[By Eric J. Savitz]
Thursday, Uber Technologies (ticker: UBER) and Lyft (LYFT) staged a monumental turnaround after Uber CEO Dara Khosrowshahi told investors that the company is “well positioned to weather this crisis and to emerge even stronger.” While noting that rides are down 60%-70% in markets like Seattle that have been hard hit by the virus, he pointed out that the company had $10 billion in unrestricted cash as of the end of February and an untouched $2 billion revolving credit line. None of the company’s $5.7 billion in long-term debt is due before 2023.
Khosrowshahi said on a conference call that even in a scenario where Uber’s core rides business falls 80% for the rest of the year, the company should finish the year with $4 billion in unrestricted cash, not including access to $2 billion from a revolving credit line. Uber shares rallied nearly 40% on Thursday, and Lyft rallied 29%.
Khosrowshahi didn’t give an update on the company’s earnings outlook given the current level of uncertainty, and many analysts reduced their estimates and target prices on Friday as they read between the lines of his comments about the state of the business.
But most of the analysts came away from the call feeling more confident about the company’s long-term prospects.
Wells Fargo analyst Brian Fitzgerald raised his rating on the stock to Overweight from Equal Weight, though he trimmed his price target to $41, from $45. He noted on Friday that even after Thursday’s snapback rally, the stock was down 45% since Feb. 6, versus a 28% drop for the S&P 500.
“We think Uber’s value remains tied to growth trends that will play out long after coronavirus-driven disruptions have subsided,” he writes, citing near-ubiquitous smartphone penetration in the U.S. and a continued shift to ride sharing from personal car ownership.
And he echoed Khosrowshahi when he said that Uber should live to see another day, given the strong balance sheet and flexible cost structure the CEO outlined on Thursday’s call. In particular, he underlined Khosrowshahi’s point that two-thirds of Uber’s cost structure is variable, “creating an automatic shock absorber against decreasing revenues.”
He also thinks that Uber will emerge from the crisis “positioned to play the role of consolidator in the meal delivery space,” which should eventually improve the economics of that business.
The bottom line? Fitzgerald contends that “Uber stock has little downside at this price.”
Friday afternoon, Uber was up 3.5% to $21.21. Lyft gained 2.8% to $21.27.