JPMorgan Finds 4 Reasons To Share A Ride With Uber's Stock

Uber Technologies Inc UBER holds a leadership position in its two main driving units and the stock looks "attractive" at around 3.3 times 2020 estimated adjusted net revenue, according to JPMorgan.

The Analyst

Doug Anmuth initiated coverage of Uber's stock with an Overweight rating and $51 price target.

The Thesis

Uber's stock should be bought by investors for four key reasons, Anmuth wrote in the note.

First, the ride-share environment is shifting away from an era dominated by incentives to fuel growth. In fact, Uber's Rides' take rate improved by 200 basis points from the first quarter of 2019 to the third quarter. While further rationalization will be "gradual," Uber and rival Lyft will reduce couponing and increase their prices.

Second, Uber is focused on new product innovation, including an all-in app that combines Rides, Eats, Transit, Bikes & Scooters, Grocery and More, the analyst wrote. The company also rolled out new rewards offering to help improve loyalty and retention on the platform. As it stands now customer loyalty is "very low" but a focus on improving products and the overall experience could lead to higher engagement and frequency.

Third, Uber is expected to generate "significant profitability" based on recent momentum. For example, EBITDA margin as a percentage of adjusted net revenue improved from negative 79% in 2016 to negative 22% in 2019 with profitability expected in 2021.

The company's recent decision to exit the Indian and Korean food-delivery market and its ability to drive leverage across several operating expenditure lines will help the bottom line.

Finally, Uber continues to invest in long-term opportunities, including Freight, New Mobility, and Autonomous Vehicle Technology, the analyst wrote. Freight alone is expected to account for 12% of total adjusted net revenue in 2024 and will be counted on as a "hedge" against competition from autonomous rivals.

Price Action

Shares of Uber were down by 1.15% to $36.25 at time of publication.

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