The COVID-19 pandemic disrupted Uber Technologies Inc.’s core business as travel came to a standstill and potential drivers sought protection, resulting in thousands of layoffs, but there is one potential positive side for Uber: food delivery.
operates Uber Eats and recently agreed to buy Postmates, a competing delivery app. Uber expects huge profits when Uber reports second quarter earnings on Thursday.
“If this upward trend in case activity continues and we expect a longer period of disruption, it will be a story of two companies considering the impact on Uber,” said Tom White, analyst with DA Davidson & Co. in an interview .
White said that while amusement rides are slow at the moment, at least the grocery delivery business “maintains some sort of commitment to drivers and drivers.” Customers use Uber Eats to order deliveries from restaurants, many of which are not allowed to accommodate guests, especially indoors.
Uber’s delivery business is supported by the acquisition of Postmates, valued at $ 2.65 billion, an app that customers can use to request the delivery of groceries, alcohol, and other items. The transaction is expected to close in the first quarter of 2021, so it won’t have an immediate impact on earnings, but could prove crucial as the pandemic continues and with no end in sight.
See: Uber relies on delivery with the acquisition of Postmates worth $ 2.65 billion as a hailstead
During a call in early July to discuss the acquisition, Uber CEO Dara Khosrowshahi, who said the company’s ats business had “balanced” the headwind in the ride, talked about market share and cost savings.
“Wherever you want to go, whatever you want to bring home, Uber will be with you,” he said.
According to Eison Trends, Uber Eats and Postmates together account for 37% of the U.S. food delivery market. DoorDash retains the largest share of the industry with 45%.
Due to the size of Postmates, White said “I’m not holding my breath” that the purchase will have a significant impact on Uber’s profit. However, other analysts agree with Khosrowshahi, pointing out the possibility that the purchase will ultimately pay off.
“The acquisition will enable Uber to expand and bring to other industries
closer to his vision of becoming the platform of choice when people travel, and also the platform of choice if they want to deliver, ”Deutsche Bank analysts said in a message to customers when the all-stock deal was announced has been.
A problem that could impact Uber Eats in the second quarter and in the future: Some cities and districts have introduced commission caps that delivery apps can use to burden restaurants that are already burdened by the decline in business during the coronavirus crisis.
In the Bay Area – home of Uber and Postmates – cities with limited delivery commissions include San Francisco, Oakland, Berkeley and Fremont. Other big cities like Los Angeles and New York did the same. The upper limits are between 15% and 20%.
Regarding Uber’s ride, investors will find out on Thursday how drastic the bookings were. Gross bookings of trips in the first quarter increased in January and February, but decreased by 39% in March compared to the same period last year in which the existing shelters had started. Travel had picked up again in April when stores reopened, Khosrowshahi said during the company’s earnings call in the first quarter. Analysts estimate that gross bookings of trips in the second quarter were down 66% compared to the first quarter.
However, as US COVID-19 cases continue to increase, office workers continue to work from home, and some infectious disease experts are calling for another block, the prospect of US ride hail – the analysts at RBC Capital Markets as a major risk for the rating of Ubers had identified – is uncertain. Analysts and investors will also be watching how trips develop in countries where business has returned to pre-pandemic levels.
Aside from the pandemic, Uber faces countless regulatory problems. In the United States in particular, the company is fighting a new California law on the classification of its drivers by workers. The state is suing the company and its main competitor Lyft Inc. LYFT,
for failing to comply with Draft Law 5, which requires them to classify their drivers as employees rather than as independent contractors. Uber and Lyft, along with DoorDash and others, have provided $ 110 million for Proposition 22, which will be elected in California in November and would exempt AB 5 gig economy companies. The companies offer some concessions that would give drivers some benefits but not classify them as employees.
What to Expect
Merits: FactSet analysts expect Uber to average an average loss of 81 cents per share, or nearly $ 1.4 billion, compared to the $ 5.2 billion loss in the same period last year. You expect an adjusted loss of 66 cents per share.
Revenue: Analysts expect sales on average to be $ 2.1 billion, compared to $ 3.16 billion in the year-ago quarter.
Warehouse movement: Uber stock rose 4.9% this year through Monday’s trading session, while the S&P 500 SPX index
What analysts say
The money-losing Uber had promised to be profitable by the end of the year, but Khosrowshahi said during the last call for earnings that the pandemic could take several quarters to reach this target. Some analysts think it could take longer.
“We continue to expect Uber to break even for EBITDA in 2021, but don’t expect EBITDA to be materially profitable for the full year until 2022,” said RBC Capital Markets in a message to customers.
Of 36 analysts surveyed by FactSet, 28 have a buy rating for Uber shares, five say hold, two consider it overweight and one says sell. The average price target on Monday was $ 41.32 when the stock closed at $ 31.19.