Trade Alert

New Idea: Uber

_{Posted by Club Member Gentleman Hans 20.6.23}

Core inflation remains sticky, and interest rates may stay higher for longer. If so, Uber is your stock. I think higher interest rates hurt Uber’s competitors more than it hurts Uber, making high rates a net benefit to Uber.

Uber’s competitors, such as Lyft and other ridesharing or delivery-based start-ups, are “cash flow negative” businesses and need cheap capital to fund their growth, so higher interest rates clearly hurt them

Uber on the other hand, has achieved scale in its operations, is cash flow positive, and has also achieved positive EBITDA during its last earnings report, which is expected to continue growing

Uber is gaining market share (aka top line growth) as competition retreats. And Uber’s competitors are likely to continue to cede market share as they try desperately to preserve their dwindling cash reserves.

Given the scale of its operations, I expect these top-line growth to translate very well to bottom line growth

Looking at initiating a position in Uber during a market dip ahead of its next earnings report, I think earnings will surprise to the upside. Year-to-date, the stock is up 70%, I think the upside momentum continues as the market re-rates the stock. The stock today is trading more or less at its IPO price in 2019, but the company has made significant progress towards profitability.

And, if interest rates were to come down, Uber, as with all other tech stocks, will also gain. In either scenario, being long Uber seems like a good bet.

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