Uber slump is a structural sell rating

Uber scepticism is baking in

The 17% fall in Uber shares since they began trade last Friday delivers a message from investors that’s difficult to pin entirely on tariff turmoil. On Monday, the Nasdaq 100 index, home to large e-commerce counterparts, closed 3.5% below its Friday open. Adding insult to injury, Uber’s chief rival Lyft is now worth more on a per share basis. It last traded at around $50 compared to Uber’s $37.60. Lyft’s $14.5bn market capitalisation is a fraction of Uber’s $63.25bn, but the bigger group’s cheaper unit price is no help for sentiment.

Uber CEO Dara Khosrowshahi sounded in tune with that sentiment, warning investors to “expect some tough public market times over the coming month.” He now has a better handle on the extent of market scepticism.

Well-aired doubts centre on:

The size of Uber’s ride-hailing market
Its ability to generate sustainable returns from low-margin food and package deliveries
Whether it’s too late to neutralise a long-term threat from self-driving cars

In fact, such doubts brought a relative discount just ahead of Uber’s IPO. The mid-point of its $44-$50 indicative price was a multiple of about 7 times annual sales. That’s above ratings for e-commerce or software groups with similar growth. But Uber was still pegged below the 7.5 times Lyft achieved before launch.

Table 1: Uber pre-IPO price vs. e-commerce/software peers

Source: Bloomberg/City Index

More recent price action saw Uber fall harder than e-commerce growth peers on Monday, whilst Lyft’s 5% rebound on Tuesday, at last check, exceeded Uber’s 1.5%.

Table 2: One-day percentage change 13-05-2019 - Uber, Expedia, Grubhub, Lyft

Source: Bloomberg/City Index

The obvious takeaway is that scepticism runs deep and may linger for longer than it takes U.S. stock markets to return to an even keel. At a minimum, Uber shares will need fresh indications of market share growth or financial stability to follow suit. Such milestones require the kind of flawless execution that has been a significant challenge for Uber to achieve. Until it does though, the shares could remain a structural sell.

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