You have to give Uber (NYSE:UBER) credit; when the bottom fell out of the “connecting people with rides” market thanks to the coronavirus and the massive government reaction therein, the company had other arms to fall back on. While Uber collapsed, Uber Eats had the chance to take off, bringing food to those who were staying home for the duration. It wasn't just food delivery that gave Uber a chance at coming back proper, though, as its Uber Freight arm recently landed some new investment and a healthy new valuation besides.
Greenbriar Pumps in Some Cash
According to the latest word, Uber Technologies landed $500 million in new investments from Greenbriar Equity Group. On a post-money basis, this brings the Uber Freight operation's value up to a hefty $3.3 billion.
Despite the new influx of cash, Uber noted that it would hang on to a majority stake in the operation, and use the incoming cash to spur further development in both product innovation and overall reach. Greenbriar managing partners Jill Raker and Michael Weiss, meanwhile, will join Uber Freight's board of directors to help manage that development going forward.
Uber Freight operates similarly to both Uber and Uber Eats, though with an entirely different focus. Where Uber connects drivers to potential passengers, and Uber Eats connects food to potential diners, Uber Freight connects truckers and shippers.
The Analyst Picture is Oddly Mixed
A fresh slug of operating capital definitely helps matters here, but the positive opinion of analysts won't hurt either. Uber's consensus view is clearly weighted toward “buy”, based on our own research, but the consensus is strangely mixed in terms of just how “buy” the company actually is.
The consensus view is weighted very heavily toward “buy.” Out of 36 analysts currently covering the firm, 33 have a “buy” rating while just three have a “hold” rating. Interestingly, 30 days ago, 35 analysts had a “buy” rating on Uber with three at “hold”, but two analysts seem to have departed coverage altogether just in the last month.
There has also been quite a bit of adjustment of price targets in both directions. For the sake of reference, note that the company trades at $36.67 as of this writing, down slightly from yesterday's close of $37.14. Most recently, both Citigroup and Loop Capital lowered their price targets to $40, though Citigroup started at $41 and Loop started at $43. These two actually followed suit for two other analysts: Wedbush lowered its target from $47 to $41, and Deutsche Bank dropped its target from $40 to $38.
However, there were plenty of analysts boosting targets in roughly the same time frame. Mizuho was up from $40 to $42, and Morgan Stanley jumped from $44 to $46. Stifel Nicolaus upped from $38 to $40, and Guggenheim upgraded from $37 to $40, almost reversing Deutsche Bank's projections. The outlier here is Royal Bank of Canada, who upgraded an already higher-end projection of $45 to $50.
Connecting This with That is a Surprisingly Bright Business Model
What this demonstrates perhaps better than anything is that connecting something with something else is a business model that has a lot of validity to it. Uber was doing well enough with the “connecting drivers with passengers” model that it sparked several imitators, including Lyft (NASDAQ:LYFT), though admittedly, Lyft was originally a side project for another company started back in 2007, putting Lyft a little before Uber.
Uber's diversification is what worked best for it, however. When Uber lost out on ride-sharing thanks to the pandemic shutting down everything, it could pivot to the food delivery—which was bigger than ever—and the freight arm, which would likely never be shut down by any government response that didn't want to start a full-blown panic. When one loses ground, another arm gains and resulting revenue stabilizes, preventing substantial profit losses. The remaining loss of profit, meanwhile, can be readily explained away to concerned investors; losing a small amount of revenue in normal times tends to be forgivable, but losing a small amount of revenue in a disaster is completely brushed aside.
Even should things go back to full normal, the food delivery and freight arms will continue to operate and generate value—if possibly somewhat diminished value—for Uber. That makes Uber an attractive investment; a company that's sufficiently diversified to survive a pandemic makes it a likely long-haul winner.
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