When it comes to ride sharing, I’m like most people: I prefer Uber Technologies (NYSE:UBER). Thanks to its broader presence both in the U.S. and especially abroad, I find Uber far more valuable. At the same time, from an investment perspective, people should really consider Lyft (NASDAQ:LYFT) and Lyft stock if they believe in this burgeoning sector.
Sure, LYFT is the much smaller rival in this essentially binary field. According to Edison Trends, Uber has taken 65% of the U.S. ride-sharing market. This figure dwarfs Lyft’s 35%. As well, Uber has better brand presence, along with a far more robust international offering. Not surprisingly, drivers overwhelmingly operate on Uber’s platform as opposed to Lyft’s. Thus, on surface level, circumstances don’t seem to favor the LYFT stock price.
Nevertheless, the smaller company has just delivered some big metrics in its third-quarter 2019 earnings report. Against a consensus target for a per-share earnings loss of $1.66, LYFT came in at a loss of $1.57. And on the revenue front, the ride-sharing firm rang up $955.6 million against a $915 million consensus estimate.
On the day of the earnings announcement, the LYFT stock price closed up 1%. It also moved higher during the extended session.
Again, Lyft’s numbers don’t stand up to Uber’s tally. For instance, in the quarter ending June 30, 2019, Uber rang up $3.2 billion in top-line sales. In the comparable quarter for LYFT, it only managed $867 million.
Ironically, though, Q3 may have demonstrated that for Lyft stock, it’s good that it can’t — or won’t — catch up to Uber. Allow me to explain.
Profitability a Top Focus for Lyft Stock
For the profitability picture, neither company offers endearing confidence for stakeholders. Both companies are knee-deep in red ink, although Lyft’s management team reaffirmed their target for profitability by Q4 2021. That’s a year earlier than analysts’ expectations.
Not only that, the forecast is believable. In Q3, LYFT reported a net loss of $463.5 million. Although wider than $249.2 million loss in Q3 2018, it’s sequentially less than Q2 2019’s $673 million loss. Clearly, the company is taking a conservative approach, managing investments for growth responsibly.
In contrast, Uber is taking a different approach. For Q2 2019, it reported a net loss of $5.2 billion. In Q1 2019, that net loss figure was “only” $1 billion.
As I mentioned earlier, Uber has at least some justification for these ramped up losses. The tremendous international presence that it enjoys doesn’t come cheaply. Logically, the gamble here is that the growth of ride sharing in general will outpace Uber’s initial investments.
That said, many investors don’t like the uncertainties of the current economic and market environment. For those that want a balance between the upside potential of the sharing economy and responsible fiscal leadership, the LYFT stock price offers a compelling entry point, especially at this discount.
Just as importantly, Lyft CFO Brian Roberts reaffirmed the company’s focus on profitability. In an interview with CNBC, Roberts stated:
“We’re not doing food, not doing trucking … We are 100% focused on our transportation network and platform scale to unlock more efficiency.”
Don’t get me wrong: I believe both UBER and Lyft stock both offer tremendous long-term upside potential. But I also like that in the disruptive sector of ride sharing, investors have options on how their money is used.
Ride Sharing Is Becoming Rational
Additionally, Roberts made a comment about the increased viability of the ride-sharing arena. He stated that: “The market is increasingly rational. There is significantly less discounting than a year ago.”
This assessment is especially important as a race-to-the-bottom mentality isn’t sustainable for either Uber or Lyft. In Q3, LYFT reported 22.3 million active riders, up from the expected 22.1 million count. More critically, revenue per active rider jumped 27% from the year-ago quarter to nearly $43.
If indeed ride sharing is turning rational, that people are increasingly seeing the value of this platform, it greatly benefits Lyft stock over Uber. The latter has a shotgun approach, which very well might work. However, LYFT has a different philosophy, choosing to disrupt one sector at a time.
Of course, both companies have the same headwinds, which involves consumer resilience in a possible recession. But what these Q3 figures show is that riders are less willing to give up their sharing economy conveniences.
Ultimately, then, you have two companies vying for supremacy in a transformative market. However, each is going about it in different ways. For the more conservative investor, LYFT has the more palatable approach.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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