The 7% rise in Uber shares in extended trading doesn’t seem to correlate with the company’s downbeat announcement. Having lost a staggering $8.51 billion last year the company has been hard-hit by the coronavirus. So, why did the shares rise 7% in extended trading?
Analyst guidance withdraw
There has been concern and uncertainty regarding the Uber share price and prospects for the company in light of the coronavirus. Guidance given during the company’s Q4 earnings call has been withdrawn and the company expects not only an impact on business but a huge write-down on investments. It is fairly obvious that Uber has significant challenges in light of the coronavirus and the lockdown in economies across the world. This is a company which has lost literally billions of dollars in recent years and is in reality no nearer regular profitability.
Bookings down
The company also confirmed that client bookings in Seattle had fallen by an annualised rate of between 60% and 70%. To be honest this is not unexpected but what was a welcome positive was the relatively small cost of the company’s program to help Uber drivers during the pandemic. The cost is likely to be a maximum $22 million in Q1 and $80 million in Q2 which is all but insignificant in the overall context of the company and its size.
Uber also has a range of investments in other similar companies spread right across the globe. Losses on investments are expected to be in the region of $1.9 billion to $2.2 billion. It is safe to say that these companies have also been hit significantly as the coronavirus issue continues to hit economic growth. There are also worries that customers may be wary of Uber taxis in the immediate aftermath of the coronavirus lockdown which could be lifted fairly soon.
Uber share price
The Uber share price has fallen significantly over the last 12 months from a high of $42 down to a recent low of sub-$15. The recent bounce has seen the shares recover to $27 although it will be interesting to see how they perform in the short to medium term. Will this relief rally, after the reality check from the company, prompt sellers to take advantage? Or is this the start of a recovery in the company’s share price and finances?
While the company has relatively low debt levels it seems likely that further funding will be required in due course. A market cap in the region of $46 billion is not supported by sales of just over $14 billion even if there is long-term potential for significant income growth. The majority of analysts are still fairly positive with one forecast suggesting a price target of $56 over the next 12 months.
Will tech shares struggle?
In recent times we have seen technology-based shares struggle to raise finance amid concerns of weakened balance sheets and desperate fundraisings. While Uber still has relatively low debt compared to market capitalisation, we have seen the company go cap in hand to shareholders on numerous occasions. Will the banks provide additional funding in the short term? How will the balance sheet look after the future investment write-down?