September 17, 2024
Trade Idea: UBER $71.52 (Uber Technologies)
Buy November 15th $75 Calls for $3.70
After a massive run up to the $82-high in the beginning of the year, UBER fell into a bit of a funk. The stock has been underperfoming the QQQ by almost 20%.
The main reason was TSLA’s announcement of a ride-sharing app back in April. And sure, that is a risk, but if successful, this market will be huge.
UBER CEO Dara Khosrowshahi said it best at the recent GS conference: “It's not going to be a winner take all market.” His interview is a great read.
UBER Economics
Where we are right now, UBER is winning in a big way.
The company’s metrics point to a growing and expanding business, with increasing margins, a growing membership program, increasing free cash flow, a $1Bn/yr ad business with huge potential, and a focus on buybacks.
All good.
Their forward P/E is about 31, which might be a touch high, except for the growth UBER is showing. The PEG (P/E to Growth rate) is 0.66, which is very low.
The stock is “cheap,” except for that pesky TSLA announcement and upcoming event.
October 10th
The Tesla Robo-taxi event is on October 10th.
Will Musk deliver?
Will TSLA’s effort in the ride-sharing space along with his app be an existential threat to UBER?
I doubt it.
I do believe IF the autonomous market gets here quickly there will be multiple players in a huge market vying for position.
UBER has a unique position of providing the software and not competing on the car.
Is GM going to sign up with their car competitor Tesla?
Probably not.
UBER is the choice right now for everyone because they have 20 years behind them with billions of dollars invested in building the best ride-sharing app.
That said, the market is fickle.
As a competitor, Tesla can be scary.
But that fear is already priced into UBER’s stock. It’s the reason why UBER has underperformed. Without the TSLA announcement, I think UBER is pushing $100 by now.
The Trade
Over the last month ahead of this Tesla event, October 18th options have been active. It appears someone is long 15,000 x 20,000 UBER $72.50 - $77.50 Call Spreads. And also long 9,000 UBER $80-$85 Call Spreads.
In addition, someone has accumulated 10,000 UBER November $75 Calls for around $3.70.
One look at the chart shows you that this last sharp dip got the “weak hands” out. The volume was not significant, and the stock bounced right back. This indicates long-term institutional buyers see value.
UBER earnings are expected in early-November.
I like the UBER November 15th $75 Calls for $3.70. The Target Stock Price is $87.
Another way to play this is a half position in some UBER October 18th $72.50 - $77.50 Call spreads for $1.75 to watch the Tesla event.
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