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9 min read

    9 min read

    Should you buy Uber stock? It’s a question some drivers may be asking themselves ever since Uber went public in 2019. RSG contributor Scott Lieberman answers the question ‘Should I buy Uber stock’ and offers things to consider before you make the decision below.

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    Should I Buy Uber Stock?

    You might be asking yourself if you should buy Uber stock, but first ask, for how long are you willing to hold this stock?

    I’ll explain how to think about your bet on buying Uber stock. I see a short-term (hopefully) issue that could keep the price down and a longer-term innovation that could make Uber a wise investment.

    Lyft stock is also impacted by these same two factors.

    What are they? I like to call them, “Nights Out and Flights Out.”

    A very big slice of Uber’s and Lyft’s revenue pie is from airport and nightlife rides. That’s your short-term risk, or opportunity, depending on how you invest.

    The long-term play is whether or not you think they’ll be able to remove the greatest ongoing expense for these companies — the drivers.

    Here at The Rideshare Guy, we help drivers maximize their income and stay up to date with the latest news with our email list. But it’s no secret that Uber is trying to replace human drivers with autonomous vehicles.

    Does anyone think in 100 years taxis will have humans driving them? Whether or not you think so, many of us aren’t trying to pass on this job to our children.

    What about in 10 years, though? Five? If you’re 40 years old and want to cash out your stocks at 65 years old for retirement, you might think forward — rideshare in the year 2045 — robot drivers AKA autonomous vehicles.

    As I write this article, Uber stock sits at $33.54 per share. You can see Uber stock is down from its start in 2019 but has bounced back since the depths of the COVID-19 pandemic:

    should i buy uber stockLyft stock started at a much higher valuation so its drop is steeper:

    should i buy uber stock

    Flights Out and Nights Out

    First, let’s examine the short-term revenue stream: Flights Out and Nights Out.

    Uber reveals the answers deep in their most recent 2019 10-K Annual Report:

    “We generate a significant percentage of our Gross Bookings from trips in large metropolitan areas and trips to and from airports. If our operations in large metropolitan areas or ability to provide trips to and from airports are negatively affected, our financial results and future prospects would be adversely impacted.”

    This has played out exactly as they said. Uber continues,

    “In 2019, we derived 23% of our Rides Gross Bookings from five metropolitan areas—Chicago, Los Angeles, New York City, and the San Francisco Bay Area in the United States; and London in the United Kingdom.”

    As far as I know, in these cities nightlife has been near non-existent compared to what it was in 2019. Common sense tells me, no, Uber and Lyft were never crushing it with work commutes or taking Granny to the doctor at 2:00 pm.

    It’s just as you might expect if you paid attention to taxi traffic in any major city: business travelers to and from the airport, some leisure flights, and getting the drunks home from the bar.

    Uber states in its official documentation,

    “In 2019, we generated 15% of our Rides Gross Bookings from trips that either started or were completed at an airport, and we expect this percentage to increase in the future.”

    The rest of their money is coming from big-city folk zipping around. Not only have cities shuttered nightlife, but the people who would pay for Uber and Lyft’s higher-cost luxury transportation options are fleeing to the suburbs and exurbs and their private cars.

    Uber felt so strongly about the following, they put it in bold on their annual report:

    “We generate a significant percentage of our Gross Bookings from trips in large metropolitan areas and trips to and from airports. If our operations in large metropolitan areas or ability to provide trips to and from airports are negatively affected, our financial results and future prospects would be adversely impacted.”

    Remember, this was all before COVID-19. So this no black swan event. I mean, COVID kind of is, but an economic downturn at some point certainly is not.

    Lyft’s 2019 10-K annual report echoes the importance of nights out and flights out. Just look at how they chose to word their marketing plan:

    “For example, a rider may start using our ridesharing offering for a night out and then choose Lyft again for travel to the airport. Once they have experienced the reliability and convenience of Lyft, they may incorporate Shared Rides into their daily commute, rent one of our shared bikes or scooters for shorter rides or when connecting to public transit, and rent one of our Lyft Rentals vehicles for long-distance trips, like a weekend away.”

    It all starts with nights out and flights out.

    So until government regulations and human behavior lead to a return to previous levels of flying and enjoying nights out in restaurants, bars, and clubs, don’t count on Uber and Lyft collecting any kind of serious revenue.

