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San Francisco-basedUber Technologies (UBER) is the dominant ride-sharing company in North America and internationally. Uber has expanded its business into Canada, Latin America, Europe, the Middle East, and Asia (ex-China). Through its mobile application and vast network of drivers, Uber offers various services to customers based on details like the number of riders, vehicle style, and pets. In addition, Uber has diversified into the delivery business. The company faces some bad news and goods news ahead of reporting earnings on May 7:
The Bad: FTC Sues Uber, Claims Deceptive Billing Practices
Last week, the U.S. Federal Trade Commission (FTC) sued Uber, alleging deceptive billing practices for the company’s “Uber One” subscription. The FTC lawsuit claims that customers were promised savings when they signed up but were not granted it. In addition, Trump’s FTC alleges that the company makes it too difficult for customers to cancel subscriptions.
Though the news was undoubtedly bearish, I am reminded of legendary billionaire Stanley Druckenmiller’s “price action versus news” mentality. Druckenmiller teaches us that how a stock reacts to a headline supersedes the headline itself. In Uber’s case, the stock pared losses on the day of the FTC news, held the 200-day moving average, and only fell about 3% - exhibiting resilience.
The Good: Uber & Volkswagen Launch Strategic Partnership
Last week’s FTC news was quickly negated by a new partnership announcement with German car manufacturer Volkswagen (VWAGY). Next year, Volkswagen will begin testing autonomous robotaxi vans in Los Angeles, leveraging the UBER app to onboard customers and manage the fleet. Having managed a ride-hailing service for years in Hamburg, Germany, the automaker can work with Uber to leverage its experience.
Waymo & Uber Extend Robotaxi Partnership
With more than 250,000 paid weekly rides, Alphabet’s (GOOGL) Waymo is by far the current undisputed leader in the autonomous ride-hailing market. In the past, UBER partnered with Waymo to allow customers to book through the Uber app, maintaining the familiar Uber experience. Recently, the two companies announced an expanded partnership where ride-hailing customers will be able to book rides in Austin and Atlanta. In reaction to the news, the UBER CEO said, “We’re thrilled to build on our successful partnership with Waymo, which has already powered fully autonomous trips for tens of thousands of riders in Phoenix.”
Uber: Unusual Bullish Options Activity
Last week, a deep-pocketed options player bought over $70,000 worth of far out-of-the-money July $110 UBER call options. The bet is aggressive because the stock is trading ~$78. My guess is that the buyer of these calls is betting on an even more expanded partnership with Alphabet’s Waymo or potentially a buyout. While speculation on my part, a buyout would make sense for Google. Google is flush with cash, and buying Uber would allow the company to vertically integrate, cut costs, and gain access to millions of international ride-share customers.