Buy Uber because it will be a leader in the coming 'offline era,' Raymond James says

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Dara Khosrowshahi, chief executive officer of Uber Technologies Inc., speaks on a webcast during the company’s initial public offering (IPO) on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, May 10, 2019.

Michael Nagle | Bloomberg | Getty Images

Uber is strongly positioned for the coming “offline era” of Internet, according to Raymond James.

With 93 million monthly active platform customers globally using Uber’s “offline app” for transportation and food delivery, Raymond James says 25% revenue growth over the next five years is attainable for the ride-hailing company.

“In contrast to traditional Internet companies, Uber is a digital app powering offline behavior. This elevates cost in the early years, but arguably creates a more defensible long-term position,” said Raymond James’ Justin Patterson in a note to clients Wednesday.

Investor’s biggest concern since Uber’s initial public offering last month is its path to profitability. Patterson recognizes the company’s shares have been pressured on these “reasonable concerns.” However, internet businesses are increasingly shifting to offline from online and Uber has capitalized on that early, which creates a better long term strategy, he said.

Patterson said Uber’s end market penetration is less than 1% globally.

“Considering Amazon and Booking sustained 20%+ growth in markets that were more penetrated, we see ample room for outsized growth, ” he said.

With market share across transportation, delivery, and freight, Patterson said he expects growth to accelerate and competition to “rationalize” over the next 12 months. Investors currently consider the ride-hailing industry to be a duopoly with rival Lyft.

Raymond James initiated coverage of the stock with an Outperform rating and a target price of $50.

Uber’s stock is down about 5% since its market debut at the New York Stock Exchange last month. The stock has rallied over 5% since the start of June.

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