On Uber Technologies Inc. (NYSE: UBER) is BUY. These nonpublic ‘unicorn’ tech companies have typically pursued a ‘growth-at-all costs’ strategy that has attracted capital in the past. This may force nonpublic companies to reduce their spending or risk being cut off from fresh funds, or undergo a failed IPO such as WeWork. In addition, increased pressure on nonpublic competitors should allow Uber to reduce its own spending without losing market share. We see this as a positive development for Uber, and as one of the factors in management’s path to an accelerated profitability timeline. Globally, Uber is better positioned than Lyft in non-U.S. markets and in food delivery, which is growing in popularity because of the pandemic. However, we believe that Delivery has strong growth prospects over time.
The announcement included several new initiatives. The first is the launch of ‘Uber Green’ in 15 U.S. and Canadian cities, which will allow customers to request an EV or hybrid electric vehicle for a $1 surcharge. Management expects Uber Green to be available in more than 65 cities around the world by the end of the year. Riders who choose the Uber Green option will receive three times the Uber Rewards points that they would have received for a typical UberX ride. U.S. and Canadian drivers participating in the Uber Green program will also receive additional payments for each electric trip. As noted above, the company has also committed $800 million to help drivers purchase electric vehicles. This effort will be financed in part by the $1 surcharge for Uber Green rides as well as by the $0.15 surcharge that the company has been collecting in the UK and France since January 2019. In addition, the company is working with GM in the U.S. and Canada and Renault-Nissan in Europe to provide Uber drivers with discounts on electric vehicles. In partnership with Avis, Uber will also offer more electric rental vehicles to U.S. drivers. In another initiative, Uber is partnering with San Francisco-based startup Ample in a program to simplify battery-swapping in electric vehicles.
We believe there are natural synergies between food delivery and ride-sharing, including the ability to optimize drivers’ time behind the wheel. And in mid-May, Uber announced that it was cutting its driver fleet by 3,000, closing 45 offices, and scaling back noncore businesses including its AI Lab. Some international divisions have also sharply cut personnel, and cash-burning businesses such as Uber Freight are under review. The timeline for recovery from the pandemic is uncertain. However, a lean operating structure as the pandemic recedes should enable Uber to recover faster and accelerate its path to non-GAAP profitability.
EARNINGS & GROWTH ANALYSIS
Our forecasts assume a significant negative impact from the pandemic over the remainder of 2020 and a diminishing impact in 2021.