How Lyft and DoorDash could benefit from a partnership: Analyst

Shares of Lyft (LYFT) and DoorDash (DASH) are trading higher Monday afternoon as both companies received an upgrade from RBC Capital Markets from Sector Perform to Outperform. The firm also investigated what a potential partnership between the two companies could look like.

RBC Capital Markets equity analyst Brad Erickson joins Yahoo Finance to discuss the decision behind the call and explain the strengths of platform cross-loyalty.

Erickson elaborates on the positives for both of these companies: "On Lyft, we do a proprietary analysis that's basically got a lot better for Lyft as of last August and has continued to improve. We think they're operating on relatively equal footing now meaning competing with Uber (UBER)... The stock is not priced for them to compete with Uber. On the DoorDash front, it's an even simpler call where we think numbers are too low. We like the fact that the way that somebody starts out ordering a DoorDash once a month or twice a year, whatever, that frequency has shown a continuous ability to grow predictably. Betting against DoorDash here is like betting against the macro from a consumer slowdown standpoint and again we think numbers are going to be moving up and that's not appreciated."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- Shares of Lyft and DoorDash get a boost after RBC Capital upgrades both stocks from sector perform to outperform. The firm not only looking at the names on their separate merits but also considering the option of a potential partnership. RBC Capital Markets equity analyst Brad Erickson joining us now to discuss. Hey Brad, it's great to see you. So you're talking about some potential loyalty program here. What would that look like?

BRAD ERICKSON: Yeah. Good to see you guys. Thanks for having me on. So I think what we were thinking was you've got these two great brands. DashPass is a 15 million user brand, basically half of DoorDash's business US. Lyft pink is quite small. But still a couple million on 24 million Lyft users. Uber One has clearly proven out that cross loyalty works as a platform.

And these two effectively are offering in theory lower-- a worse value prop today. $10 a month for only the ride hailing side. $10 a month only for delivery side. Coming together, they don't need to merge. Everybody's been talking about, should DoorDash buy Lyft or what have you? They don't need to merge, just work together and get access cross-pollinate to each other's customer basis, we think makes a lot of sense.

- And Brad, just to clarify for viewers though too. Even if this potential partnership you're talking about, even if it didn't happen, you still like both names?

BRAD ERICKSON: We do-- we do. Yeah. I mean, different calls obviously. On Lyft, we just we do a proprietary analysis that's basically got a lot better for Lyft as of last August and has continued to improve. We think they're operating on relative equal footing now, meaning competing with Uber. They're still at a disadvantaged market share wise, but they're stable to the degree that that continues to play out.

We think there's potentially a lot of upside. The stock is not priced for them to compete with Uber. On the DoorDash front, it's an even simpler call where we just think numbers are too low. We like the fact that the way that somebody starts out ordering a DoorDash, say once a month or twice a year or whatever, that frequency has shown a continuous ability to grow predictably. Betting against DoorDash here is like betting against the macro from a consumer slowdown standpoint.

And again, we think numbers are going to be moving up. And that's not appreciated.

- Brad, what is the likelihood that these too do get together on some partnership?

BRAD ERICKSON: I mean, near term probably pretty unlikely. This is us out speculating and doing a lot of spreadsheet math and so forth. We did get asked the question frequently this morning of why do we suddenly believe this? Have we heard it? Obviously, we've heard nothing to support this. We'll see companies are both at conferences here today and tomorrow they may comment on it. We'll see.

So we don't expect anything imminently. But we call out the optionality. This is a free call option in the stock. And to the degree that they do get together poses an incremental competitive risk for Uber. And should enable both of these players to compete better in these markets.

- Brad, I also had a question about the ride hailing market, it's interesting how investors, they often characterize it or frame the stories. You would often hear about Lyft. Well, it was the domestic pure play. And some would argue Uber is the smarter play because it's more diversified. I'm just interested to get your take. How do you think about it?

BRAD ERICKSON: Yeah. I think there's still the single product platform, if you will. And that's not changing. And certainly in the US, Uber has been the better play. The stock has worked tremendously well on up through index inclusion, which I think you guys just talked about in the prior segment. Again, I think with Lyft operating on equal footing, they're trading at basically half the valuation that Uber is.

So I think, again, the market's well aware and ascribing the value to Uber that it's not willing to give to Lyft. We're just saying that if things can get marginally better and then potentially add on this optionality of getting together with DoorDash on some type of partnership over time, that could be a lot of upside. But yeah, Uber is still has cross Geo, cross platform value prop which which is amazing.

- Brad, good to see you. Thanks for joining us.

BRAD ERICKSON: You guys too. Thanks for having me.

- Thanks