Ubercharged: Ubers shares surge despite the COVID-19 crisis

April 3, 2020

2 min read

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What's going on here?

Amid the current COVID-19 pandemic, Uber’s share price has surged after its Chief Executive Dara Khosrowshahi told analysts that the ride-hailing company had enough cash to survive the effects of this crisis.

What does this mean?

The past few months have not been good for Uber which has seen its share price drop. Worried investors dumped their Uber shares due to concerns that the global quarantine and social distancing would affect its revenues. However, after Khosrowshahi told analysts that Uber was “well-positioned to weather this crisis and to emerge even stronger”, shares surged by nearly 40%. Wall Street analysts have updated their price targets for Uber’s stock as a response; UBS analyst Eric Sheridan lowered his price target from $56 to $32, while Wells Fargo’s Brian Fitzgerald went from $45 to $41. Despite the downward revision of prices, these numbers still remain higher than Uber’s closing price on Thursday of $20.40. Khosrowshahi added that the business had ample liquidity, a highly variable cost structure, a global footprint and multiple business lines offering diversity. 

Prior to this, Uber had fallen 64% since mid-February. Khosrowshahi’s announcement that Uber has $10bn in unrestricted cash as of the end of February and that none of the company’s $5.7bn long-term debt is due before 2023 has also boosted investors’ confidence. He added further that the company should finish the year with $4bn in unrestricted cash, not including access to $2bn from a revolving credit line (a type of credit that does not have a fixed amount of payments, unlike an instalment).

What's the big picture effect?

This points to the bigger effects of COVID-19 on the global economy. Despite many negative effects of this pandemic, there appears to be a glimmer of hope that indicates an economic recovery and growth, at least within the ride-hailing industry. In New York City, Mayor Bill de Blasio is urging people to avoid the subway bar for essential travel. Following his announcement, the price for an 8-minute drive within Manhattan’s East Village, usually $10, jumped to $37. Commuters also reported longer waiting times. Rather than using conventional forms of transportation, more people seem to be taking advantage of ride-hailing apps like Uber to get from destination to destination.  The company has also seen growth in areas like Uber Eats, even in hard-hit markets. Khosrowshahi has added that markets in places like Hong Kong are already showing signs of recovery in demand for the business. 

While analysts expect a big hit to Uber’s short-term demand, they remain optimistic about the company’s long-term potential. While lots of technology companies have been negatively affected by the COVID-19 bear market (a period marked with falling stock prices), they can still pick up market share after the crisis. Because many are choosing to self-isolate, companies, such as Deliveroo, Zoom and Uber, that profit from situations where the innovative use of technology is paramount are well-placed to survive this crisis. If Uber can successfully turn this pandemic into an opportunity for growth, it may still be able to appease investors.

Report written by Robyn Ma

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