As Uber earnings approach, this analyst just turned bullish on the stock

By Emily Bary

KeyBanc likes Uber's opportunities in advertising

As Uber Technologies Inc. prepares to report earnings next week, KeyBanc Capital Markets analyst Justin Patterson is taking a rosier view of its stock.

He upgraded Uber shares (UBER) to overweight from sector-weight late Thursday, writing that he expects continued improvement in the company's financials and that he's upbeat about the company's opportunities in advertising.

"Uber is positioned to benefit from the sector growth of retail media with its emerging advertising business, which is margin accretive," Patterson wrote. The advertising business also affords Uber more options for its ride business, in his view, serving as a cushion that allows the company to keep ride-hailing prices lower in a benefit to volumes.

See also: An Uber in the making? Here's how Instacart's stock could see better days ahead.

Patterson anticipates that Uber will see stable margin improvement into 2024, and he also thinks the stock's valuation can head higher, as Airbnb trades at a higher multiple of enterprise value to 2025 estimated adjusted earnings before interest, taxes, depreciation and amortization, despite slower growth for the alternative-accommodations platform.

Uber shares were up 1.5% in morning trading Friday. The company is due to report results Tuesday morning.

Patterson is less upbeat about shares of Lyft Inc. (LYFT), which he continues to rate at sector-weight. He'd like more clarity about the impact of insurance on Lyft's financial model, and he's also looking for "signs of durable volume growth."

"Lyft typically goes through insurance renewals at the start of October, so management should have more to say on its cost outlook," Patterson wrote ahead of Lyft's Wednesday afternoon report.

Don't miss: Lyft could soon give investors more transparency. That may not be a good thing.

While Patterson likes Uber's margin-improvement story, he's not as confident about Lyft's ability to drive the same traction. "Although we expect material cost savings from the headcount reduction and shift away from less profitable revenue streams, we believe near-term margin improvement remains muted," he wrote.

Even so, the 3.5% Friday morning gain in Lyft shares was outpacing that for Uber's stock.

Read: Lyft CEO buys up over $1 million in stock, calling it 'the best investment I could make'

Uber shares are up 92% so far this year, while Lyft's stock is down 6%.

-Emily Bary

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11-03-23 0957ET

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