    Food delivery isn’t the answer… yet. At least not for investors. It is for drivers – currently, drivers in our audience are earning $20 per hour using the best delivery app jobs to work for.

    But food delivery is not the answer for the short-term profitability of Uber as The Wall Street Journal proclaims in its story, “America Is Stuck at Home, but Food-Delivery Companies Still Struggle to Profit: Coronavirus crisis creates a surge in orders but also costs, straining margins.”

    So…

    When Will Uber and Lyft Start Making a Profit?

    I think the answer is again revealed in Uber’s annual report. Uber also put this in bold to emphasize its importance:

    “If we fail to develop and successfully commercialize autonomous vehicle technologies or fail to develop such technologies before our competitors, or if such technologies fail to perform as expected, are inferior to those of our competitors, or are perceived as less safe than those of our competitors or non-autonomous vehicles, our financial performance and prospects would be adversely impacted.”

    TL;DR: We will turn a profit when we’re not paying drivers.

    Of course, Uber and Lyft could also increase profit margins by, you know, increasing passenger fares. I’m sure they thought of this and have calculated that passengers aren’t yet willing to pay more. Plus, Uber and Lyft compete now basically on price, as far as I can tell when I’m a passenger.

    In a recent podcast episode titled “Analyzing Uber’s Quarterly Earnings Report with Charles Zvibleman”, our founder Harry Campbell says Uber’s long-term valuation will be dependent on AB5 and what happens with drivers becoming (or not becoming) employees. It’s a major risk and focus point for many who are tracking Uber’s stock.

    The business beauty of Uber and Lyft having drivers as contractors (no paid health benefits, no retirement pay, no vacation pay) is also a drawback to their branding. When I’m a passenger in a Lyft, I know that same driver probably drives for Uber in the same freaking car. So I’m checking both apps for the lowest price.

    This makes me think that like Sirius and XM radio we’ll see an Uber/Lyft combined company at some point. Unless a bigger company buys them both like Google or, hey, why not Facebook, so they’ll have the complete data picture of every single thing we do and can serve us targeted ads in the car and purposefully take routes that go near stores we’ve expressed an interest in! Haha, but yeah, really.

    Should You Buy Uber Stock in the Short Term?

    Yes, if you believe passenger trip behavior will be going back to pre-pandemic levels soon. Buy now and sell on the upswing from the euphoria.

    Should You Buy Uber Stock to Hold Long-Term?

    Yes, if you believe Uber and Lyft are not just taxi companies but rather tech companies that will solve or at least incorporate driverless vehicles. You’d have to consider these stocks to be cheap enough to buy now and hold for the next 10 years.

    Let’s look at a real-life example of investing in Lyft and Uber. Our veteran driver-writer Jay drove so many trips for Lyft that they awarded him $1,000 as a pre-IPO thank you. Jay invested his $1,000 in Lyft stock in 2019 at $72 per share. He got out of Lyft fairly quickly and says he profited about $35.

    If Jay had held on until today, his shares would have lost more than half their value. Of course, he could have kept holding the shares for years if he thought Lyft’s value would go higher in the long run.

    Uber on the other hand, debuted at $42 per share according to CNBC. Today’s it’s worth less than that.

    Uber’s drop in valuation has caused problems as highlighted by Deirdre Bosa:

    Betting on Uber’s Management

    Warren Buffet is famously quoted as saying, “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

    Do you believe Uber has outstanding management? Usually, that kind of management is stable. But Uber’s management seems to be in flux?

    Deirdre Bosa of CNBC reports:

    You can get a feel for how Uber operates from the very top by watching our founder Harry Campbell interview Uber’s CEO Dara Khosrowshahi.

    How to Buy Uber Stock

    You can start investing with as little as $100. However, I strongly recommend never trading more money than you can comfortably lose!

    If you have some money to play with or want to take a long-term position, here are the best stock buying apps.

    Among the stock buying apps, we’ve done a deep dive on the following:

    Disclaimer: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The RideShare Guy is no way advocating for or against a particular stock. We are giving opinion and analysis. Make up your own mind.  The valuation of futures, stocks and options may fluctuate, and, as a result, you may lose money. Trading strategies are used at your own risk.

    What do you think about Uber (and Lyft’s) stock price? Would you or have you bought Uber stock?

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    -Scott @ RSG

    Scott Lieberman

    Scott Lieberman

    Scott Lieberman has over a decade of successful editing and writing experience, specializing in personal finance, working remotely, credit cards, and travel.