Earnings season is winding down with only a few key names left to look out for. The newly public ride-sharing firms are on deck and ready to prove to investors that profitability is possible. Lyft LYFT just released its Q2 earnings report after the bell and investors were elated with the stock initially surging over 11% in after-hours trading then settled back down.
Uber UBER is set to report its earnings Thursday, July 8th after the bell, and the pressure is on. Analysts are predicting an EPS of (-$3.33) on revenues of $3.4 billion, which would represent 53% topline growth. Lyft’s positive Q2 results boosted UBER 3% in after-hours trading as investors’ earnings sentiment turns optimistic.
Uber analysts are expecting Uber to see a long-term sustainable topline growth of 25% annually as the company expands its reach across the world. Uber is still in the early stages of growth that analysts believe will continue as a global consumer shift towards ride-sharing ensues. The negative EBITDA margins are expected to improve as economies of scale are realized until operational profitability is achieved.
Below is a comparable performance chart since both LYFT and UBER went public earlier this year (not including after-hours trading today).
Lyft Q2 Earnings Review
Lyft beat both EPS and sales estimates by a mile, illustrating 72% year-over-year revenue growth. Lyft was able to improve their margins significantly from (38%) to (24%), which shattered analysts’ expectations of (34%).
Management is boosting full-year revenue guidance by over 6% from the prior quarter as well as reducing 2019 expected EBITDA deficit by 28%. Below is Lyft’s management guidance from their Q2 report.
Both Uber and Lyft went public at a massive bottom-line deficit and no profits in sight. There are a few problems with pricing these types of unicorn investments, one being that profits are not in the foreseeable future for either of these firms. The other issue is that there are no comparable firms that investors can use as a benchmark. In other words, the ambiguous nature of valuing these firms makes them more or less a crapshoot.
Analysts and I have no idea when Uber & Lyft will turn a profit or if it is even possible with current operations. The competition within the space is steep with the largest players being Lyft and Uber, but even smaller players are entering the market like Via and Juno, who both only operate in a limited number of cities.
There may be only one winner in the ride-hailing application battle, and it’s going to be the one that can sustain losses for the longest. As of now, Uber has significantly more capital than Lyft and has a seemingly endless line of credit. At this rate, Uber will be able to outlast Lyft if it’s a race to the end of their capital.
The significant improvement in Lyft’s Q2 EBITDA margins gives me hope that these ride-hailing firms may eventually be able to turn a profit if they can continue to scale their operations effectively.
Uber has a much more extensive and diversified portfolio than Lyft, which gives them a distinct advantage. Uber is already internationally operating in 70 countries across the globe with the room for global growth being astronomical. Uber’s food delivery service has already become the 3rd largest player even with the late adaptation.
The mere scale of Uber is going to allow them to realize economies of scale that Lyft may not be able to achieve. Uber is pulling in over 4 times as much revenue as Lyft and has in the past been able to achieve stronger EBITDA margins, but Q2 results may change that.
Both Uber and Lyft present a highly risky investment, but the $12.3 trillion total addressable global market suggests a potential opportunity that cannot be overlooked. If Uber is able to penetrate even a fraction of that market, it could become the largest company in the world.
Following Lyft’s sublime Q2 results, expectations for Uber to achieve the same level of growth will be in the back of every investor & traders mind. Topline growth and improvement in EBITDA margins are going to be the central focus in Ubers earnings tomorrow evening. Look for improvement in management guidance as well as a resurgence in year-over-year revenue growth.
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