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Uber Earnings On Monday: Will It Curb Investor Concern?

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2019 has taken rideshare shareholders on a trip that they wish they never made. Uber (UBER - Free Report) and Lyft (LYFT - Free Report) have lost investors roughly $30 billion since they went public earlier this year. These ride-hailing apps are now under the gun again as Q3 earnings ensue. Lyft beat on both top and bottom-line estimates, but still got battered down in by the markets following its earnings.

Uber, who is preparing to release its Q3 Monday, November 4th, slid over 6% yesterday as investors' appetite for risky shares wanes. Anxiety is spreading across the market, stemming from companies reporting substantial losses, and as we near the end of an economic cycle. With every dip in the market, a larger drop is seen from the ridesharing stocks.

Monday will mark Uber's 3rd earnings report as a public company. The first two demonstrated very different results with beats in Q1 and big misses in Q2 that led to the sizable share price break down that UBER has been riding. Analysts and investors are still attempting to realize the intrinsic value of this stock, with every earnings report uncovering more of the truth.

For Uber's Monday report, Zacks Consensus estimates are displaying an EPS of -$0.82 on sales of $3.75 billion, which would represent 40% year-over-year topline growth. The company seems to be losing an increasing amount of money every quarter, seemingly unable to attain economies of scale.

The Ridesharing Space

This space hasn't seen profits since it was incepted 10 years ago, but none the less investors flocked around a good idea with no sense of how or when profits would be realized. This is the first year that ridesharing has seen the light of day in the public markets, and these stocks have not fared well.

UBER is down over 24%, and LYFT has dropped more than 45% since each of these firms went public. Both are trading at a discount to their last private funding round, demonstrating an issue of sloppy due diligence in the private markets.

Venture capitalist (VC), the ostensible captains of the financial world, have been running amuck in recent years, driving up the valuation of companies that's value is seemingly only a fraction of what these "financial gurus" paid for their stake.

WeWork is a prime example, with a massive misevaluation in the private markets the company was forced to suspend its IPO and completely restructure its business model. Its valuation was reduced to a small fraction of its last funding round, losing billions for VC firms around the world.

WeWork's most significant private investor was Softbank's Vision Fund, a Japanese VC fund that is heavily invested in tech. Softbank has had to write down a substantial amount of its investments, and its investment strategy is now under questioning. Softbank is Uber's largest investor, and its lack of due-diligence on other investments leads me to believe that UBER may also be misvalued.

Uber and Lyft are seemingly losing money on every ride that is taken, as each firm attempts to gain market share from the other by cutting pricing. They are also forced to compete on the cost of sales associated with the drivers.

In Chicago, both drivers and riders look at all ridesharing opportunities to see which will be most advantageous for them. To retain drivers, the firms have to compete on costs. To keep customers, the companies have to compete on price.

This may be a race to the end of each firm's capital, where only the largest firm will survive. Consolidation or collusion could also bring these companies to profitability sooner than later. As it stands, both firms will be losing money for an inconclusive number of years.

Take Away

Uber's earnings on Monday will uncover a little more of the companies operational narrative. Every earnings release takes investors and analysts one set step closer to the real value of the stock. Expectations have been hampered for Uber following a disappointing Q2 report. These low expectations, combined with the share price's continued slide, could be lining UBER up for a pop.

Lyft's positive earnings are a good sign for the space, but the market is still not convinced about ridesharing yet.

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