Uber Has Automatic 'Shock Absorber' For Falling Revenue, Analyst Says After Company's Write-Down

Uber Technologies, Inc. (UBER) announced late last week that it will record an up to $2.2-billion impairment against equity investments and withdrew its fiscal 2020 guidance, citing uncertainties in the COVID-19 environment.

Although the company has made no disclosure, the write-down could be related to DiDi, Grab and Yandex, according to Wells Fargo.

The Uber Analyst

Brian Fitzgerald maintained an Overweight rating on Uber Technologies with a $41 price target.

The Uber Thesis

Uber has a strong balance sheet and is unlikely to face any liquidity issues this year given that it exited 2019 with $10 billion of unrestricted cash, a $2 billion revolver and a $1.5-billion covenant-free debt due in 2023, Fitzgerald said in a note. (See his track record here.)

The bullish rating reflects long-term trends for both Uber and the ride-hailing market, which are poised to benefit from a continued shift from personal car ownership to ride-sharing and high global smartphone penetration, he said. 

Referring to the near-term, Fitzgerald said that “two-thirds of Uber’s cost structure is variable, creating an automatic shock absorber against plummeting revenues.”

Uber has a slight competitive advantage given its ability to employ delivery personnel during the COVID-19 pandemic due to its early focus in quick service restaurants, the analyst said, adding that he expects Uber to exit the COVID-19 crisis as a consolidator in the meal delivery space. 

UBER Price Action

Uber shares were up 2.43% at $28.66 at the time of publication Monday. 

Photo courtesy of Uber.