We want to make sure you’re aware that Uber’s lockup period expires on Wednesday. According to CNBC and MarketWatch, this will cause 763 million shares to become available on 1.7 billion total shares, or roughly $22 billion in shares … that’s a lot of liquidity required for a company that has troubled fundamentals.
I’ve covered Uber extensively since its IPO. I won’t repeat all of the points here but you can find links to the past analysis below.
We’ve seen solid companies like Zoom experience drops after the lockup period. We’ve also seen IPO hype companies like Beyond Meat drop 22%.
We believe Uber will be hit from all sides. Employees are not happy with Uber. There’s been layoffs since the IPO and a change in management, including controversy around the former CEO. Early investors are likely worried about their returns, especially with the heat on WeWork, another one of Softbank’s big bets. The company is at a thresh-hold where early investors can still make a decent gain.
I’m not too concerned with an “earnings beat” as we don’t believe the company will withstand the liquidity on Wednesday. Lyft had an earnings beat and the stock declined the next day (on that note, I’m sure Lyft will be affected by the lockup expiration too).
FactSet analyst estimates are at a loss of 70 cents per share on revenue of $3.63 billion.
Past analysis:
Uber IPO: Record Breaking for all the Wrong Reasons
Uber Q1 Earnings
Uber and Lyft: Unprofitable Powerhouses
Path to Profitability is a Dead End
Technical Analysis
By Knox Ridley
Uber’s price action is not much different from our market update last week. In short, Uber appears to be in a larger degree, 3 move correction – outlined by the purple (A), (B), (C) in the chart. The (A) wave down unfolded in a 5-wave pattern, bottomed in October, and is now correcting upwards in a 3-wave fashion, which is the (B) wave. The micro structure of Uber in its (B) wave does not offer confidence that this is the beginning of a new uptrend, but instead just a short pause.
The red lines indicate the retrace levels of the (A) wave. Uber just barely broke the 23.6% retrace level before turning back towards support. We typically see 3 wave corrective moves operate with symmetry on the larger degree and smaller degree. This will be heavy support, and is also the likely target for the corrective (B) wave just before the final leg down begins. If Uber cannot touch this level, and instead turns down from current levels, I will move my final target down lower.
The red bar across the screen indicates a strong support region for Uber around $31.40-$30.50 This region was defined by 4 daily major volume spikes, indicating institutional money is likely allocating a position, which implies that these levels will be strong zones of support/resistance. The current level is major for Uber, and if it breaks through, expect new lows for Uber and for the final (C) wave down to be in progress.
Our stop for the short position will be at $40.25. The reason for this stop is twofold: (1) it’s just above the 61.8% retrace level indicating strong momentum; (2) it’s just above the $40 price cluster.
This price level marks two of the largest volume spikes in Uber’s daily trading. In other words, it’s likely that “smart” money as well as many other investors got trapped at these levels. If Uber can break through the level of selling that should occur at these levels, it’s a sign of more upside to come.
We have been shorting Uber since its IPO, and are pursuing this set-up.
If you want to wait for confirmation, wait for Uber to break support at $30.50, and place a stop at $31.50. This is a more conservative short. Long-dated puts with a strike price of $30 can also act as conservative insurance for a possible market downturn.