At the end of October, ride-sharing company Lyft (NASDAQ:LYFT) reported its third-quarter earnings. The company beat analysts’ average expectations on revenue and lost less money than analysts, on average, had expected. LYFT’s revenue per rider increased and its 2019 guidance improved. Now Lyft says it will be profitable by the fourth quarter of 2021, a full year earlier than analysts had been projecting.
Despite the relatively good news, two weeks later Lyft stock is down about 3% from its closing price shortly before it released its earnings and a long way off from the $78.29 price it had reached at the end of March. Meanwhile, rival Uber (NYSE:UBER) reported a $1.2 billion Q3 loss, and Uber stock has fallen about 20% since.
Which of the ride-sharing companies is more likely to succeed, and pay off for investors? Both had their IPOs in 2019, and both Uber stock and Lyft stock have slid since.
The two companies have very different business models, and that could ultimately determine whether one or the other ultimately “wins.”
A Focus on Passengers and North America Is Paying Off for LYFT
Uber is an ambitious company that seems to have its fingers in everything. It has already tried and given up on China, Russia and Southeast Asia. Earlier this year it bought Middle Eastern ride-sharing competitor Careem for $3.1 billion. It does food delivery. It does freight delivery. Last month, it launched Uber Works, aimed at connecting temp workers with businesses who are short on staff. It’s working on air taxis and autonomous car fleets.
And there have been repercussions for the company as a result, including massive losses (Q3’s$1.2 billion loss was nothing compared to the $5.2 billion the company lost in Q2). Uber also has the ignominious distinction of being responsible for the world’s first self-driving car fatality.
LYFT takes a very different approach. The company’s CEO told CNBC earlier this year:
“Lyft is focused on consumer transportation, focused on North America, and focused on taking care of our drivers and passengers, and that’s paying off.”
How has the company’s strategy done? Its simpler and more focused approach has resulted in a 39% share of the U.S. ride-share market , according to Lyft,and a Q3 loss of $463 million, compared to Uber’s Q3 loss of $1.2 billion. Unfortunately, investors haven’t yet seen the benefits of the strategy, with Lyft stock down almost 59% since its March IPO.
Speaking to CNBC, professor Aswath Damodaran of New York University’s Stern School of Business made it clear that he prefers Lyft’s approach of focusing on passengers and sticking to the North American market for now:
“I’d take Lyft over Uber because Uber wants to be all things to all people. You’d think they’d learn from their mistakes. They tried in China and had to back out of China. I think being less ambitious in this business, until you figured out a business model, is better.”
Could Uber Acquire LYFT?
Business Insider just posted an opinion piece that suggests the key to Uber winning the ride sharing platform war — and finally achieving profitability — is acquiring Lyft. Even if Uber bought Lyft for the current depressed price of Lyft stock, the deal would carry a price tag of nearly $13 billion. That would make it one of the bigger tech acquisitions in history. And at this point, such a move seems unlikely.
How Do Analysts Feel About Lyft Stock and Uber Stock?
Lyft and Uber may have radically different business approaches, but analysts don’t seem to like one much more than the other. And for the next 12 months at least, most analysts expect Uber stock and Lyft stock to perform similarly.
Among the analysts polled by CNN Business, 23 of 37 have Uber rated as a “buy” with a median 12-month price target for Uber stock of $45, versus the current price of $26.25. On the LYFT side, 21 of 37 have a “buy” rating and a median 12-month price target for Lyft stock of $70, versus the current price of $42.35.
In other words, it’s still too early to tell who’s going to come out ahead in the ride-sharing war. Or even if ride-sharing will continue to be a thing five years from now. Uber and Lyft have been fighting it out for seven years now, and there’s still no clear winner. So as of now ,the better play is both or neither, depending on the entire ride-share industry plays out.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
