Doordash Stock- Breakingviews – Uber’s valuation requires both hands on the wheel
WASHINGTON (Reuters Breakingviews) – Uber Technologies’ valuation will force it to keep two hands on the wheel. While the company said on Wednesday its food delivery unit helped minimize a fourth-quarter revenue drop to $3.2 billion, a 16% decline compared to the same quarter last year, the business is still losing money. Meanwhile vaccines should help the San Francisco-based company’s rideshares recover, and its experience in that sector might guide food delivery to profits. Yet the market is giving the company full credit for being in both businesses already, with a richer price than peers that operate solely in either.
Having a diversified business helped Uber weather the pandemic better than smaller rival Lyft. The larger firm’s results on Wednesday fell below analyst expectations though Uber Eats, the business that delivers food, helped prop it up. Revenue in that business more than tripled in the quarter compared to the same quarter the previous year. Meanwhile on Tuesday, Lyft, which is mostly a taxi-like service, said revenue dropped 44% in the fourth quarter over the same period.
Uber’s investors have given it full credit, and then some, for straddling both the human and food delivery businesses. Uber is trading at an enterprise value to forward sales multiple of more than 6 times, compared to Lyft’s less than 5 times. For food delivery, close competitor Grubhub is trading at 3 times. It suggests investors think there are benefits to owning both businesses as opposed to just one.
That thesis has some credibility. Uber Eats is still losing money – in the quarter, it posted an adjusted EBITDA loss of $145 million – while ridesharing has had positive EBITDA, despite the fact that its business wasn’t as strong. It wasn’t always that way. Uber’s ridesharing business struggled as it learned how to operate in competitive markets. As it ditched costly initiatives like self-driving vehicles, and backed out of expensive new markets, like China, the path to profitability became clearer.
Still, growth in food deliveries could slow down as the economy enters a post-Covid period. That puts more pressure on figuring out how to squeeze out profits from food delivery. Meanwhile, it faces stiff competition from several others like Just Eat Takeway.com, DoorDash, and Grubhub. Investors may not give it so much driving room for long.
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