Given both Lyft and Uber (NYSE:UBER) delivered better-than-expected fourth-quarter results, you would think investors would be more excited about the fact both ride-hailing companies are on an accelerated pathway to profitability.
Sure, they’re not there yet, but they’re getting closer by the day. Although I’ve been skeptical about Lyft stock since its IPO in March 2019, I have yet to deem it an outright sell. Lyft has got to show me that it’s the real deal before I turn more bullish.
In the meantime, I happened to read a recent news story that provides readers with a slightly safer way to play a bet on Lyft.
Viva Las Vegas
Lyft and Aptiv (NYSE:APTV) first demonstrated their Las Vegas pilot project for automated rides at CES 2018, providing attendees rides to more than 20 destinations in Sin City.
“Aptiv’s automated driving platform is the most advanced automated system available and combined with Lyft’s intuitive user app will allow CES attendees to have a true point-to-point self-driving experience. It is an exciting demonstration of the future of mobility at work,” Aptiv CEO Kevin Clark said at the time.
On Feb. 11, the two companies announced that their Las Vegas pilot project has gone over 100,000 paid self-driving rides since launching at CES.
“Our partnership with Aptiv allows Lyft to take care of our riders and help them experience a new type of ride through the Lyft app, while Aptiv stays focused on their area of expertise — self-driving vehicle technology,” Lyft’s blog stated.
The project has given both companies a first-hand opportunity to understand all of the variables that go into operating a successful on-demand ride-hailing service using self-driving vehicles. The data pulled from this partnership is invaluable to both companies. However, it’s important to note that they’re not fully autonomous rides just yet.
A human driver is behind the wheel to take over manual control of the vehicle in parking lots and other locations that are difficult for the technology to maneuver safely. But in time, thanks to this partnership, they will get there.
The Aptiv Alternative
As I’m fond of saying, investors have options. If you believe ride-hailing will continue to grow in popularity but are worried about Lyft and Uber ever making money (a real possibility!), why not hedge your bet by investing in one of the leading players in automated driving technology?
Consider this simple illustration to make my point.
Let’s say you live in Pizzaville, a town full of pizza shops. In this town, there is a single company, Flour Inc., providing the flour used to make all the pizzas for the residents of Pizzaville. The pizza shops either buy from Flour Inc. or secure the product from some other company farther afield.
Doing so increases the cost of the flour, reducing profitability. However, the point is moot because Flour Inc. is considered to be the premier provider of flour anywhere in the land.
Given the opportunity to invest in the pizza business, are you going to buy shares in one of the many pizza shops that are publicly traded, or are you going to buy stock in Flour Inc., who provides the highest-quality flour and is the most convenient?
You’re going to invest in Flour Inc. because it’s much easier to spot the winner from fewer choices (flour makers) than it is among pizza shops (many options). Aptiv, in this example, is the flour maker.
I’m not suggesting that Aptiv is the only possibility among automated driving technology companies, because it isn’t. However, the fact that it had an adjusted operating profit in 2019 of $1.55 billion on $14.36 billion makes it a much safer investment than Lyft, in my opinion.
The Bottom Line on Lyft Stock
Let’s assume you are considering investing $5,000 in Lyft stock. The first alternative would be to buy $2,500 of Aptiv stock and $2,500 of Lyft. How you split the amount is up to you. If you’re more risk-averse, you might go 75/25 in favor of Aptiv. If you’re up for a bit more risk, you might go the other way with Lyft in the driver’s seat.
The second alternative, which is probably an even better way to go, is to split the $5,000 in three portions: Aptiv (50-75%), Lyft (12.5-25%), and Uber (12.5-25%).
You’ve always got options.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.