Back to top

Image: Bigstock

Uber Crashes: Time to Buy the Dip With IPO ETFs?

Read MoreHide Full Article

Shares of Uber Technologies Inc. (UBER - Free Report) lost 6.2% after market on Aug 8 as the ride-sharing company recorded huge losses of $5.2 billion along with subdued revenue growth. The company's second-quarter figures showed losses due in large part to stock options offered to employees after its initial public offering in May. Excluding stock options, the company’s net loss was about $1.3 billion.

Uber’s reported loss per share of $4.72 was wider than the Zacks Consensus Estimate of a loss of $3.33 and its quarterly revenues of $3.17 billion also missed the consensus estimate of $3.41 billion. Revenues rose 14% year over compared with 20% in the first quarter of 2019.

Adding to the woes, “Uber said it also faced rising competition in global markets and slowing growth on its core ride-hailing platform”. Shares dived 6.2% after-market on Aug 8 owing to the earnings underperformance.

Will Lies Ahead?

Outlook for competitive pricing has been improving as both Uber and its rival Lyft (LYFT - Free Report) give more importance on profitability than growth and shell out less on incentives to attract riders to their apps. Uber sees 2019 as an investment year.

However, Uber carries out diversified businesses — ride-hailing, food delivery, scooters and freight. Per some analysts, a part of Uber’s business model is competing with tech biggie like Amazon (AMZN - Free Report) . Also, coming to Eats business, Uber does not “expect that business to be profitable in the next year or year after.” So, though the long-term outlook may be rosy, near-term prospects appear bleak.

Time to Buy the Dip in IPO ETF?

Uber stock holds the fifth position in the Renaissance IPO ETF (IPO - Free Report) with about 4.2% exposure. The fund lost about 1.2% during after-hour trading on Aug 8 (read: IPO ETF Returns Double the S&P 500 in 1H: What Next?).

However, many of IPO’s holdings have come up with upbeat results this reporting season. Spotify (SPOT - Free Report) — which takes the top spot in the IPO with about 10.08% weight — posted a quarterly loss of 47 cents per share versus the Zacks Consensus Estimate of a loss of 51 cents. Spotify, which belongs to the Zacks Technology Services industry, recorded revenues of $1.87 billion for the quarter ended June 2019, surpassing the Zacks Consensus Estimate by 2.41%.

Moreover, Lyft — which gets about 1.10% weight in the fund — incurred a loss of 68 cents per share in second-quarter 2019 (excluding $1.55 from non-recurring items), narrower than the Zacks Consensus Estimate of a loss of $1.03. Results were aided by solid revenue growth of 72% on a year-over-year basis to $867.3 million. The top line also surpassed the Zacks Consensus Estimate of $809.4 million.

So, the slump in Uber shares can be used as an entry point to IPO ETF as other holdings have solid prospects, positioning the fund favorably. Investors should note that a basket approach is always more useful in mitigating company-specific risks.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>