Uber UBER and Lyft LYFT are slowly but surely climbing their way out of the pit that the markets have pushed these rider sharing stocks down to. These companies are prepping for there Q4 earnings release to round out their first fiscal year on the financial markets. The next few weeks will determine whether the recent ridesharing rally has legs.
So far, in 2020, UBER is up over 21%, and LYFT has seen over 10% gains. This is a very different narrative than these equities 2019 performance. Ridesharing companies were an enigma when they first hit the public markets and how to value them remains a mystery. These companies were overvalued in the private markets, and their public shares have slid since they IPO’ed in the first half of 2019. Below is share price chart for LYFT and UBER since they went public.
Ridesharing is a relatively new phenomenon, and the category has a substantial amount of uncertainties. This industry lost billions in 2019 and is expected to lose billions again this year. The future of this industry is opaque, to say the least, with no profitability in sight and its push towards autonomous cars having on timeline. Both Uber and Lyft are investing significant amounts in driverless vehicles as this will cut out the companies’ largest costs, the drivers.
Uber and Lyft are in a competitive duopoly where predatory pricing is used to secure customers. I can attest to this here in Chicago where most people I know check both Uber and Lyft for the best pricing before deciding on which service to use. This is causing these firms to undercut each other into losses.
Uber has a much more diversified portfolio of services, which you would think would give them a competitive edge over Lyft, but I am starting to think it’s going to be the companies downfall. Uber’s other bets, such as Uber Eats and Uber Freight, are both competing in increasingly competitive spaces. These segments are driving down margins as they lose an increasing amount every quarter.
Uber is still liquid enough to have no concern about bankruptcy quite yet, but its lack of a profitability timeline worries me. Cash is being hemorrhaged from Uber at an increasing rate, and I don’t think they have as many years as they believe in figuring out how they are going to turn a profit.
Lyft’s (nearly) pure-play ridesharing strategy is looking like a competitive edge as its losses continue to narrow every quarter. Lyft says it will have a profitable EBITDA by full-year 2021.
Look for clues about which direction each of the firm’s is head in the upcoming earnings. Uber is releasing its Q4 results after the bell on Thursday, February 6th, while Lyft will be unveiling its results the following Tuesday. The chart below breaks down what to expect.
The upcoming reports from Uber and Lyft will shed light on where these companies and their stocks are headed. Forward guidance is going to be crucial as well as monthly active users and total booking figures. Any timelines on profitability and where the companies stand with autonomous driving could move these stocks.
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