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Uber Vs. Lyft: The Battle For Ridesharing Profits

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Ride-hailing stocks have taken shareholders for a ride this Q2 earnings season. Lyft (LYFT - Free Report) drove its value up while Uber (UBER - Free Report) posted less than stellar results in this past quarter of operation. The price action of these stocks since Lyft reported Wednesday evening has put into perspective market sentiment about the ridesharing category.

Uber

Uber painted a disappointing picture when they released earnings yesterday evening (July 8th) missing big on both top and bottom lines. This quarter represents the worst loss since the firm began. Granted, the IPO came with significant costs, but Uber is raising overhead faster than it can grow its topline.

This larger than expected Q2 loss has a lot to do with the increasingly saturating competition in the ride-hailing space. Uber has been quickly growing its food delivery service, which expanded over 50% in sales year-over-year. Ridesharing only grew 4% year-over-year as competition has caused the growth of this segment to stall.

Lyft

Lyft wowed investors with a robust beat on both the top and bottom lines accompanied by improved full-year guidance, which initially propelled the stock 8% but broader market volatility has brought that price down. Lyft illustrated that a ridesharing service is able to achieve economies of scale.

Lyft demonstrated a 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.

I believe that Uber’s underperformance is directly correlated with Lyft’s over performance as Lyft takes market share in this quasi-duopoly.

Performance

The attention-grabbing part about these ridesharing Q2 results was how they have reacted since Lyft’s release. Lyft reported its positive results Wednesday after the bell (July 7th) causing both LYFT and UBER to climb. The next day both stocks opened up over 5%, the interesting part was that UBER kept climbing into the negative earnings that evening and LYFT has been breaking down ever since open yesterday.

Even with UBER’s over 9% gap down this morning following its worse than expected results, it still outperformed LYFT since Thursday morning. UBER is up nearly 1% since Lyft’s report, and LYFT is down over 2.5%. This is a signal to me that investors buying the space are also buying the brand, and today the biggest name in ridesharing is Uber. Lyft’s optimistic forward guidance and results had a larger positive impact on Uber than it did on Lyft. Recent market volatility is playing a role in this as well.

Take Away

Lyft’s better than expected performance this past quarter was a positive sign for the entire ridesharing industry. It demonstrated to the markets that economies of scale are possible to attain in this space. At the end of the day, investors are still more bullish on Uber because of its size, portfolio diversification, and brand recognition.

The biggest concern that other investors and I have is the extent to which Uber’s topline is decelerating. Some analysts are chalking this deceleration up to a temporary pause in consumer adaptation, which will only take a little push for an accelerating topline domino effect to take place.

These stocks still pose a large risk to investors due to their lack of profitability and somewhat unproven business models. Uber and Lyft are both in uncharted and rocky waters that will take investors for ride one way or the other.

 

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