Uber
Technologies has gone from a cash-burning machine to making a stable profit. Now analysts are looking for the ride-hailing company to carry out stock buybacks and push its international growth and membership plan.
Uber
(ticker: UBER) shares hit their highest level since mid-2021 after its third-quarter profit gave it a consistent enough positive earnings record to qualify for inclusion in the
S&P 500.
Uber looks to be maturing as a company but that brings its own demands. Capital returns and expanding its membership program are top of the agenda.
Wedbush analyst Scott Devitt said Uber should start carrying out stock buybacks soon, after the company said it would give an update on capital returns in the next quarter. That could play a crucial role in reducing the dilution caused by stock-based compensation.
“We see…an increasing likelihood that the company will institute a share repurchase program given the improving FCF [free cash flow] profile of the business” Devitt wrote.
Uber reported free cash flow of $905 million for the third quarter and said it had unrestricted cash, cash equivalents and short-term investments of $5.2 billion at the end of the quarter.
Wedbush’s Devitt raised his target price on the stock to $57 from $55 and kept an Outperform rating.
Uber shares were down 0.6% in premarket trading on Wednesday at $49.64, having risen 3.7% the previous day after the earnings report.
Uber said in its earnings that passengers took 2.4 billion trips during the third quarter but analysts think there’s still room for more growth. That could involve piling further price pressure on rival
Lyft
(LYFT), which has struggled to match its larger rival.
“We see growth in underpenetrated markets (e.g., Spain, Germany) while lower pricing/fares will further drive trip growth,” wrote CFRA analyst Angelo Zino in a research note.
Another key factor could be expansion of the Uber One membership plan, launched in 2021 with the aim of bundling its ride-hailing and delivery services. It has been rolled out to 18 countries and has a membership base of 15 million.
D.A. Davidson analyst Tom Forte noted that members of Uber One spend four times as much with the company, while currently only one-third of Uber’s annual users are using the platform on a monthly basis.
Forte kept a Buy rating and $64 target price on Uber.
Write to Adam Clark at [email protected]
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