Shares of 2019 IPO Uber May Rebound Sharply Despite Short-Term Headwinds

Uber Technologies Inc. (UBER) has seen its stock fall dramatically as the broader stock market has plunged amid rising coronavirus fears. Since its peak in the middle of February, Uber’s stock has fallen a stunning 35.9% through March 27, versus an S&P 500 decline of 24.3%. It seems fair to say that the stock is likely to face several short-term headwinds. However, some traders are betting that the equity recoups some of those losses by the middle of September…

Despite the optimism from some traders, analysts estimate that losses will widen, and revenue will fall. The company noted on a call with analysts that its rides segment is seeing a 60% to 70% decline in areas hardest hit by the coronavirus, but that other parts of its business were seeing growth, and that the company had enough cash on hand.

Traders Betting on a Rebound

In recent days, traders have been betting that Uber rebounds to as much as $31.25 by options expiration on September 18, a gain of roughly 16.4% from its approximate price of $26.85 on the morning of March 30. The calls at the $26 strike price saw their open interest levels rise by around 3,800 contracts on March 30. According to data from Trade Alert, the calls were bought on the ASK for approximately $5.25 per contract. The total open interest levels now stand at 11,019, an increase from less than 100 open contracts on March 18.

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Cutting Estimates

Despite the optimism from traders, analysts’ have been cutting their revenue estimates and increasing their net loss estimates over the past couple of weeks. Analysts now estimate that the company will have a loss of $1.52 per share in 2020, which is wider than previous estimates for a loss of $1.20 per share on February 25. Meanwhile, revenue estimates have fallen sharply, to $15.75 billion from prior forecasts of $17.9 billion.

Estimates for 2021 have also been on the decline, suggesting the economic slowdown is likely to drag into next year. Revenue estimates have dropped to $20.33 billion from roughly $23.1 billion. Meanwhile, the company is now expected to lose $0.57 per share from a prior forecast for a loss of $0.31 per share.

Technical Weakness

Uber’s technical chart still suggests risks lie ahead, with the potential for the stock to fall by 22%. The equity is currently trading above a level of technical support around $25.35, and if shares should break that level of support, they could fall back to $20. The relative strength index is also trending lower, and that may be the path forward for Uber over the short-term. Meanwhile, the stock does face a strong level of technical resistance around $28.50.

Undoubtedly, Uber is facing…

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