Investors interested in betting on the ride-hailing industry have two clear options: Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT). Both are losing money. Both are getting hit by the coronavirus pandemic and both have relatively strong balance sheets. So, which is the better buy? Uber or Lyft stock?
Lyft reported its fourth-quarter results in February. In the company’s conference call with analysts, CFO Brian Roberts highlighted its $2.8 billion in cash and short-term investments on its balance sheet at the end of December, suggesting that it had plenty of liquidity to ride out the coronavirus pandemic.
In March, Uber CEO Dara Khosrowshahi said the same thing about its cash position. It had $10 billion in cash at the end of February. Khosrowshahi went as far as stating that even if it lost 80% of its ride-hailing business over the remaining nine months of the year, it would still finish 2020 with $4 billion on its balance sheet.
Uber’s superior cash position makes it the better buy. Or does it? Let’s have a look.
It’s All About the Valuation
Just because Uber has more cash than Lyft doesn’t necessarily make it a better investment. There’s plenty that goes into the analysis of a stock. However, by comparing apples to apples, we can at least get a better idea of what investors are willing to pay for each stock.
So, based on 1.7 billion shares, Uber currently has $5.80 in cash share. Lyft, meanwhile, has cash per share of $9.13 based on 306.6 million in shares outstanding.
As I write this, Uber is trading at $24.40 and Lyft is at $23.46. That means Uber and Lyft are trading at 3.9- and 2.4-times cash, respectively. From that perspective, Lyft is the better buy.
Of course, what this doesn’t take into account is the deterioration rate of each company’s business.
Uber is on record saying that in places like Seattle, its ride business is down by as much as 70%. Hence, why it reminded investors that even if ride business falls by 80% over the rest of the year, it will still be able to maintain a healthy balance sheet.
Lyft hasn’t given any city-specific data on the slowdown in rides. However, InvestorPlace’s Tezcan Gecgil pointed out April 1 that spending on Lyft rides was down 19% for the week ended March 16.
I imagine we’ll get more clarity on the current situation as we make our way through April. At the moment, 87% of Americans are living under stay-at-home orders. That’s likely to increase as the COVID-19 mortality rate peaks in the coming days and weeks.
Uber’s Ace in the Hole
The one thing that Uber has that Lyft doesn’t is a food-delivery service. Restaurants able to keep takeout and delivery services open are leaning heavily on Uber Eats and the other players in food delivery.
As Uber’s CEO said in March, it continues to see a surge in its Uber Eats business as a result of these stay-at-home orders. The other day, I went to a local Italian joint near my house to pick up some takeout — we went in one person at a time and stood more than six feet away from each other while waiting outside — and as I was waiting, at least one Uber Eats driver was also picking up.
So, from that perspective, it would seem logical that Uber would face less deterioration of its overall business than Lyft. If that’s the case, would it not make sense that Lyft’s cash burn over the remainder of the year would be higher than Uber’s?
Furthermore, based on Statista’s market share report for February, Uber had 69% of the U.S. market versus 30% for Lyft. Any prolonged downtime for ride-hailing ought to be more detrimental to the company in second place.
The Bottom Line on Lyft Stock
In February, I stated that Lyft had to show me it’s the real deal before I turned more bullish about its stock. How it fares through the coronavirus slowdown will tell me all I need to know about its future success.
The one thing it does have going for it: It has no long-term debt while Uber finished 2019 with $5.7 billion in debt. On a net cash basis, Uber and Lyft trade at multiples of 7.3x and 2.6x, respectively. Usually, all things being equal, I would go with the lower multiple. However, these aren’t regular times.
While Uber’s cash position is a useful benefit, Lyft being debt-free is equally attractive.
Therefore, I would say it’s a draw, which makes Lyft stock and Uber stock potential buys for aggressive investors only; if you can get some in the teens, even better.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
