Uber admits that ride-hailing is worth less because of COVID-19, but investors still think Uber is worth morehttps://www.marketwatch.com/story/uber- ... 2020-05-07Uber Technologies Inc. admitted Thursday that the COVID-19 pandemic makes ride-hailing companies less valuable, but investors still added billions to Uber’s valuations anyway.
Uber UBER, +6.01% reported a quarterly loss of nearly $3 billion Thursday afternoon, with roughly two-thirds of that loss resulting from a devaluation of its investments in Asian ride-hailing services Didi Chuxing and Grab. When Uber first mentioned the write-down last month, it admitted the move was “due to the impact of the pandemic on the estimated value of these entities.”
Yet investors are not discounting Uber stock for the same reason. They sent Uber stock up 6.1% in after-hours trading, which would add more than $3 billion to Uber’s market cap if the gains hold through Friday’s trading session. The stock had already jumped more than 11% in Thursday’s regular session, and is up 4% so far this year as the S&P 500 index SPX, +1.68% has dropped 11.8% amid widespread worries about the impact of the coronavirus.
Since the pandemic began, Uber has seen its ride-hailing business fall dramatically across the globe, while its costly food-delivery business, Uber Eats, has surged as people sheltering in place order take out for delivery. As a response to the drop in demand, Uber has embarked on annualized cost cutting of around $1 billion, including 14% of its staff, and it now has a hiring freeze.
“I won’t sugarcoat it,” Uber CEO Dara Khosrowshahi told analysts on a conference call Thursday. “COVID-19 has had a dramatic impact on rides, with the business down globally around 80% in April. Still, there’s some green shoots driving restrained optimism.”
He highlighted a 9% trip growth last week, and a huge acceleration in Eats demand, with bookings soaring 89% excluding India in April. Uber’s CEO said the company is still aiming to become profitable, and that the disruption from COVID-19 will delay its profitability by a matter of quarters, but not years.
Investors are the ones who seem to be sugarcoating Uber’s news, and reading too many positives into Khosrowshahi’s statements. On the company’s call, not one analyst asked about how sustainable the demand for Uber Eats or Uber Rides will be if more people become unemployed.
But looking at the global pandemic purely as a “disruption” may be giving companies and investors a “rose-colored glasses” view of the economy. The U.S. alone likely lost more than 20 million jobs in April. It seems to be a no-brainer that people without jobs are not going to order takeout for delivery or hail an Uber even when the economy starts to open back up, as long as they are still unemployed.
Investors are applauding the tough moves that Khosrowshahi has been making, but everyone seems to be assuming that things will quickly go back to normal as states gradually open back up. Uber itself encouraged this idea, noting that bookings in large cities across Georgia and Texas, two states that have started opening up, climbing 43% and 50%, respectively.
Even though these signs are encouraging, it seems far too early to be this optimistic about a company that is hit so hard by the pandemic. Especially since the company — through its own actions — is admitting that its core business is worth less.
As it had alerted shareholders in April, Uber Technologies Inc. just de-valued its stakes in its Asian ride hailing companies, Didi and Grab, by $2.1 billion, an ride sharing assets, Didi and Grab of China, but investors did not care, sending its shares up 5% in after-hours Thursday.
If the trading during regular market hours Friday mimics the after-hours session, investors will be saying that even after accounting for a $2.1 billion write-down — that contributed to much of Uber’s net loss of $2.9 billion in the first quarter — Uber itself is now worth even more. On Thursday, its valuation was about $48 billion.
Login
Register
FAQ
