If you were riding with Lyft (NASDAQ:LYFT) stock into earnings, it looked like you were going to get a smooth ride. Lyft reported better than expected numbers, and Lyft’s stock initially went up. The good cheer wasn’t to last, however.
That’s because Lyft’s big rival, Uber (NYSE:UBER) announced seemingly dreadful earnings results, crashing both companies’ parties. UBER stock has continued to skid to new lows, and Lyft’s stock price recently threatened to fall below $50 per share again as well. With both ride-sharing companies swerving lower, is it time to buy either Uber or Lyft stock?
Lyft’s Earnings: Hold the Applause
Lyft’s quarterly earnings report looks great at first glance. On a non-GAAP basis, Lyft only lost 68 cents per share. That was far better than expectations of a $1.74 per share loss. On revenues, the company’s $867 million figure smashed estimates of $809 million.
However, Lyft had offered the street ridiculously low guidance heading into the second quarter. Revenues grew at the same rate in Q2 as they did sequentially in Q1. The big revenue beat came from Lyft and analysts setting a very low bar, not from growth actually speeding up. As it is, losses continue to mount, and not surprisingly, the market sold Lyft stock off after the initial excitement faded.
Lyft and Uber: Comparing Quarterly Results
Like with other metrics, it’s hard to directly compare the quality of Uber and Lyft’s most recent quarters. Uber produced a much more shocking overall net loss than Lyft, and Uber’s stock skidded to the downside as a result.
But when that huge reported net loss was largely a result of outlandishly generous stock compensation for executives, it’s hard to call that a real negative for Uber compared to Lyft. After all, Uber did have a much more successful IPO than Lyft. They IPOed at a higher valuation ratio, and Uber’s stock price didn’t immediately collapse after the initial offering. Lyft stock, as you may remember, tanked from $87 to under $60 within a few weeks after its IPO. So it’s hardly much credit to Lyft to say they had smaller losses because of less shareholder compensation when that is a direct result of the sinking share price.
Ignoring reported net income, the figures look more comparable. Both Uber and Lyft are failing to show any meaningful economies of scale yet. Both are reporting larger and larger EBITDA losses as they grow. Lyft, for example, went from a $190 million EBITDA loss in 2018 to $205 million in EBITDA losses this quarter. Ideally, your EBITDA is supposed to improve as you scale up. But both Lyft and Uber have not turned into anything resembling ideal businesses yet.
Is a Recession Good or Bad for Ride-Sharing?
With all the talk about a recession hitting soon, it’s worth asking what a recession would mean for Uber and Lyft stock. On the one hand, it could be a big plus on the driver costs side. Right now, the labor market is tight. Unemployment is low and businesses are struggling to find new workers. In this environment, Lyft and Uber are having to pay more in subsidies to recruit and keep new drivers. It’s logical to assume that in a recession, a lot of people would lose their jobs and turn to the gig economy to replace lost wages. This should help cost structures for Lyft and Uber.
On the other hand, a recession would clearly hurt the demand side of the picture. For everyday use, you’d see a lot of folks switch back from ride-sharing to mass transit and other alternatives to save money. Also, ride-sharing has seemingly created a lot of new demand where people previously didn’t get transportation at all. In a recession, that sort of fun night out activity gets cut back significantly to pinch pennies.
The Bottom Line on Lyft Stock
Ultimately, at this time, I wouldn’t want to own either Lyft stock or Uber stock. The businesses are both losing tons of money even on an EBITDA basis. Once you add in very real costs such as interest, things look worse. And how’s it going to change in the near term?
Uber and Lyft are locked in a price war in the United States for market share. Since Lyft has relatively little going on internationally or in other adjacent businesses, there’s not much it can do to become profitable while fighting Uber. It’s hard to see a path to meaningful profi unless Lyft either beats Uber out in North America or finds a softer market somewhere else to compete in.
With Uber, some of its other bets, such as international markets, its more robust data and self-driving efforts, or adjacent businesses such as UberEats could take off, even while it is losing money fighting Lyft in the U.S. Is that a good bet? Probably not yet. There’s no sign that Uber’s economic results are anywhere near an inflection point just yet. But at least there is a viable path to profits for Uber.
For Lyft, you have to crush Uber and manage to raise prices — without letting taxis back into the game — before self-driving cars come along and make the current business model obsolete. That’s a tall order for Lyft’s management to pull off.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
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