Uber Technologies: Initiate at Outperform

Olu Shoyoye - US Auto Suppliers Analyst

  • We are initiating coverage on Uber Technologies Inc (“UBER”) with an Outperform recommendation. Strong mobility and delivery trends coupled with cost discipline should drive adjusted EBITDA and FCF higher moving forward.
  • UBER is the global leader in both the ridesharing and food delivery industries, leveraging its scale and technology to deliver and scale up new products and services. The Company has meaningfully grown its delivery business over the past few years, expanding the core operations as well as moving into new markets.
  • The Company is now on track for sustained profitability, continued cost control as well as rationalization in key markets should ultimately drive improved adjusted EBITDA margin and FCF generation. The ability for UBER to continue to grow as well as retain customers across its Mobility and Delivery business without the need to offer meaningful incentives will be key moving forward.
  • UBER also maintains a healthy liquidity position with an unrestricted cash balance of $4.4 bn as of 2Q22.
Relative Value

We are initiating coverage of Uber Technologies Inc. (“UBER”) with an Outperform rating. Uber has leveraged its large scale and technology to grow its core ridesharing and food delivery businesses, while also rapidly launching new products and services, ultimately keeping customers happy and attracting new ones along the way. The Company is now on a path to sustained profitably, driven in large part to its leadership position in ridesharing as well as its growth delivery business, which saw significant expansion within both core and new markets (alcohol, grocery, convenience) during the COVID-19 pandemic. We believe these dynamics will be key drivers of long-term bond performance. That said, UBER still has work to be done. FY2022 will mark UBER’s first year of displaying profitability as well as positive FCF generation. The Company will need to continue to execute on its initiatives to drive down incentives and increase unit economics to provide a path towards sustained profitability. Additionally, the Company faces regulatory risk across several jurisdictions, which could prove to be detrimental to overall operations.

Looking at the notes, the ’25s and ’26s and ’27s are both 4 pts off 6-months highs. At the belly, the ’28s and ’29s are off 6-8pts off 6-month highs and offer attractive entry points at below par dollar prices. We believe the weakness in the notes is due to the volatile market environment as well as rising inflationary pressures on consumers and low investor sentiment given UBER’s regulatory risks and track record of negative profitability. However, the Company seems to be turning the corner and is on track for improving credit metrics over the next 6 months into the new year.

We rate the TLs…

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