Heavily-shorted Uber UBER and Lyft LYFT are taking a quick route down. They have lost a respective 29.5% and 35.7% in the last six months, a respective 33.0% and 38.0% in the last three months, or a respective 12.6% and 14.9% in the last month.
Investors are most concerned about their ability to generate a profit. Revenue growth has been strong, but being very initial-stage growth stories, investments have grown equally strongly, leading to continued losses at both companies.
Uber for instance grew revenue 2.2% sequentially and 14.4% year over year. But operating expenses increased 194.4% sequentially and 298.8% year over year. So naturally, the loss per share (before non-recurring items) more than doubled from $2.26 in the previous quarter to $4.72 in the last quarter.
Lyft’s revenue grew 11.8% sequentially and 71.7% year over year and operating expenses dropped 38.1% sequentially (they were 124.7% above year-ago levels).
The two companies have taken a slightly different approach to expansion, and it’s a little hard to tell at this stage which approach is superior. Simply put, Lyft has taken the narrowest approach, focusing on only the U.S. market and only on ride hailing. That’s probably why it was able to lower its operating expenses so substantially in the last quarter. Its much larger rival operates in 60 markets outside the U.S. and has a finger in a number of other pies including food delivery and self-driving trucks.
So basically, Lyft is trying to take the quickest route to profitability and work up from there while Uber is looking to expand rapidly both on a per customer basis and with respect to the markets it serves before looking at profitability.
Both intend to go driverless ultimately, but there’s many a slip twixt cup and lip, as they say. One thing standing in their way now is the Assembly Bill 5 (AB5) that seeks to codify a California Supreme Court ruling from 2018. It could force them to treat drivers as employees rather than contractors, thus greatly driving up cost per driver. It could also be harder to shed drivers en route to driverless as driver unions can lobby for job security.
But ultimately, the value of a business is determined by its earning power, so let’s take a look at what analysts are projecting.
For Uber, revenues are expected to increase 25.1% in 2019 and 35.2% in 2020. The loss per share is expected to decline 57.2% in 2020.
For Lyft, revenues are expected to increase 62.2% in 2019 and 27.1% in 2020 while the loss per share declines by 37.9%.
Read that along with the share price declines we’ve seen since the IPO, and the risk-reward definitely appears to be improving. As a result, both stocks currently carry a Zacks Rank #3 (Hold). So unless you have been shorting the shares, it’s probably a good idea to wait for a suitable entry point.
Instead, take a look at other buy-ranked Internet-based service providers, such as Facebook FB, Inuvo INUV and Cango CANG.
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