Earnings Preview: Lyft Stock Looks Like a Better Bet Than Uber

With Lyft (NASDAQ:LYFT) expected to report its fourth-quarter results on Feb. 11 after the market closes, Uber’s (NYSE:UBER) stronger than expected Q4 results certainly bode well for Lyft’s earnings. And Lyft’s recent market share gains, along with its decision to enter the rental car sector certainly bode well for Lyft stock in the near-to-mid term.

Earnings Preview: Lyft Stock Looks Like a Better Bet Than Uber

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Also consider that Lyft’s market cap is significantly lower than that of Uber, and the company is more profitable. All of this positions Lyft stock better for advancement.

But despite this optimism, I still stand by statements I’ve made in the past.

Months ago, I predicted that both Uber stock and Lyft stock would not rally tremendously until they become vastly more profitable by launching self-driving ride-sharing cars. I also wrote that the company that launches self-driving rides first would have a tremendous first-mover advantage over its competitors. Given those points and Lyft’s partnership with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) on self-driving cars, I think Lyft is a much better pick than Uber for long-term investors.

Uber’s Results Bode Well for Lyft Stock

Uber reported its Q4 results on Feb. 6. The company’s Q4 earnings per share came in at a loss of 64 cents, 4 cents ahead of analysts’ average estimate. Furthermore, its top line was a bit ahead of the mean outlook. The company’s revenue grew an impressive 43% year over year, excluding currency fluctuations. Its ridesharing revenue also came in slightly above the average outlook, and the EBITDA of its ridesharing business, excluding certain items, soared an incredible 281% YoY to $742 million.

Much was made over the company’s statement that it expects its EBITDA to be positive, excluding certain items, in Q4 of 2020. But it’s important to note that among the items excluded are stock-based compensation (the company forked out $4.6 billion of stock based compensation last year), “acquisition and financing related expenses” and “other items” that Uber deems “not indicative of … [its] ongoing operating performance.” In other words, Uber in all likelihood won’t actually be close to profitable in Q4.

Nonetheless, Uber’s results indicate that Lyft likely also grew rapidly in Q4. Consequently, Lyft’s results pose little risk for shareholders and are likely to push the stock higher.

Lyft’s Market Share Gains and Initiatives

In November, JPMorgan added Lyft to its top picks list, citing the company’s strong results and market share gains.

Meanwhile, Lyft is undertaking initiatives that I think will add to its market share gains, including offering cheaper, shared rides and reportedly lowering its prices. Although the company’s price cuts could reduce its margins in the near-term, they will attract many more customers and lift its profits in the longer term. And many investors could become excited by the company’s accelerated growth.

Additionally, I believe that Lyft’s decision to offer car rentals is positive. That business probably has many synergies with ridesharing. Moreover, in the longer term, the car rental business should boost Lyft’s bottom line, since car rental giants Avis (NASDAQ:CAR) and Hertz (NYSE:HTZ) have generated positive operating income over the last 12 months.

Also positive for LYFT is its relatively high profitability and relatively low market cap compared to Uber. In the 12 months that ended in December, Uber’s net income was a huge-$8.3 billion, while in the 12 months that ended in September, Lyft lost a more reasonable $2.5 billion. As a result, many conservative investors could be more attracted to Lyft than Uber. Meanwhile, Lyft’s market cap is $14.66 billion, while Uber’s is nearly $70 billion. Therefore, I think Lyft has much more room to surge over the longer term.

The Driverless Gap Between Uber and Lyft

Uber’s self-driving business has gotten some investments from giants, including Toyota (NYSE:TM) and Softbank. But the ridesharing company seems to be a “lone wolf” when it comes to autonomous driving. In other words, it appears to be largely developing its own technology, rather than relying on a tech giant or a huge auto company to do the heavy lifting.

Conversely, Lyft appears to be relying on Alphabet’s Waymo to develop autonomous driving technology for it. Perhaps predictably, Lyft’s results have been much better.

In early 2018, an Uber vehicle killed a pedestrian, and the company just was allowed to resume testing self-driving cars in California last week. Although Uber’s self-driving vehicles are operating in Dallas, they have drivers sitting behind the wheel.

On the other hand, Lyft has been offering fully autonomous rides in Arizona, using Waymo’s vehicles, since last June. And as I reported about Alphabet last month, “the company recently said that it plans to offer the [ride-hailing] service to more consumers this year.”

It certainly sounds like Lyft is way ahead of Uber in the autonomous ride-hailing race.

The Bottom Line on Lyft Stock

In the wake of Uber’s strong Q4 results, Lyft is likely to report strong results, and Lyft’s shares should outperform the market over the next month at least.

Lyft has launched some positive initiatives that should accelerate its market share gains and leave it better positioned over the longer term. Finally, Lyft’s advantage in the driverless sector leave it well-positioned to outperform Uber in coming years.

As of this writing, the author did not own shares of any of the aforementioned companies. However, he is considering initiating a position in Lyft prior to its earnings report. 


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