Among the many innovations that have sprouted over the last few years, ride sharing is easily one of the most disruptive and transformative. With companies like Uber (NYSE:UBER) or Lyft (NASDAQ:LYFT), riders have quick, convenient access to a robust network of drivers. Yet the investment thesis for Uber stock and Lyft shares have been nothing short of disappointing.
Leading up to its much-hyped initial public offering, UBER seemingly had it all. Without question, Uber dominated its rivals in the key U.S. market. Furthermore, the company began expanding aggressively into the global market. Up until 2017, Lyft wasn’t available in any market outside the U.S. Thus, the Uber stock price appeared headed to increasingly higher plateaus.
Unfortunately for early-bird investors, the best days for the now-publicly traded firm was within three months of its IPO. Uber stock closed yesterday a nickel above $27, down about 41% loss from its IPO price and off slightly more from its closing high.
Adding more worries to investors, Lyft hasn’t fared much better. From its IPO price, LYFT has shed nearly 38%. But the big difference, though, is that since the beginning of October, LYFT is in the black. On the other hand, the Uber stock price has shed more than 8% of market value.
From an operational perspective, it’s easy to see why this discrepancy exists. Because Lyft doesn’t have the international coverage of Uber stock, it has a much more realistic pathway to profitability. UBER, though, has expensive outlays and is laden with debt.
In other words, Uber stock is a gamble on outsized potential, while Lyft focuses on stable, viable growth. Which one wins?
Uber Stock Price Races Against Time
While many analysts have criticized Uber for its unmitigated ambition and resultant cash burn, I recognize the potential. Granted, management is engaged in a race against time. If their expansionary strategy doesn’t pan out, they could face serious trouble.
Yet the irony is that Uber’s maligned international strategy can only be truly appreciated by traveling abroad.
I’ve traveled throughout much of the world, although I have a particular liking for eastern Europe. Unlike western Europe, the former Soviet Bloc is off the beaten path. Furthermore, the countries in that region are more demographically homogenous, resulting in authentic cultural expressions.
However, because of the demographic homogeneity, traveling to eastern Europe, especially Russia, presents problems if you’re not white, as detailed by Cody Boutilier in his op-ed for National Review detailing his experiences with xenophobia in Russia.
Although many critics blasted him for essentially “reverse racism,” I second his experience. If you travel to white-dominated former Soviet countries and you’re not white, you must prepare yourself for unpleasantries such as police harassment.
But what does this have to do with Uber stock? Simply, with a ride-sharing platform, you can navigate past xenophobic areas or elements with far less fear than you would have taking public transportation. Frankly, I’ve never felt safe using the metro (subway) system in either eastern or western European countries.
Moreover, with changing demographics, racial tensions and terrorism an increasingly worrisome component of European life in general, using public transportation has simply become untenable. But with Uber, not only can you sidestep this system, you don’t need to speak the target country’s language.
I’ve used Uber both here and abroad and it’s a remarkably elegant and reliable system. That said, this is a longer-term narrative for the UBER stock price that might not pan out.
Lyft Looks More Attractive in the Interim
Despite volatility in both the Uber stock price and Lyft shares, I’m bullish on both. True, both companies have operational and legal issues that hurt the immediate narrative. But I also believe that once the technological cat is out of the bag, it can’t go back in.
These two companies, and UBER especially, have epitomized the on-demand sharing economy. When we think of the term “gig worker,” Uber or Lyft comes immediately to mind. After having sparked a radical paradigm shift, I can’t see them failing.
However, I must say that for the intermediate term, Lyft looks more attractive than its bigger counterpart. The problem with Uber is that its grand ambitions need more time to materialize; that is, the rest of the world needs to catch up with the company.
On the flipside, Lyft is focusing on reliable, high-dollar markets in the U.S. and Canada. It doesn’t come anywhere close to Uber’s potential. And it can’t save me from crowbar-wielding Russian hooligans. However, it’s easily the safest choice between the two for risk-adverse investors.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
