Uber Technologies, Inc. (UBER) is trading lower by more than 3% in Friday's pre-market after reporting a greater-than-expected second quarter 2020 loss of $1.02 per share. Revenue fell 29% year over year to $2.24 billion, slightly beating the $2.18 billion consensus, underpinned by a 113% rise in delivery services. However, core ride-share income fell a staggering 56% year over year, highlighting consumer caution that could persist until the pandemic runs its course.

Key Takeaways

  • Uber reported a greater-than-expected second quarter 2020 loss.
  • Aggressive growth in delivery services partially offset bearish ride-share numbers.
  • The ride-share industry faces a major threat from a new California law.

Uber and rival Lyft, Inc. (LYFT) are defending a lawsuit filed by the California Labor Commissioner's Office seeking to enforce a new law designating drivers as employees rather than independent contractors. The stakes are high, with the ride-share business model dependent upon continued independent contractor status. Uber is seeking diversification to lower risk, highlighted by the July acquisition of Postmates in a transaction expected to close in 2021.

The term business model refers to a company's plan for making a profit. It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses. Business models are important for both new and established businesses.

Chart showing the share price performance of Uber Technologies, Inc. (UBER)
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Uber came public at $42.00 in May 2019 and entered a brief uptrend that posted an all-time high at $47.08 in June. The subsequent downturn cut through the IPO opening print in August, initiating a downtrend that found support in the mid-$20s in November. Buyers took control into 2020, but the upside stalled at new resistance, carving a lower high, ahead of a pandemic swoon that broke 2019 support in March.

A bounce into the second quarter remounted broken support in the mid-$20s, setting a trading floor that might get tested in coming months. The stock posted a three-month high above the .786 Fibonacci selloff retracement level in June and eased into a rectangular consolidation at the narrowly aligned 50- and 200-day exponential moving averages (EMAs). Friday's reversal at range resistance raises the odds for selling pressure into range support near $30.

The on-balance volume (OBV) accumulation-distribution indicator hit a new high in February and rolled into a distribution wave that ended at the 2019 low in March. Healthy buying pressure reached the prior high in June, ahead of a holding pattern into this week's confessional. OBV has now completed a cup and handle pattern, with accumulation above the red line supporting a price surge into the upper $30s or low $40s.

A cup and handle pattern on a security's price chart is a technical indicator that resembles a cup with a handle, where the cup is in the shape of a "u" and the handle has a slight downward drift. The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume.

Chart showing the share price performance of Lyft, Inc. (LYFT)
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Lyft reports earnings on Aug. 12, with analysts expecting a loss of $0.97 per share on $338.75 million in second quarter 2020 revenue. The company came public at $87.24 in March 2019 and posted an all-time high at $88.60 in that session, ahead of a steep decline that found support in the mid-$30s in October. A shallow advance into 2020 got sold aggressively in February 2020, yielding a breakdown that posted an all-time low at $14.56 in March.

The second quarter uptick reversed at broken support in June, reinforcing resistance in the mid-$30s, ahead of aggressive selling pressure that eased in the upper $20s in July. The stock has built a small base at that price level and could break down on high volume if the ride-share company reports a greater-than-expected loss. Ominously, accumulation readings are much worse than those of its rival and could easy descend to the March low after negative catalysts.

The Bottom Line

Uber's mixed second quarter metrics could put pressure on rival Lyft ahead of next week's earnings report. 

Disclosure: At the time of publication, the author held Uber shares in a family account but no positions in the other aforementioned securities.