The stock market has voiced its displeasure with Uber Technologies since the ride-hailing company’s public offering. Guggenheim Securities, however, wrote in a Thursday initiation note on shares of the ride-hailing firm that investors are overstating its challenges and that the worst is in the past.
Uber stock (ticker: UBER) is down 0.6% in Friday trading to $33 a share. It’s fallen 23% since its IPO, while the S&P 500 is up just under 5% over the same period.
Analyst Jake Fuller thinks the company can turn a profit by 2023 without any price increases. What’s more, “even modest increases could pull that to as early as 2021,” he argued. Fuller rates Uber stock at Buy with a $40 price target.
The second half of 2019 should be a strong one for Uber, Fuller wrote. The company was hit with a wave of negative media and investor reactions to second-quarter results, which showed revenue growth slowing to 12% and expenses surging due to stock-based compensation tied to the IPO.
Take out those one-time hits to the company’s financial performance, Fuller points out, and in the second quarter “we actually saw healthy bookings, strong underlying FX-neutral revenue growth and a healthy ride-hail margin.” He expects revenue growth to rise to 35% in the second half of 2019, with ride-hail revenue growing 25%-30% and Uber Eats revenue growth in the triple digits.
“Our core premise beyond 2019 is that we should see rationalization across ride hail and delivery, fueled by a combination of cross ownership, consolidation and diminishing access to capital,” he wrote.
He concedes that issues remain for the company–such as California’s new employee-classification law. Overall, though, investors have become distracted by arguments about self-driving cars and what exactly Uber’s total addressable market actually is. What matters for the stock, Fuller says, is “can [Uber] sustain growth and turn a profit within a reasonable time frame?” The analyst thinks it can.