Uber's Real Threat Isn't From Robots

Dow Jones11-05

Uber has been on a particularly wild ride over the past month. Tesla's much-hyped " Robotaxi Day" on Oct. 10 turned out to be a bit of a bust for its investors given the canned demos and lack of details about the company's plans. But that turned out well for Uber: Its stock had been under pressure for much of the year because of worries about the prospect of Tesla launching a fleet of self-driving cabs and a network to run them on. The ride-hailing pioneer's stock jumped nearly 11% the day after the event.

Tesla's third-quarter earnings call two weeks later seemed to revive those fears, though, as Elon Musk said the company plans to roll out a ride-hailing service in California and Texas next year. Mid-October also brought a report from the Financial Times that Uber was considering an acquisition of Expedia, the online travel marketplace valued at the time at just under $20 billion.

And then came Uber's own third-quarter report last week, which included disappointing growth in its gross bookings and a projection for a further slowdown in the fourth quarter. In a twist the night before, DoorDash announced a deal to add Lyft services to its DashPass membership program -- basically a team-up of Uber's two largest rivals in the U.S. market.

Uber's stock has shed about 15% from its high point after the Tesla event, with last week's earnings report sparking the stock's single worst day in two years. That has put the shares back where they started a month ago, merely in line with the S&P 500's performance and just behind that of the Nasdaq Composite for the year. The stock has badly trailed delivery rivals DoorDash and Instacart. (The latter trades under the name Maplebear.)

"There's always a wall of worry," wrote Bernstein analyst Nikhil Devnani in a report on Uber after last week's results.

Wall Street isn't panicking, though; 85% of analysts covering the stock rate Uber as a "buy," according to FactSet. Rising insurance costs played a role in the weaker bookings as prices for Uber rides rose to compensate and sparked, in the words of Chief Executive Dara Khosrowshahi, "kind of the typical elasticity from consumers" who ride a bit less when prices go up.

The partnership between DoorDash and Lyft will likely make the DashPass membership program more competitive with Uber One, though analysts are mixed on the ultimate impact. Devnani of Bernstein called the deal "a negative for Uber in our minds, as it creates a more competitive end-market and undercuts Uber's 'unique content' " offered under Uber One. Shweta Khajuria of Wolfe Research doesn't see a major impact on Uber, though. "If you're a DashPass member, you probably don't have Uber One," she said in an interview.

And the risk from Tesla's theoretical robotaxi fleet remains as it was: nothing much. A lot remains to be seen about the electric-vehicle maker's ability to complete and truly deliver self-driving technology. Meanwhile, Uber's new partner Waymo keeps gaining traction. The robotaxi operator owned by Google parent Alphabet has managed to improve the wait times for its cars enough to close the gap with Uber and Lyft in San Francisco, according to a report by Evercore ISI on Monday. Uber and Waymo will launch their first joint service in the Atlanta and Austin, Texas, markets next year.

"We still believe there will be multiple AV Winners -- including both Waymo and Uber -- with Uber serving as the leading demand aggregator for AVs," wrote Evercore analyst Mark Mahaney, referring to autonomous vehicles. Uber is now trading at less than 33 times forward earnings -- a record-low multiple that is a fraction of what Tesla now commands, according to FactSet.

The smart autonomous-car trade might not be investing in the companies that make them.

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