Ride-hailing major Uber Technologies, Inc.’s (UBER) gross bookings grew 26% year-over-year in relative terms and 32% in constant currency to $29.10 billion in the fiscal third quarter. Its gross mobility bookings of $13.70 billion increased 38% year-over-year in relative terms and 45% year-over-year in constant currency, while its delivery gross bookings rose 7% year-over-year and 13% year-over-year to $13.70 billion.

UBER’s revenue was 3.5% higher than analyst estimates. However, its loss per share was $0.43 higher than the consensus estimate. For the current quarter, the company expects gross bookings to grow 23%-27% year-over-year on a constant currency basis, with an anticipated seven percentage point currency headwind, to a range of $30-$31 billion. It also expects its adjusted EBITDA to come between $600 and $630 million.

UBER has been facing scrutiny over whether the drivers on its platform should be classified as employees or independent contractors. The company has maintained that it is a technology company whose function is to connect drivers and passengers.

However, the Biden administration has proposed new standards that could make it challenging to classify millions of workers as independent contractors and deny them minimum wage and benefits. This could prove to be detrimental to UBER’s functioning.

The stock has gained 14.4% over the past six months. On the other hand, it has declined 40.5% in price year-to-date and 37.1% over the past year to close the last trading session at $24.96.

Here’s what could influence UBER’s performance in the upcoming months:

Weakening Cash Position

For the fiscal third quarter ended September 30, 2022, UBER’s net cash provided by operating activities declined 29.6% year-over-year to $432 million. Its net cash provided by financing activities declined 86.4% year-over-year to $212 million. Also, its cash and cash equivalents and restricted balance declined 11.8% year-over-year to $8.63 billion.

Its total cost and expenses rose 63.2% year-over-year to $8.84 billion. Its total liabilities came in at $23.71 billion, compared to $23.43 billion for the fiscal year ended December 31, 2021.

Stretched Valuation

In terms of forward EV/EBITDA, UBER’s 33.11x is 215.8% higher than the 10.49x industry average. Its 1.74x forward EV/S is 9.1% higher than the 1.59x industry average. Likewise, its forward P/B is 6.99x is 182.1% higher than the 2.48x industry average.

Weak Profitability

UBER’s trailing-12-month net income margin is negative compared to the 6.75% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 9.73% industry average. Furthermore, the stock’s 0.94% trailing-12-month Capex/S is 68.3% lower than the industry average of 2.96%.

POWR Ratings Reflect Bleak Prospects

UBER's overall D rating equates to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UBER has a D grade for Value, in sync with its stretched valuation.

It has a D grade for Stability, consistent with its 1.14 beta.

UBER is ranked #59 out of 79 stocks in the D-rated Technology – Services industry. Click here to access UBER’s Growth, Momentum, Sentiment, and Quality ratings.

Bottom Line

UBER’s stock is trading below its 50-day and 200-day moving averages of $27.61 and $27.79, respectively, indicating a downtrend. The Biden administration’s labor proposal to classify its drivers as independent contractors could be challenging for the company. This could lead to higher costs. Moreover, UBER faces intense competition from Lyft and Via, which can affect its profitability.

Given its poor cash position, weak profitability, weak EPS estimate, and stretched valuation, it could be wise to avoid the stock now.

How Does Uber Technologies, Inc. (UBER) Stack up Against Its Peers?

UBER has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Technology - Services stocks with an A (Strong Buy) or B (Buy) rating, such as Celestica Inc. (CLS), Box, Inc. (BOX), and NetScout Systems, Inc. (NTCT).

UBER shares were trading at $25.38 per share on Wednesday morning, up $0.42 (+1.68%). Year-to-date, UBER has declined -39.47%, versus a -17.76% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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