Uber Hits an All-Time Low: Are More Cuts Needed?

Uber Technologies (UBER) stock hit a new all-time low yesterday. It slid another 6.8% to close at $33.96. The company debuted on the public market through an IPO at $45 per share in May. Yesterday’s closing price indicates a decline of 24% for the stock since its IPO. In contrast, the S&P 500 (SPY) and the Nasdaq Composite (QQQ) have returned -1.4% and -1.2%, respectively, in the same period.

Most of the fall in the stock came after it reported its second-quarter results on August 8. The results were disappointing. It reported lower sales growth in the second quarter than in the first quarter. Moreover, its adjusted net EPS of -$4.72 were much worse than the market’s estimate of -$3.12. After the release of its results, the stock continued to drop for the fourth straight session. Its losses piled on at 21%.

Ride-sharing rival Lyft (LYFT) fared better in terms of its second-quarter results. However, even its stock isn’t doing well. Lyft is down 21% since it debuted on the market in March.

“Once-in-a-lifetime hit”

During an interview with CNBC, Uber’s CEO, Dara Khosrowshahi, characterized the quarterly loss as a “once-in-a-lifetime hit.” However, investors remain skeptical about the company’s plan to achieve profitability. Other issues are also dealing blows to the company’s plans to turn profitable. These issues include slowing growth in the ride-sharing business, regulatory issues, and rising competition,

Uber’s hiring freeze

Yahoo Finance reported that on August 9, Uber imposed a hiring freeze on tech talent. The company later confirmed to Bloomberg that it was pausing the hiring of engineers and product managers. The move didn’t go over well with investors.

Cost-cutting measures

On August 13, Crunchbase News reported that Uber’s CFO, Nelson Chai, sent an email to all the company’s employees announcing a policy change. The change stipulated that instead of marking employees’ anniversaries in the company with helium balloons, it would start giving out stickers. This move, the email specified, would save $200,000 at its office in San Fransisco alone. Chai’s message read, “It’s not only a great way to find dollars we can invest back into the business, it’s also more environmentally friendly.”

While this is just one of the ways in which the company is cutting costs, it will need to do a lot more to come out of its spiraling losses and into profitability. Many market observers didn’t take kindly to the fact that the company had spent such a huge amount on balloons when it was running up billions of dollars’ worth of losses.

Analyst sentiment for Uber

During an interview with CNBC, Khosrowshahi mentioned that 2019 would be the company’s “peak investment year.” He also stated that the losses should come down in 2020 and 2021. The analyst sentiment for the stock remains fairly bullish. A total of 62% of the 34 analysts covering it recommend “buys,” and 35% recommend “holds.” Analysts’ average target price of $52 implies a potential upside of 53% based on the stock’s current market price.

Investors need more clarity on the company’s future path—including forward-looking guidance and an articulate plan to turn profitable—to turn more positive on its stock.