Uber Has Been a Big Disappointment Since its Hyped IPO. But that Doesn’t Mean It’s a Bad Stock.
When Uber Technologies (UBER) came public to considerable fanfare in May, we warned against buying Uber stock right away. We’re not big on IPOs here at Cabot, and we’re particularly skeptical when popular tech companies debut at lofty valuations due to significant hype, or overhype.
I hope you listened. We’re not ones to say we told you so, but…
Ouch! Uber stock is down more than 36% since its May 10 debut, and has fallen off a cliff in the last three months, hitting new lows this week after the company reported more than $1 billion in losses in the third quarter. Meanwhile, the company’s lockup agreements are expiring, meaning early insiders are free to sell their Uber stock shares now. According to MKM Partners, nearly 90% of outstanding shares will be available to sell.
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So, yeah, it makes sense that a company with heavy losses and a potentially messy lockup expiration is being knocked from its overly lofty perch. Even after losing more than a third of its IPO value, Uber still has a market cap of $46 billion.
Right now, the narrative on Uber stock is quite negative, and investors are jumping ship. It could get worse before it gets better: The chart is showing no firm support level, and the lockup expiration is likely to put an even bigger dent in the stock. We didn’t recommend buying the UBER IPO, and we don’t recommend trying to catch the falling knife now.
But that doesn’t mean Uber is doomed to become a bad long-term investment.
Just look at this chart of Facebook (FB) in its first four months after coming public in May 2012:
That’s much worse! Facebook stock lost more than half its value in its first four months of trading, and didn’t get back to its IPO price until a year after its debut. But if you’d waited until FB started to stabilize and trend upward, which didn’t happen until November 2012 – six months after its IPO, after the six-month lockup period had expired – you would be sitting on a profit of about 750% today.
Twitter (TWTR) appears to be on a similar trajectory, albeit a much more protracted one.
Shares of President Trump’s favorite communication platform are just now getting back to where they were at the end of their first day of trading, way back in November 2013. If you got in early on TWTR stock and have held on for the nearly six years since, you haven’t made any money.
However, if you had kept a jaundiced eye on Twitter stock, thinking that it had long-term potential but waiting for the sellers to finally be out of the stock, you might have bought it in late 2017 or early 2018, when it was in a clear uptrend and had established a definite bottom (two-year chart below).
Say, conservatively, you bought the stock in January 2018, when it was already up more than 70% from its 2017 bottom at 14. If you did, you’ve made a profit of 25% in less than two years – at a time when the S&P 500 is up just over 9%. And mind you, that includes the recent free fall in TWTR, which has fallen from a high of 45 two months ago to 29 now.
You can debate which is the better social media stock now; in fact, I recently wrote a breakdown of FB vs. TWTR. What’s inarguable is that, if you just waited for those two high-profile stocks to establish a clear post-IPO uptrend (and granted, in the case of TWTR, you would have had to wait nearly four years), you’d be sitting on some very nice profits at the moment, with plenty of upside left.
Uber may not be Facebook or Twitter, though it’s every bit as revolutionary, essentially replacing taxi cabs as the preferred method of transit among ride hailers. Thirty million people used Uber in 2018, and the company had 100 million monthly active consumers of its platform in July. It’s growing; it’s still in an early stage of growth, globally-speaking; and eventually, it will figure out how to make money, just as Facebook and Twitter did.
Five years from now – perhaps even a year from now – Uber’s share price is likely to not only be much higher than it is today, but also higher than it was when it first came public. Now is not the time to buy Uber stock – not with it still in free fall. But as soon as it hits bottom, and starts a recognizable uptrend, pounce.
It may not be the next Facebook stock. But it’ll be a ride worth hailing.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version.