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Why Uber Stock Tumbled 51% in the First Half of the Year

What happened

Uber Technologies (NYSE: UBER) was one of many unprofitable growth stocks to take a sharp dive this year. Though the company's results weren't bad as it benefited from the economic reopening, Uber has historically operated at a deep loss, and market sentiment has shifted against the "market share first, profits later" business strategy. Uber has responded to investor demand by scaling back spending and issuing a hiring freeze, but the stock market sell-off has nonetheless hit it hard.

The ridesharing giant has also struggled with labor shortages as riders have complained of rising prices, calling into question the durability of the app-based business model.

According to data from S&P Global Market Intelligence, the stock fell 51% in the first half of 2022. As you can see from the chart below, the stock fell consistently over the year, falling faster than the S&P 500.

UBER data by YCharts.

So what

Unlike most tech stocks, Uber struggled through most of the pandemic as its mobility business -- what it calls ride-hailing --declined sharply due to social distancing rules, a slowdown in travel, and the rise of remote work.

However, with normal social, travel, and work patterns returning, Uber's mobility business is on the mend. Gross bookings jumped 51% in the fourth quarter of 2021 to $25.9 billion, which drove an 83% increase in revenue to $5.8 billion with the help of its acquisition of Transplace. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also flipped into positive territory at $86 million, though adjusted net loss remained negative. However, the stock fell 6% on the news as Uber's guidance called for a slight sequential decline in gross bookings.

The stock fell again on its first-quarter report even though it topped its own guidance. Gross bookings increased 35% to $26.4 billion and adjusted EBITDA rose to $168 million. Free cash flow improved but was still negative at -$47 million. Guidance for the second quarter indicated continued improvement in EBITDA and 12% sequential growth in gross bookings. The stock continued to decline over the following days as the Federal Reserve raised interest rates, and Uber later said it would cut back on spending and freeze hiring.

Now what

Uber is making progress on profitability, but the adjusted EBITDA numbers are helped by more than $1 billion in annual stock-based compensation, which is diluting shareholders.

Uber is also losing money on its stakes in fellow ride-hailing businesses like Didi and Grab as investors have grown skeptical of the whole ride-sharing industry. While the adjusted EBITDA improvements are encouraging, investors should want to see them come without so much share dilution.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Grab Holdings Limited. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.


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