Uber (NYSE:UBER) vs. Lyft (NASDAQ:LYFT). Which is the better buy? It’s a question that lots of investors are asking themselves these days. I asked myself that very same question back in April just before Uber stock went public and soon after Lyft’s March 28 IPO.
I recommended investors avoid the stocks of both ridesharing apps because the pathway to profitability was extremely uncertain.
After Uber’s latest Q2 2019 earnings report, where the issue of it accepting cash in some parts of the world came up, it seems possible that Uber may never become profitable.
Does Uber accepting cash in some parts of the world worry you? It should. Here’s why.
Brazil, Cash and Uber Stock
Props go out to MarketWatch’s Francine McKenna for writing about this subject August 19. Without her article, I’m not sure I would have taken a look at this angle of Uber’s business.
It turns out that 13% of the company’s global gross bookings in 2018 were cash-paid trips (you can find the note on page 73 of its 10-Q in the section discussing how some consumers pay for rides and meal deliveries using cash) and that amount could increase in the future, especially where Careem operates, the Dubai-based ridesharing company it acquired at the end of March for $3.1 billion.
I don’t know about you, but one of the selling features about apps like Uber and Lyft is that there’s no cash involved. If you’re a criminal, you’re not going to rob a driver if you know he’s not carrying a big wad of cash from customer fares.
Now, it seems as though the Uber is willing to sacrifice driver and passenger safety to attract more business, to heck with the consequences.
What’s Brazil got to do with this discussion?
Brazil accounted for approximately 10.4% of Uber’s $5.4 billion in revenue in the first six months of fiscal 2018. Sao Paulo, Los Angeles, New York, San Francisco, and London, accounted for 24% of the ridesharing apps gross bookings in 2018. Without Sao Paulo, Uber isn’t nearly as successful a global business.
Brazil also happens to be one of the areas where Uber allows drivers to take cash — India and Mexico are two other countries accepting cash — which creates several regulatory, operational, and safety concerns (I already mentioned these).
Also, Brazil’s volatile currency makes the operational nightmare of collecting cash hardly worth it. That’s especially true when Uber is losing $878 million per quarter.
If I’m considering the risks of using cash in Brazil, that alone would make me think twice about buying Uber stock.
After all, the beauty of Uber has always been the technology and how clean it made the pick-up, drop off, and fare and tip payment. Cash throws that simplicity out the window.
The Bottom Line on Uber Stock
According to McKenna’s article, the Uber app won’t allow you to order a car from certain areas in Sao Paulo at certain times on certain days to protect users against potential safety challenges.
However, by allowing drivers and passengers to interact using cash, Uber is potentially providing a way for itself and its drivers to avoid paying taxes.
When you’re talking about a company that’s expected to lose billions in 2019, I can find no reason why accepting cash would be good for the long-term health of Uber stock.
Aren’t we becoming a cashless society?
Uber, desperate for revenue, is taking itself back into the stone age. That’s not the kind of innovation investors ought to be excited about.
For this reason, as they say on Shark Tank, I’m out.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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