Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...
It took the combined efforts of 29 separate Wall Street investment banks to bring Uber public last month. Everyone from marquee names like Morgan Stanley and Goldman Sachs to lesser-known players such as Academy Securities and Mischler Financial had a piece of this action -- some 180 million shares sold -- and they all felt more than a little pain when Uber ended up opening $3 below its offer price.
Nearly one month later, Uber shares sell for just $41.25 apiece today, or nearly 8% less than what its underwriters sold investors the stock for. But at long last, Wall Street has a chance to do something about that. With Uber's post-IPO quiet period ending today, more than a dozen of the company's biggest backers are taking the opportunity to publicly declare their support for Uber.
Here's what you need to know.
What Uber's fans say
So far, Street sentiment on Uber seems almost uniformly positive, with all but one of today's analyst initiations rating the stock buy, outperform, overweight, or some equivalent thereof. We don't have nearly enough space here to cover them all, but here are a few excerpts provided courtesy of our friends at TheFly.com:
- Uber boasts a "global brand" and dominant market share in ridesharing in pretty much every country where it operates. Corollary business ventures such as Uber Eats provide the potential for Uber to enjoy a "rapid ... revenue ramp," says Loop Capital.
- Indeed, Uber's market share exceeds 50% in the ridesharing markets where it operates, according to William Blair, and these offer a total addressable market of more than "$12 trillion."
- Make that $6 trillion. Analysts at Mizuho have a different take on the question, and estimate Uber's total addressable market at just half what William Blair says it is. Still, Mizuho calls Uber "category-leading" in ridesharing, accounting for 70% of its $6 trillion estimate. With Uber's revenue currently running below $12 billion per year, this still provides "ample room" to grow, gain scale, and leverage economies of scale to earn profit.
- And that's just ridesharing. Morgan Stanley -- literally Uber's biggest supporter, having underwritten 68.8 million of Uber's 180-million-share IPO last month -- argues that to fully comprehend the company's growth potential, you also need to consider market opportunities in on-demand freight delivery, autonomous vehicles, and something it calls "New Mobility."
- Not all of these are meaningful contributors to Uber's results at present, but the company could begin benefiting from autonomous driving trends within the next five years -- and could be at least EBITDA profitable by 2024, according to BTIG.
So say the Uber optimists. What about the doubters?
Still on the fence
Actually, make that doubt-er, singular. So far, among Uber IPO underwriters initiating coverage today, only one banker -- Citigroup -- has voiced doubts about the company it backed last month.
StreetInsider.com (subscription required) has the details on this one. Citi explains its decision to initiate coverage of Uber stock with a neutral rating and a $45 price target thusly: "The Uber app is used every month by nearly 100 million people in 63 countries to get rides, food and packages. The company has been a transformative and disruptive force like few companies before it."
That being said, Citi cites "regulatory pushback" from governments as one concern. Another worry is all the capital private equity has been pouring into rival ridesharing companies lately. Citi says this has supported a "recent rise in competition ... in certain markets."
Every broken IPO has a silver lining
And yet, even here Uber's fans try to turn the frowns of burned investors upside down.
Summing up and encapsulating the sentiments of the Uber bulls, Deutsche Bank says the company is quite simply "the most attractive Internet IPO since Facebook." And to put a bright face on its poor post-IPO results, Deutsche goes so far as to argue that "the lackluster IPOs of Uber and Lyft ... may curb irrational private funding activity, [and] are likely to result in improving competitive dynamics." Or in other words, Uber was such a lousy IPO that it may scare venture capital off from investing in anyone wanting to get into ridesharing to compete with Uber.
That's kind of a contrarian take on Uber's broken IPO -- and not one necessarily supported by the facts (so far). When you consider that just one investor -- Softbank -- has already poured $20 billion into investments in ridesharing companies (many of which are not named Uber), I think that Citi may actually have the stronger argument here: Competition is a risk and will result in price wars that could prevent Uber from turning profitable for quite some time to come.
Maybe that is why polling by S&P Global Market Intelligence shows that the consensus on Wall Street remains that Uber won't earn a dime of profit before 2024 at the earliest -- and maybe not even then. Uber's underwriters' buy ratings notwithstanding, I still have to say "caveat emptor" on this one.