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Analysts say 'risk-seeking' investors should buy this Uber plunge following abysmal results

Key Points
  • "We think a continued improvement in unit economics and better visibility into the path to profitability could draw more investors to do the work, and given compelling potential upside in a bull case, near term and long term, we would not wait to get involved," Deutsche Bank said.
  • "In 3Q we think Uber will benefit from better rides pricing and decreasing competitive intensity in the U.S. and we reiterate our Buy rating," Bank of America said.
Uber Technologies CEO Dara Khosrowshahi stands outside the New York Stock Exchange ahead of the company's IPO May 10, 2019.
Andrew Kelly | Reuters

Uber shares are plunging after a dismal earnings report but Wall Street analysts are urging clients to not be scared and take a "risk" on the stock even after the company fell short of estimates on nearly every major metric.

Just months after making its May stock market debut, the company reported a $5.2 billion loss for the second quarter and blamed stock-based compensation as well as IPO related expenses.

Shares of the ride hailing giant's stock tanked and are down over 9% in early market trading

Most analysts admitted the stock was risky and not for the faint of heart.

"Given negative investor sentiment, the complicated nature of its financials and lack of profitability, we are not surprised to see shares reacting poorly to results," Barclays analysts said in a note to clients.

"We think risk-seeking, opportunistic investors should take advantage of this move and any weakness into UBER's lock-up expiration, because for those looking closely under the scorched-earth rubble, there are actually some positive things going on," they said.

"While there are considerable risks in ownership across the space given the intense competition, regulatory issues, and operating pressures, we continue to believe the risk/reward in owning the leader in this space is favorable," Goldman Sachs said.

But one analyst said that while Uber might be a special company, he warned not to expect much from shares anytime soon.

"While we continue to view UBER as a once-in-a-generation company with an opportunity to revolutionize transportation and logistics, we believe business complexity, lack of visibility into forward numbers, and a precarious competitive landscape are likely to keep shares range bound," Susquehanna said.

Here's what else major analysts are saying about Uber's earnings report:

Deutsche Bank- Buy rating, price target to $60 from $58

"We see Uber shares as one of the best long-term stories in the Internet and would take advantage of after-hours weakness to add to positions. We think a continued improvement in unit economics and better visibility into the path to profitability could draw more investors to do the work, and given compelling potential upside in a bull case, near term and long term, we would not wait to get involved."

RBC - Outperform rating

"At the margin, we come away incrementally more positive on Uber given competitive dynamics improving, take rates on track to move up sequentially, product enhancement driving more multi-offering users, and EBITDA losses lessening. Our long term view on Uber is unchanged from our initiation as 1) We see an estimated $2.5T Gross Bookings TAM. 2) Uber is the dominant leader in the Global Rideshare Market. 3) Gross Bookings has held 30% growth levels even as the base has become much larger. 4) We also see significant option value in new business units."

Goldman Sachs- Buy rating

"While there are considerable risks in ownership across the space given the intense competition, regulatory issues, and operating pressures, we continue to believe the risk/reward in owning the leader in this space is favorable and we remain Buy-rated with a $56, 12-month target price."

Morgan Stanley- Overweight rating

"UBER's 2Q results showcased the company's top and bottom-line momentum and reasons we are bullish on its opportunity to become the next mobile utility....1. Core revenue trends have momentum into 2H; 2. Rides competition remains rational; 3. The innovation pipeline is flush; 4. Rides already has a 20% contribution margin; 5. UBER-wide profits are coming sooner than expected."

Bank of America- Buy rating

"While bookings outlook was in-line, we are more confident in the positive margin trajectory in '19 given Core Platform Contribution Margin increasing 13pts q/q. Mgmt's disclosure that Rides business is near-breakeven already should provide some additional confidence in the profit potential of the business for L.T. investors. In 3Q we think Uber will benefit from better rides pricing and decreasing competitive intensity in the U.S. and we reiterate our Buy rating."

Barclays- Overweight rating

"Given negative investor sentiment, the complicated nature of its financials and lack of profitability, we are not surprised to see shares reacting poorly to results. We think risk-seeking, opportunistic investors should take advantage of this move and any weakness into UBER's lock-up expiration, because for those looking closely under the scorched-earth rubble, there are actually some positive things going on. Shares trade at discount to LYFT and internet peers, and 2H19 (particularly 4Q) is likely to be the catalyst for a possible re-rating - the same thesis we've been on since launching coverage."

Citi- Neutral rating

"Q2 didn't deliver the degree of upside that was likely implied by the stock's +8% move going-in, but we thought the quarter did show progress with respect to sequential take-rates and operating leverage, particularly within Rides. The 2019 adj. EBITDA guidance improves vs. consensus but does imply a modestly worse H2 quarterly rate vs. Q2. .. .Net-net, the big-picture story receives positive data points from higher QoQ take-rates, commentary around stable/improving competitive conditions and a return to positive contribution margins, but the absence of meaningful bookings/revenue upside and the puts/takes around H2 EBITDA could remain a source of some NT debate."

Needham- Buy rating

"While UBER's Q2 was full of noise, the company's underlying growth rates are healthy and improving while bottom-line trends appear better-than-anticipated. We continue to recommend owning the stock given 1) our time acquisition thesis suggesting that consumers will increasingly leverage mobility platforms to re-acquire time in their lives which is not well reflected in the stock, 2) likely ongoing operational efficiencies which should illuminate improving unit economics and should dispel the bears' insolvency thesis and 3) this asset is scarce, in our view, with such massive geographic reach with potential to drive transformative change to the multi-trillion dollar transportation industry."

Susquehanna- Neutral rating

"While the US rideshare market is acting more rational and both UBER and LYFT plan to act rationally going forward, the lack of visibility and uncertainty around trends ex US ridesharing continues to make us cautious around the near-term prospects. While we continue to view UBER as a once-in-a-generation company with an opportunity to revolutionize transportation and logistics, we believe business complexity, lack of visibility into forward numbers, and a precarious competitive landscape are likely to keep shares range bound."