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Uber Profit Goal Fails to Win Over Wall Street as Eats Lags

Joe Easton and Esha Dey

(Bloomberg) -- Uber Technologies Inc.’s new target of achieving profitability by 2021 impressed analysts, even as shares fell amid continued competitive pressures in the food delivery business and ahead of a lock-up expiry on Wednesday.

Third-quarter results were weighed down by the Eats segment, where bookings came in well below analysts’ estimates. Overall, the results prompted a mixed response from Wall Street, with analysts at RBC Capital Markets and Morgan Stanley boosting their price targets noting signs of improvement in the main ride-hailing unit, while DA Davidson and Wedbush lowered their targets citing negative market sentiment, weak results and slower growth estimates.

Analysts also cautioned that longer-term investors becoming able to sell down holdings from Nov. 6 could weigh on the shares.

Uber shares fell as much as 9% to an all-time low in New York on Tuesday. Peer Lyft was down as much as 2.2%.

Here’s a summary of what analysts have had to say.

Citi, Itay Michaeli

(Buy, price target $45)

More positives than negatives, with clear improvements in ride fundamentals, demonstrated by a segment Ebitda margin of 22% versus 8% in the first quarter.

Ride improvements offset Eats softness, which shouldn’t come as a surprise given recent signs of competitive pressures.

New break-even target implies at least $1.3b upside to 2021 consensus Ebitda.

RBC Capital Markets, Mark S.F. Mahaney

(Outperform, price target raised to Street-high $64 from $62)

“Bad news. Good news. Great News:” Bookings, users and trips came in slightly lower than expected, while Rides and Eats revenue beat and the Ebitda loss was materially better than expected.

Goal of Ebitda profitability in 2021 is achievable, and would be well ahead of Street.

Wedbush, Ygal Arounian

(Outperform, price target $45 from $58)

“Overall this was a B- quarter by Dara & Co. as the company missed underlying bookings and ridesharing metrics which will be viewed mixed to negatively by the Street.”

“Despite the clearer path to profitability, mixed results and still-negative investor sentiment is leading to a lower target multiple.”

Morgan Stanley, Brian Nowak

(Overweight, price target raised to $55 from $53)

Target of Ebitda profitability in 2021 is $775m better than Morgan Stanley’s estimate, demonstrating impact of scale, expenditure discipline, and higher efficiency.

More importantly, messaging on food delivery indicates market is becoming more rational, although fourth quarter is expected to be another tough one for Eats.

New segment disclosures (for example on rides margins) will enable investors to appreciate value of each core businesses.

Loop Capital Markets, Jeffrey Kauffman, Rob Sanderson

(Buy, price target $48)

“Fairly solid results” with better ride revenue and loss margin similar to Lyft Inc. Tough dynamics in Eats, which faces difficult comparatives, was similar to competitor GrubHub Inc.

More signs of improvement than deterioration since the IPO. Shares to stabilize once expiration passes.

DA Davidson, Tom White

(Neutral, price target $35 from $44)

“Our 2020 and 2021 revenue estimates decline by 3% and 10%, respectively, due primarily to more conservative Eats growth assumptions.”

“Near-term visibility for Eats remains limited in our view, but we continue to believe that, over the long-term, Uber’s multi-product platform can be a critical differentiator in the crowded online food delivery space.”

MKM Partners, Rohit Kulkarni

(Neutral, price target $32)

“Baby step” on path toward profitability, with top and bottom lines beating expectations.

That said, “lofty” goal of reaching break-even on Ebitda during 2021 is surprising. Gross bookings continue to decelerate and variable costs, including on marketing, rise.

No evidence yet that Uber has been able to stabilize bookings growth via a reduction in incentives offered to both drivers and riders.

(Updates share move in fourth paragraph.)

--With assistance from Kit Rees and James Cone.

To contact the reporters on this story: Joe Easton in London at jeaston7@bloomberg.net;Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Brad Olesen, Janet Freund

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