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Ridesharing In The New Normal

Daniel Laboe
·5 min read

The ridesharing duopoly is on a sugar rush with 3 momentum driving events trigging a massive rally in this space over the past week. It started with a big election win, as California's Prop 22 passes with ease. Then Pfizer announced a 'successful' COVID-19 trial, which put a light at the end of the tunnel for this devastating pandemic.

On top of all this ridesharing optimism, both Uber (UBER) and Lyft's (LYFT) management teams came out with notably positive 2021 sentiment, providing more runway for these stocks to ride. UBER is up 40% this month, hitting all-time highs, while LYFT has surged 60%, but still over 50% below its share debut price last March.

Ridesharing & The 'New Normal'

The world has rapidly digitalized in 2020, with the global pandemic forcing economies to rely on technology to function during the pandemic induced economic coma. Society's reliance on technology will only grow as the ease and convenience of its utilization become the standard.

Passing the employee exemption proposition (aka Prop 22) in California's progressive state sent a message across the country that the people want a 'gig economy.' A wave of relief has washed over the ridesharing duopoly. The costs associated with making drivers true employees would have been detrimental to these enterprises' road to profitability.

Ridesharing had struggled through the lockdowns this year, with nobody leaving their homes. But the rapid global digitalization created a springboard for the smartphone incepted ridesharing applications. UBER and LYFT are soaring as the economic recovery begins to be priced in to the public markets.

Uber Breakdown

UBER surged past its all-time highs this week. Highs that it hadn't seen since its first couple months of trading early last summer. The stock is trading above $46 a share, busting through the $41.90 resistance level last week. 25 out of 28 analysts are all calling this stock a buy as recovery stocks catch a bid.

Uber has impressed me through the pandemic. Uber's Eats segment, which had been a drag on profitability pre-COVID, has become this enterprise's saving grace during the stay-at-home initiative.

In the company's quarterly report last week, its mobility segment (aka ridesharing) maintained a positive EBITDA, despite a revenue decline of 50%. Uber's delivery segment (aka Uber Eats and soon Postmates) drove 124% year-over-year growth as demand for food delivery swelled amid the pandemic. The total revenue was only down 10%. 

The Eats segment created an excellent hedge against Uber's dragging rides segment this year. Uber announced its acquisition of Postmates for $2.65 billion this summer, which gives Uber a firm grip on the #2 market position in the US's meal delivery space (behind DoorDash).

Uber is illustrating growing margins and robust international penetration that position it for swift growth in the post-pandemic world.

Lyft Breakdown

'Uber's little brother' has not faired nearly as well as its more diversified competitor. Without a food delivery segment to hedge the business, it has hemorrhaged $100s of millions in 2020 with nothing to show. LYFT remains down 17% for the year, while its cohort UBER is up almost 50%.

Before the pandemic, I thought Lyft's pure-play ridesharing strategy was its advantage, as it would be hitting profitability before the diverse Uber enterprise, but it has been the company's downfall this year.

Management came out in its earnings report last night and said that they expect to reach a positive EBITDA by the 4th quarter of 2021, and analysts are pricing in full-year profitability by 2022.

My concern with this business's future is its lack of use during the pandemic that may cause its pre-COVID customers to chose Uber in the post-pandemic world. The Uber app has stayed at the forefront of consumers' minds during the lockdowns because of its Eats segment. I believe that this could have a psychological impact on consumers' subconscious ridesharing decisions moving forward, giving Uber a leg up.

LYFT shares are hot right now, but they have a tough road ahead. Its pure-play approach appears to be one of its downfalls. Lyft management discussed the possibility of entering the food delivery segment, but I think they are a little late to the already overcrowded party.

Final Thoughts

My ridesharing pick is UBER because of its leading positioning in ridesharing and a firm #2 spot in the accelerating delivery space. The business has been able to turn and maintain an operational profit in its rides segment. It also has a seemingly endless stream of capital to continue investing heavily in autonomous vehicles.

Autonomous driving is the future of the ridesharing space, and once this is viable, the value of the digital ride space will skyrocket. I don't expect you will open your ridesharing door to a driverless car anytime soon, but any clarity on automated driving timelines would be market moving.  

More Stock News: This Is Bigger than the iPhone!

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