Uber Technologies, Inc. (UBER) in the news Monday, confirming the dismissal of 3,000 employees as a result of “economic challenges and the uncertainty” resulting from the COVID-19 pandemic. The news follows a May 6, announcement that 3,700 positions in customer support and recruitment would also be eliminated. Taken together with the end of some non-core investments, the company is building a stronger balance sheet in case things get worse in the coming months.
The cuts could be a blessing in disguise for shareholders, because the car sharing company will now focus more on the core activities, including UberEats. He just took an aggressive position with the tower sharing and delivery operations, announcing that the drivers and guests must wear masks. The current effort to acquire Grubhub Inc. (GRUB) also follows this theme, raising expectations for more pro-active moves in the coming weeks.
Similarly, the nascent industry faces increasing challenges. California has just sued Uber and rival Lyft, Inc. (LYFT), emphasizing the fact that drivers are employees, not independent contractors. The stakes are high due to the additional costs for benefits and salaries that could make the difference between profitability and bankruptcy. The City of New York has imposed a 20% cap on the costs of delivery at the same time, and other municipalities are likely to follow.
Uber–Grubhub merger talks highlight the need for the consolidation of the industry because the delivery landscape is now filled with competitors. Clearly, not all will survive in the coming months, especially after the Americans and the Europeans back in the restaurants in large numbers. However, the UNITED states government is not to make the effort easier, with the members of the Senate already complaints about the possibility of a merger.
UBER Daily Chart (2019 – 2020)
Uber came public to great fanfare in May 2019, the opening at $42.00 and settle in a trading range between $36 and$ 45. At the end of June breakout posted a record high of $47.08 in the same session before you turn tail and come back into the range. The stock sold through the medium of the range in August, entering a downward trend carved a series of lower lows and lower highs in November 2019 down to $25.58.
A resumption of the wave in February 2020 stalled at the .786 Fibonacci sell-off of the retracement level and the IPO opening of the printing, the display of a low-high, followed by a vertical plunge over the course of the pandemic panic. The drop has broken the November low, March 12, before coming to rest at an all-time low just below $14. The stock climbed the broken support near the end of the month and has continued to gain ground, up to 200 days exponential moving average (EMA) resistance at the end of the month of April.
This week’s layoff news triggered a buying spike above the moving average, but the lack of progress raises the chances of a failure of the escape. The after-news rise has also reached the .786 rally retracement before reversing in the vicinity, waving a red flag that also brings the rally of the sustainability in question. The first downside target if the stock breaks the new support is found in the book May 7, gap between $28 and $29.50.
The balance volume (OBV), the accumulation-distribution indicator posted a record level in February and entered an aggressive phase of distribution, falling to a four-month low during the sale. The buying pressure since that time has been impressive, lifting OBV a stone’s throw of the front edge. This accumulation should mitigate the downward pressure for a certain distance, with a good rating for a lower-level or above of$25.
The Bottom Line
Uber has nearly doubled the number of planned layoffs this week, highlighting continued financial problems in the wake of the pandemic. However, this aggressive action could benefit shareholders in the long term, forcing the travel company to focus on the main objectives of the company.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.