Uber's Earnings Drop Is Investors Opportunity

Key Points

• Uber shares dropped yesterday following the Company's Q1 earnings report.
• Though they topped expectations on revenue, forward guidance came in light.
• There are several reasons to see this as a golden buying opportunity. 

On a day when the broader market managed to finish flat, if not slightly up, shares of Uber Technologies, Inc. NYSE: UBER dropped more than 5%. It could have been worse, with the ride-sharing Company's stock trading down almost 10% at one point before a late rally. 

The catalyst for the drop was Uber's Q1 earnings report, which managed to top analyst expectations on revenue for the quarter but missed when it came to the crucial forward guidance paragraph. Whereas analysts were looking for full year gross bookings to be forecasted around $40 billion, the midpoint of Uber's $38.75 billion to $40.25 billion was below this. 

Repricing of Uber Shares

While beating the consensus for past quarter performance is important, matching, if not beating, the consensus for performance in the coming quarters is even more so. This is because Wall Street is nothing if not forward-looking and prices a stock largely on the Company's expected growth. 

So when Uber essentially said they expect to close less revenue than previously forecasted, the shares have to be repriced to the downside. Hence the drop. If you're an investor, this will be a tough pill to swallow, especially as it's only a few weeks since Uber was trading at all time highs. 

But the 20% slide since they were set in March now threatens to turn into a proper downtrend. That being said, the second-half rally all through yesterday afternoon was interesting. While the stock still finished down on the day, an optimist might say it closed 4% higher from the low. And if the bears could not take shares down any further, does that mean the bulls are already back in control, and the light guidance has been priced in? 

Considering the Opportunity in Uber

Watching how Uber shares trade through Thursday and into the weekend will be interesting. Any further momentum on the bid is likely to confirm that a recovery rally is in the works. Don't forget that Uber's revenue print for Q1 was the highest ever, while the Company's EBITDA jumped more than 80% year on year. 

Perhaps even more importantly, a host of analysts reiterated their Buy rating on Uber shares in the aftermath of yesterday's report. Take Wedbush, for example, who did just that. Needham & Company, too, gave Uber shares a fresh price target of $90. 

From the $66 that Uber closed at on Wednesday evening, that's pointing to a targeted upside of some 35%. If shares hit that in the coming weeks, it would also mean they'd be at a fresh all-time high and well above March's peak.

Getting Involved in Uber Stock 

For those of us considering buying into this view, watch for shares to trade above yesterday's low of $64 and see if they can start to consolidate. That might mean some sideways action, but the more we see of that, the more it will suggest that the bears cannot take shares any lower as there are simply too many buyers willing to step in. 

Eventually, they'll be forced to give in, yesterday's gap down will be closed, and the recovery rally that the likes of Needham are expecting will be able to materialize. It's worth noting that much of Uber's drop in the past two months coincided with the broader market dip, so with the major indices starting to recover this week, it could be perfect timing for Uber also to kick off a fresh recovery rally of its own.