Every once in a while we get a company that completely disrupts a huge industry and changes peoples’ lives. This is the case with Uber (NYSE:UBER). This company completely changed the ways we transport people.
Think about it — even its name has become a verb. We now say I will Uber there. It’s like how Kleenex in the olden days became the name for a tissue. This is a marketing coup that is proof of an operational success.
In spite of that, the critics of UBER stock are very passionate. The argument against it is that it burns too much cash. There’s also the issue of the cost to attract and maintain the fleet of drivers. The battle there between it and Lyft (NASDAQ:LYFT) is somewhat ridiculous.
Why You Should Be Positive About UBER Stock
All these and other negative points are true, but they all miss the point. This is a company that is a huge profitable center waiting to happen … and therein lies the opportunity! It is already a massive global operational success, and it’s only a matter of time before they fine tune it to be a cash cow.
Meanwhile yes, there will be cash wasted but only to expand its income streams. I remember even more passionate opinions in the early days of Amazon (NASDAQ:AMZN) when it too was burning cash for the same reasons. But eventually CEO Jeff Bezos found ways of generating income and cultivated them at the expense of profitability. Now he reaps the profit from those efforts.
Hyper-growth companies must spend a lot of money to accomplish their goals. Uber started by moving people, then added moving food, then added freight, and recently announced air delivery as well. And this could just be the beginning. They have successfully established the platform upon which they can execute any vertical they want. This is very close to what Amazon has done.
Uber Freight is very exciting, and could be the surprise that may start to attract more fans to the stock. Clients of freight may be harder to attract but they should be stickier and more profitable. Also the methods of delivery can vary, so that leaves management with options, unlike in its fight with LYFT over drivers. So FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) may have more than AMZN to compete with soon enough.
Investors deemed the UBER IPO a failure just because it didn’t soar from the open. But not all stocks open and never look back. Facebook (NASDAQ:FB) for example did not have a smooth start and look at it now.
The last time I wrote an article about this, the price was struggling at $40 per share. The Uber stock rally delivered a 15% profit since then. But this is a stock I would own for the very long term, and I would not watch it on a daily basis. Uber stock will grow into its valuation eventually.
This is definitely a fundamental trade, albeit a risky bet at this time because of the fundamental metrics. But as they say, if there is no risk there is no reward. Uber stock has the opportunity to be a triple-digit stock, so it’s a plug your nose and hold it situation.
Short term, $43.50 and $45 are important to active traders. These are the limits above and beyond current levels. If either is broken, it would carry momentum in that direction. $42 per share is pretty important for the bulls to hold. Else it could invite momentum sellers to retest $39 per share or lower.
It is important to note that the stock market in general is at all-time highs. It could dip a little and cause UBER stock also to fall. But even if the worst happens and UBER stock retests its lows, it won’t change the thesis of today’s note. This is a long-term opportunity that requires good ole patience to pay.