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Will High Costs Mar Uber Technologies' (UBER) Q2 Earnings?

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Uber Technologies (UBER - Free Report) , which went public on May 10, is scheduled to report its second-quarter 2019 results on Aug 8, after market close. The Zacks Consensus Estimate for the top and the bottom line stands at $3.41 billion and loss of $3.33, respectively, in the to-be-reported quarter.

In the last reported quarter, Uber’s first as a public company, it reported a narrower-than-expected loss. Moreover, revenues surpassed expectations and improved 20% year over year mainly owing to an impressive performance at its Core Platforms unit, which accounted for the bulk of the company’s top line.

Notably, Uber has performed disappointingly since its trading debut declining 0.7%. In fact, shares of this San Francisco, CA-based company have mostly traded below its IPO price of $45.

Given this backdrop, let’s examine the factors that are likely to influence this ride-hailing company’s second-quarter results.

Uber is spending significantly toward promotions and driver incentives as it competes with rivals like Lyft (LYFT - Free Report) for higher market share. For example, Uber’s driver loyalty program —Uber Pro — rewards high ratings and low cancellation rates worldwide. This, in turn, is hurting Uber’s bottom-line growth.

As an evidence, last year, Uber collected $37 billion in fares, out of which 81% went to the drivers. We expect Uber's bottom-line growth to be limited in the second quarter as well due to high costs. Debts are also likely to increase in the quarter to-be-reported.

However, the Core Platforms unit is likely to perform well on the back of upbeat ridesharing revenues. Impressive performances in key markets like the United States, Canada, Europe and the Asia Pacific might lead to an uptick in ridesharing revenues in the soon-to-be-reported quarter. Strong performance at Uber’s food delivery business — Uber Eats — is also likely to boost results at the Core Platforms division.

Meanwhile, gross bookings are likely to increase at Uber’s Core Platforms and Other Bets divisions and boost to the company’s performance in the second quarter.

Earnings Whispers

Our proven model does not show that Uber is likely to beat estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Uber carries a Zacks Rank #2.

Earnings ESP: Uber’s Earnings ESP of -1.80% acts as a spoiler and leaves surprise prediction inconclusive.

Stocks to Consider

Investors interested in the broader Computer and Technology sector may consider Woodward (WWD - Free Report) and Zillow Group (ZG - Free Report) as these stocks possess the right mix of elements to beat on earnings in the next releases.

Woodward has an Earnings ESP of +5.13% and a Zacks Rank of 3. The company will report third-quarter fiscal 2019 results on Aug 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zillow Group is a Zacks #3 Ranked company and has an Earnings ESP of +32.04%. The company will release second-quarter 2019 results on Aug 7.

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