Fundamental analysis of Uber


Fundamental analysis of Uber

Uber shares rose about 5% in extended trading on Friday after the company's ticker was added to the S&P 500 index and replaced by Sealed Air Corp.

According to a press release, the change will take place before trading opens on Monday, December 18.

A company's stock price often rises upon news of its inclusion in the S&P 500 because fund managers who track the index, which is updated quarterly, must buy all the stocks in the index. Admitted companies must also meet certain valuation and profitability requirements.

Uber's stock debuted on the New York Stock Exchange in 2019, but the company was burning through cash as it had to pay drivers enough to compete in a low-margin business. Its preferred measure was adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

Most of Uber's adjusted EBITDA comes from its ride-hailing division, but the company made its delivery business profitable faster than planned after investors worried about the recession became loath to invest in loss-making companies. Advertising revenue growth has also contributed to Uber's profitability.

Uber cut more than 3,500 jobs in 2020, and executives have since worked to improve its cost structure. For example, they reduced the delivery fee. Uber reported net income of $221 million on revenue of $9.29 billion in the third quarter, making a total of more than $1 billion in profit over the past four quarters.

Uber CEO Dara Khosrowshahi told UBS analyst Lloyd Walmsley at an investment conference in December 2021: "Nelson (Uber's chief financial officer) and I aim to build a company that can combine top-of-the-line rates with very attractive rates." and continue to improve the profit margin over a period of time."

"You've seen those long-term compounding profits and high profit margins of the giants of the world, like the Googles, Facebooks and Microsofts of the world, and we demand no less from them."

According to the rules of S&P, the member companies of this index must have positive income in the last quarter and in total in the previous four quarters. Each company in this index must have an adjusted market capitalization of at least $14.5 billion.

Uber's market cap is about $118 billion, compared to the average market cap of S&P 500 companies at just over $31 billion.