mr Horta-Osorio has been in the top job for a decade. Under his leadership he turned the group around from a bank which was reeling from the credit crisis, and part-nationalised, to a fully private firm and a dividend payer.

Boohoo shares have fallen out of fashion after it was reported that one of its suppliers paid its staff poorly and the working conditions were substandard too. The group has become very popular recently as its fast fashion strategy combined with its online only model has been a hit with younger consumers.

The much-awaited ‘Super Saturday’ didn’t seem to be that super, as the re-opening of pubs and restaurants wasn’t the big deal that some people were predicting. Restaurant Group and Mitchells & Butlers are in the red.

US

The mood on Wall Street is positive as the US economy continues to rebound. The final reading of the services PMI report for June was 47.9, and keep in mind the May reading was 37.5. The ISM non-manufacturing reading was 57.1 – its highest level since February.

It was reported that Uber has acquired Postmates, the food delivery group, for $2.65 billion. Uber Eats is a direct competitor of the company but it is believed the two businesses will remain separate. There might be a merger of back-end technology. Last month merger talks between Uber and Grubhub fell apart due to antitrust issues, but the latter teamed up with Europe’s Just Eat.

Dominion Resources shares are in the red after it was announced the company has agreed to sell off its gas storage and transition network to Berkshire Hathaway, Warren Buffett’s, investment vehicle, for $4 billion. Mr Buffet’s firm will take on $5.7 billion of the group’s debt too, so the transaction comes to nearly $10 billion. In other news, Dominion and Duke Energy scrapped their plans for the Atlantic Coast pipeline project on account of rising costs.

Amazon shares have topped $3,000 for the first time as the tech giant asserted its dominance during the lockdown. It had the edge retailers that were forced to close.

FX

The risk-on sentiment of traders as weighed on the US dollar. In the past few months, the greenback has become a popular safe-haven play, and given the surge in equities today, we are seeing dealers dump the US dollar. The currency received a nice boost towards the end of last week on the back of the better-than-expected jobs report form the US. Today, currency traders are less interested in the recovery in the US economy, as they are fixated on the overall risk-on mood.

EUR/USD and GBP/USD have been helped by the negative move in the greenback. The UK construction PMI reading for June was 55.3 – it’s highest in nearly two years. The eurozone retail sales update for May was 17.8%, and that was a big improvement from the -12.8% in April.

Commodities

Gold has been nudged up by the dip in the drop in US dollar. The commodity’s inverse relationship with the dollar is working in its favour today. The metal has a history of attracting safe haven funds, but seeing as dealers are keen to take on more risk today, it is likely that gold’s positive move is almost exclusively down to the weakness in the dollar.

The optimism that is doing the rounds in relation to stocks seems to be influencing oil traders too. Equity markets and energy products have broadly moved in tandem in the past couple of months and it seems the lack of nerves in stocks has helped sentiment in WTI and Brent crude. The stark news from the WHO over the weekend that there was a new record set of new Covid-19 cases has been shrugged off by equity and energy traders alike.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Uber to Acquire Food Delivery App Postmates; Analysts Optimistic on Outlook

Uber Technologies Inc, an American multinational ride-hailing company, has announced that it will buy a food delivery company Postmates Inc in a $2.65 billion all-stock takeover, Bloomberg reported, citing people familiar with the matter.

The deal has been agreed by Uber’s board of directors and it could officially be declared by end of business today. However, Uber Eats head Pierre-Dimitri Gore-Coty will continue to run Uber’s combined delivery business, Bloomberg reported, citing an anonymous source.

The news comes after Uber failed to buy a food delivery app Grubhub in June, which was scooped up by Europe’s largest online food ordering service Just Eat Takeaway.com NV for $7.3 billion.

On Friday, Uber closed 0.82% higher at 30.68 after rising over 4% on initial reports of its bid for Postmates.

Uber Technologies outlook and price target

Thirty analysts forecast the average price in 12 months at $40.97 with a high of $52.00 and a low of $15.00. The average price target represents a 33.54% increase from the last price of $30.68, according to Tipranks. From those 30, 26 analysts rated ‘Buy’, three analysts rated ‘Hold’ and one rated ‘Sell’.

Last month, BTIG rated ‘Buy’ with a target price of $47 and Wedbush raised the target price to $47 from $38. In May, Citigroup raised price target to $41 from $34, BofA global research raised price objective to $42 from $40 and SunTrust Robinson raised target price to $50 from $42.

Also, RBC raised target price to $52 from $44 and D.A. Davidson updated to buy from neutral; raised target price to $39 from $23.50. Morgan Stanley target price is $47 with a high of $54 under a bull scenario and $19 under the worst-case scenario.

Analyst comment

“Uber is a truly global platform with multiple large addressable markets. We see a path forward for both ridesharing and Eats bookings growth, primarily driven by MAPC and frequency growth. We forecast fairly flat ridesharing ANR take rates (albeit on a growing gross bookings base) and significant growth in Eats ANR take rate, driven principally by order velocity and positive restaurant mix,” Brian Nowak, equity analyst at Morgan Stanley noted in May.

“Uber’s scale and liquidity give drivers higher earnings power and riders lower wait times. Uber’s platform approach allows it to rapidly expand into new business lines (Eats, Freight) and leverage shared expenses,” the analyst added.