Uber Versus Lyft: Road Travelled Since Their IPOs
Zacks Investment Research | Aug 25, 2019 10:07PM ET
Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) are examples of companies using different approaches to do the same business.
Uber is more like an innovative powerhouse, trying to get its finger into all related pies, to derive synergies between them. The goal seems to be to expand rapidly on a number of fronts.
Lyft is more focused on perfecting one business and then expanding to other areas, maybe.
Both companies have been around for a while although they only had their IPOs recently. And that’s probably why investors want them both to display a clear road to profitability.
That’s easier said than done as far as Uber is concerned, because it looks like they will need to simply go on investing for a long time. Lyft on the other hand, because of its focused approach, is displaying a sort of roadmap.
A quick earnings recap-
Earnings results
Uber-
-Loss per share of $4.72 was 41.74% greater than expected, revenue of $3.166 billion was 7.07% below expectations
-Revenue grew 14.4% year over year, gross profit dollars were flat, opex grew 298.8% mainly because of 739.4% increase in R&D, 156.7% increase in G&A, 70.9% increase in S&M and 147.6% increase in operations/support
-Cash used in operations was $1.644 billion
- $11.7 billion in unrestricted cash and cash equivalents on the balance sheet
-Monthly active platform consumers grew 30.3% to 99 million, trips grew 35.0%
-Currency had significant negative impact on growth: adjusted net revenue growth of 12% but constant currency growth was 26%. Also, core platform adjusted net revenue grew 7% but 22% in constant currency
Outlook: For 2019, year-over-year gross bookings growth of 31-35% in constant currency, which comes to around $65 billion to $67 billion.
Innovations
-Nonstop shared rides that should be more profitable for the company
-Uber Comfort is a new category, where newer cars, offering more head and leg room than UberX, and the scope for riders to communicate their preferences such as an ideal temperature or a quiet ride. It is rolling out globally.
-Uber for business that allows riders to charge their ride to their company’s Uber for Business account, grew 60% on a year on year basis.
Management promised more innovations in the second half of the year.
Lyft-
-Loss per share of $1.49 came in 10.24% below expectations, revenue of $867 million was 7.16% above expectations.
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-Revenue grew 71.7% year over year, gross profit dollars grew 11.8%, opex grew 124.7% mostly on account of higher operations/support and G&A cost, offset by lower S&M as a percentage of sales
-Cash generated from operations of $15.3 million
-$3.3 billion of unrestricted cash on the balance sheet,
-Active riders up 41% to 21.8 million, revenue per active rider up 22%
Outlook: revenue of $900-915 million, up 54-56%, adjusted EBITDA -$210 million to -$190 million
FY19 guidance raised. Revenue $3470 million to $3500 million (previous $3275 million to $3300 million), FY19 adjusted EBITDA -$875 million to -$850 million (previous -$1175 million to -$1150 million).
innovations:
-Shared saver, a more affordable option to riders who are willing to wait a little longer or walk a short distance, launched in 6 new markets bringing the total coverage to 9 markets
-With the goal of tapping into the last mile travel segment, the company integrated real-time transit data into the Lyft app, now live in 8 markets, collectively accounting for 78% of public transit trips in the U.S. As a result, riders can now use the Lyft ride (ridesharing, bikes and scooters) to connect with the public transit system for different legs of a trip.
-Scooters are now live in 16 markets. Collectively, the bike and scooter investments are intended to also increase mindshare among its active riders and drive revenue per active rider
-Fast Match, to enable faster and more efficient pickups at high-volume locations like airports and large event venues. Riders are directed to a clearly marked Lyft pickup area where drivers queue up and passengers can take the next available car. It is live at three airports: Chicago Midway, Portland International and LaGuardia. This is intended to grow volumes in high-margin airport rides.
-Scheduled rides to lock in availability and price up to a week in advance, to grow share in high-value modes like Lux Black and XL, which have attractive unit economics
-Collaboration with Disney by becoming the official rideshare of Walt Disney (NYSE:DIS) World Resort and Disneyland Resort, where it has already connected over 1 million guests with rides at Walt Disney World Resort through Disney's Minnie Van service
-Partnership with Hilton so Hilton Honors members can now earn Hilton Honors points when they ride with Lyft. This goal is to increase engagement with the very large numbers of Hilton Honors members who tend to travel a lot.
Drivers/Self driving efforts
Lyft has done more in this than Uber, which seems to make sense because the U.S. is where most of the driver unrest is currently located.
It is taking measures to bring consistency in driver earnings from week to week. Average hourly driver earnings are up a little over 5% over the last 2 years, so much work remains to be done.
It is expanding the number of driver centers so drivers can avail of quick and easy maintenance services at reasonable prices.
It has partnered with GEICO so if Lyft drivers buy coverage through GEICO, it covers them whether the Lyft app is on or off.
It launched the Express Drive rental program that allows drivers to drive rented vehicles if they don’t have their own vehicles, although it’s difficult to see how they might make money after rentals, when they aren’t going overboard with what they make in the normal course, without rental charges.
It started the first Waymo vehicles on Lyft in the Metro Phoenix area. This was achieved through close collaboration between the Lyft and Waymo teams, resulting in the seamless integration of Waymo self-driving vehicles into the Lyft app.
Diversity
Lyft is focused both geographically (operates mainly in the U.S.) and in terms of markets (only ride sharing)
Uber is the one with diversity both in terms of geography (as a result of which, FX has an impact, which was significantly negative in last quarter) and in terms of markets (it has Eats, Freight as well as Other Bets, which is why it is required to continue making significant investments and doesn’t seem to have a clear road to profitability, or at least, it isn’t visible).
Conclusion
This is a commodity type of business in the sense that there’s practically no scope for differentiation. So although it looks like Lyft has been more innovative, it doesn’t really mean anything beyond the fact that it’s a short term kind of thing. As time goes on, and provided funds are available, Uber can offer more or less all the things that Lyft offers.
On the other hand, Lyft looks like it’s going to get to profitability sooner, by focusing on the biggest and one of the most profitable ride-hailing markets. Although, we don’t know that Uber won’t have cornered all the other markets by the time Lyft is ready to expand.
Lyft will then have a strong brand to beat, particularly since Uber is trying to lock in customers with other services like Eats, so Eats may help it build a differentiating competitive moat around its business. Since it won’t be cheap, we have to just wait and see how things go.
Recommendations
Both companies have a Zacks Rank #3 (Hold). So buy-ranked stocks like TiVo Corporation (NASDAQ:TIVO) , Alphabet (NASDAQ:GOOGL) , Upwork (NASDAQ:UPWK) and Yirendai (NYSE:YRD) are safer bets. You can also see .
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