Uber Technologies (NYSE: UBER) might be a “once in a generation” company, but that doesn’t make it a buy.
That’s according to Susquehanna Financial Group analyst Shyam Patil, who wrote in a note to clients this week that the stock is already fairly priced.
“We agree that UBER is a once in a generation company with a massive opportunity to revolutionize transportation and logistics,” Patil wrote in the note. “Slowing growth, however, creates uncertainty around future trajectory.”
The digital ride hailing pioneer went public on May 10 in the most hotly anticipated IPO of the year, not long after the IPO of its rival Lyft (NASDAQ: LYFT) which has seen its shares fall around 30% since its public debut.
For Uber, investors are largely concerned about the company’s growth trajectory, especially if and when the company finally becomes profitable. For both Uber and Lyft, the paths to profitability are higher prices and lower driver payments, which will likely cut into sales.
Patil is less concerned about the lack of profitability with Uber, given the growth stage of the company. Susquehanna anticipates that the company will become EBITDA positive in 2023, though Patil wrote that he is concerned that growth has slowed “meaningfully over the past several quarters.”
“Bookings growth has slowed from the high 50s% y/y in 1Q18 to mid 30s% y/y in 1Q19, while adjusted revenue growth has slowed even more drastically from 85% to 14% over the same period,” Patil wrote.
“Law of large numbers have certainly impacted growth,” Patil wrote, adding that he is “surprised by the recent trends given the sheer size of the addressable market.” This prompted Susquehanna to give the stock a neutral rating and a 12-month price target of $42 per share, just above where the stock closed on Thursday.
He added that the “financial complexity, limited disclosures on KPIs [key performance indicators] for the core business and difficulty in finding comparable likely affect valuation.” Thus, the current valuation captures most of the near-to intermediate-term upside.
Patil’s view of Uber is in stark contrast to Wedbush Securities’ Dan Ives’ opinion, who is bullish on the stock.
Ives believes Uber can capture a large chunk of the growing ride-sharing market, although he says its currently onerous cost structure will eventually have to abate for the company to turn a profit. Ives rates the stock a buy and set a price target of $65—the highest price target of the 6 analysts covering the stock—suggesting possible upside of 60.6% over the next twelve months.