Lyft (NASDAQ:LYFT) is scheduled to report fourth-quarter earnings after the bell on Feb. 11. At that time, many analysts will be looking for two things that are key for the company and Lyft stock.
First, will Lyft’s numbers compare favorably to Uber (NYSE:UBER)?
On Feb. 6, Uber beat on both earnings and revenue. The company came in 4 cents better than expected on earnings (although still negative). And the company’s revenue came in just above expectations, but was 36.8% higher on a year-over-year basis.
More importantly, Uber increased its guidance for profitability. The company now says they expect to report an adjusted profit in the fourth quarter of 2020. That said, this is the second area that investors will be paying close attention to for Lyft stock.
The company has been saying that it will be profitable in the fourth quarter of 2021. Will that change now that Uber has moved up its estimate? In this race, I would suggest it’s not as important to get there first, but to get it right.
The Ride-Hailing Industry Is Getting Mature Fast
Lyft and Uber represent a duopoly in the ride-hailing industry, and that’s both good news and bad news. The good news is it may be getting tougher for smaller companies to get in the game. This is the irony, perhaps, of the potential regulatory hurdles the company faces from California’s Assembly Bill No. 5 (AB5). The bill may make it more difficult for ride-hailing companies to hire drivers on a contract or freelance basis.
However, that would also make it harder for a start-up to enter the arena. This will be particularly true if, as expected, AB5 begins to catch on in other states.
Nonetheless, even in a narrow field of competitors, Lyft and Uber will still have to battle each other. And that looks like a stalemate. Are they going to start competing on vacuous claims like those of wireless carriers?
“We have more coverage.”
“No, we have more coverage.”
I doubt it, because that’s not a winning strategy.
Overall, one way the companies have been trying to make a difference is through partnerships. To that end, Lyft recently inked a deal with JPMorgan Chase (NYSE:JPM) for its Chase Sapphire Reserve card. This gives Lyft a chance to bring in new users, and perhaps retain the loyalty of existing users. And that speaks to the underlying trend.
Even if the Trend Is True, It Seems Flawed
Overall, ride-hailing is catching on in the United States. And according to at least one study, younger generations may prefer ride-hailing over vehicle ownership.
Now consider that Generation Z, as well as millennials, are marrying and “settling down” later. That supports the growth of a large group of potential users. Also, many of these potential users are already wrestling with student or credit card debt. That’s a big incentive for them to avoid being saddled with an additional car payment.
However, the same report says brand loyalty for Generation Z is almost non-existent. That makes the choice of one service or another about availability or price.
Additionally, another concern that I have about this — and other generations — is the growing issue of mental health. A ride-hailing service may be infinitely preferable to public transportation or hailing a cab. That said, Uber seems to agree, and now offers a “Quiet Mode” for riders willing to pay a premium price.
But, it’s too easy to look at this from the lens of what we think “should be true”. To the person struggling with depression, anxiety, etc., this is not a hypothetical issue. What works for one person may not be true for another. Is it fair to assume they will want to get into a car with a stranger, no matter how many stars they have?
So, the question then is: Can Lyft give users a reason beyond price to use its service?
If they can’t, then it may become profitable through some combination of revenue growth and cost cutting. But, it’s hard to see profits rising at an exponential pace.
Lyft Stock Has Too Many Variables for Me
My generation was the first to promote the concept of the designated driver. However, ride-hailing companies take away the necessity for a designated driver so everybody can join in on the fun. And when — and if — autonomous driving becomes a reality (yes, I’ll still say if), that will provide an additional catalyst.
That said, Lyft stock is getting a boost because investors perceive it will not have to change its employee structure yet. But that’s different than saying it won’t have to change it at all. And on that score, it looks like it will be changing.
Nonetheless, I hope my point is clear. If consumers don’t have a compelling reason beyond price to stay brand loyal to Lyft, why should investors feel that way about Lyft stock?
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.