Uber’s investment in Didi could help unlock 40% upside potential in the US ride hailing giant’s stock, Bank of America says

Uber
  • The IPO of Chinese ride-hailing company Didi could help unlock value for shares of Uber, according to Bank of America.
  • Uber owns a 12% stake in Didi, which hit a valuation of about $80 billion on its first day of trading on Wednesday.
  • BofA’s $71 price target for Uber represents potential upside of 40% from Thursday’s close.
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The recent IPO of Chinese ride-hailing giant Didi could help unlock value in shares of Uber, Bank of America said in a note on Friday.

The bank argued that Uber’s 2016 investment in Didi is now worth almost $10 billion. Uber owns about 12% of Didi, which touched a valuation of nearly $80 billion in its first day of trading on Wednesday. Uber had most recently pegged the value of its Didi stake at $5.9 billion, meaning there is upside to Uber’s assigned asset value that could help boost the stock price.

“Based on 1.9 billion shares outstanding for Uber, we estimate that translates to an incremental ~$2 per share in equity value for Uber,” BofA explained.

The bank rates Uber at a “Buy” and has a $71 price target, representing potential upside of 40% from Thursday’s close. And there’s even further room higher based on a sum-of-the-parts valuation, in which the BofA assigns a $90 per share value for Uber. A move to $90 would represent potential upside of 78%.

Despite BofA’s bullish outlook for Uber, the stock has considerably underperformed its peers like Lyft and DoorDash year-to-date. Shares of Uber are down 1% year-to-date, while Lyft and DoorDash are up about 27% and 26%, respectively.

The bank highlighted four overhangs the stock is currently facing, including a large seller of Uber stock in June that may have impacted supply and demand dynamics, Uber’s guidance suggesting bigger driver incentives, Uber’s international exposure, and a larger-than-expected UK driver settlement amount.

“While it’s hard to say if any one of these issues is the core drive for Uber’s relative underperformance, we reiterate our Buy rating as we think some of the overhang could clear in 3Q with further reopening and vaccination progress,” BofA said.

The bank expects Uber to reach breakeven profitability by the end of the year.

Read more: Bank of America names 5 semiconductor stocks to buy for the 2nd half of 2021 – and breaks down why each has ‘catch-up potential’ after lagging since January

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Uber drops 2% after the UK Supreme Court rules that its drivers are employees, not contractors

Uber London - Black cab taxi protest
A black-cab driver waves a Union Jack flag whilst standing on a taxi on London Bridge, during a protest against TfL and Uber.

  • Uber fell as much as 2% on Friday after the UK Supreme Court ruled that its drivers are employees rather than contractors.
  • The ruling entitles Uber drivers to basic worker rights such as holiday pay and a minimum wage.
  • Uber has been fighting this legal battle in the UK since 2016, when two ex-Uber drivers filed a lawsuit against the company.
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Uber fell as much as 2% on Friday after the UK Supreme Court ruled that drivers of the ride hailing app are employees, not independent contractors.

The ruling was a blow to Uber, which has been fighting the lawsuit since 2016, when two ex-Uber drivers filed the lawsuit against the company.

The decision from the UK’s highest court entitles Uber drivers to basic worker right like holiday pay and a minimum wage. The UK represents Uber’s largest European market, with more than 40,000 drivers. 

The dispute will now go to a tribunal, which will determine how much the 25 drivers who led the case against Uber will be awarded. 

The ruling could have wide ramifications for workers and companies within the gig economy across Europe. Uber recently won a similar battle in California last year with the Prop 22 ballot initiative.

Wedbush analyst Dan Ives believes the UK ruling “revives a nightmare for Uber,” according to a Friday note. 

“This case could set a precedent for other workers and companies in the gig economy throughout the UK and Europe which would be a body blow to the overall ecosystem,” Ives said. 

Uber could be more prepared to handle the UK ruling after it implemented different strategies during the Prop 22 fight in California, like allowing drivers to choose which riders to accept and set their own rates, Ives said. 

The negative development isn’t shaking Ives bullish Outperform rating on Uber. Ives reiterated his $76 price target on the stock, representing potential upside of 29%.

Uber has “cleared many challenges and hurdles over the past 18 months and now is in a position of strength heading into a ‘reopening dynamic’ over the next 6 to 9 months,” Ives said, adding that the UK ruling is a “contained risk.”

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Uber jumps 7% after it agrees to buy alcohol-delivery service Drizly for $1.1 billion

GettyImages 521358370
  • Uber rose 7% on Tuesday after the company said it agreed to buy alcohol-service Drizly for $1 billion.
  • The “Amazon for liquor” will become a wholly owned subsidiary under Uber once the deal goes through.
  • Drizly’s marketplace will eventually be integrated with the Uber Eats app, the companies said.
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Uber rose 7% on Tuesday after the company announced a $1.1 billion deal to buy alcohol-delivery service, Drizly. 

Upon completion of the deal, Drizly will become a wholly owned subsidiary of ride-hailing app Uber. In due course, its marketplace will be combined with the Uber Eats app, while it continues to keep its own standalone app, the companies announced.

The cash-and-stock deal is expected to close in the first half of 2021.

Drizly, sometimes referred to as the “Amazon for liquor,” was founded in 2012 when the founders realized alcohol delivery was legal. According to the company, its journey began with a simple text from one friend to another:”Why can’t you get alcohol delivered?” It caters to 1,400 cities in the US and has become a leading online marketplace for alcohol in North America.

Read More: Bank of America lays out how Biden’s economic agenda could shake up the stock market’s biggest winners – and shares 3 trades to take advantage of this shift

“Wherever you want to go and whatever you need to get, our goal at Uber is to make people’s lives a little bit easier,” Uber CEO Dara Khosrowshahi said in a statement. “That’s why we’ve been branching into new categories like groceries, prescriptions and, now, alcohol.”

Uber said it expects over 90% of the consideration to be paid to shareholders in Drizly to consist of shares of Uber common stock, while the balance will be paid in cash. 

Uber’s stock was trading around $56.30 at the market open on Tuesday.

Read More: Buy these 4 stocks poised benefit from a spike in silver prices, says RBC Capital Markets – including 2 set to soar 73%

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