The market still seems confused about Lift (NASDAQ: LYFT) and Uber Technologies (NYSE: UBER) the competing rivals that went public earlier years.
Not only are both stocks trading (at the time of writing) down about 20% from the prices of the initial IPOs – an entertaining result that estimates that 2019 has been a shock year for IPOs – but strangely enough, stocks are often moving in pace. The market seems to think that what is good for one is good for the other and the same for the bad things, even though the two are competitors in the neck. This pattern was shown recently when companies reported second quarter revenue on subsequent days.
Lifting's results came out after the market was closed on Wednesday, August 7, and both stocks rose rapidly in the next day's trading. Investors were happy to see Lyft crush their own guidance for the quarter and raise the outlook for the entire year. But what really got them to bid for both companies was Lyft saying prices were starting to rise, a signal that price competition between the two companies could ease, which means profitability may not be as far away as anyone feared.
Lift's shares jumped as much as 9.3% and ended the session 3% higher. However, Uber shot 8.2% up on news of the price war that could potentially cool. After the market closed that day, Uber reported its own quarterly results, and in trading the following day, both shares gave up profits as Uber's second-quarter figures included only 1
Although the market does not see it that way, Lyft and Uber are moving in widely different directions. Lyft has continued to grow strongly, with sales up 72% in the second quarter. Meanwhile, Uber is holding out. the top line increased only 14% in the last quarter, or 26% after adjusting for currency conversion and driver awards related to the IPO. Revenues from ridesharing, Uber's primary business despite efforts to shift focus to Uber Eats, increased by anemic 2%, or 17% after adjusting for driver awards.
Both Uber and Lyft still look overvalued by conventional calculations, but Lyft looks like the much better buy today. In addition to the enormously faster growth rate, Lyft has a number of advantages over its larger rival.
1. Lift is gaining market share
Uber is still the clear leader in US ridesharing, with around 70% of the domestic market, according to data from Second Measure, and the company has mostly stabilized after a disastrous 2017. It the year included allegations of strike-breaking at New York's Kennedy Airport; allegations of violent sexual harassment by employees; a lawsuit alleging the stealing of secrets from Waymo; revelations that Uber used underhanded tactics to dupe regulators in a program called Greyball; and finally the obliteration of co-founder and CEO Travis Kalanick, who was replaced by Dara Khosrowshahi, the former CEO of Expedia .
However, the latest round of results indicates that Lyft continues to reach the ground at Uber. Both companies allowed nearly equal revenues in the second quarter. Lift's top line grew by $ 362.4 million, while Uber added $ 398 million in revenue. Using Uber's preferred adjusted revenue figures, the company increased its turnover by about $ 700 million.
But investors should remember that Lyft mainly operates as a ridesharing service in North America, although it also owns several bicycle sharing networks (following the acquisition of Motivate last year) and an incoming scooter business. Uber, on the other hand, operates globally. It also has Uber Eats, a new freight carrier, and a stake in micro mobility (scooters and bike share) through the acquisition of Jump last year and $ 335 million in Lime investments, also in 2018.
In North America, Uber's revenue grew by $ 283 million in the quarter, and a significant portion of the growth appeared to come from Uber Eats. It shows that Lyft is still growing much faster in the only market it operates in.
2. Lyft is founder-led and mission-driven
Kalanick's year at the helm of Uber had several consequences. The brash entrepreneur, considered a "natural force" among investors and venture capital firms, put the company into a win-to-price mentality. Khosrowshahi has been hurting to try to repair Uber's image as a bullying scofflaw.
He often seems to play defense at a time when the company should be at its most ambitious, with money after a rich IPO. Uber's debut in itself appeared to be a weak exercise, as Khosrowshahi consistently dropped expectations. While most companies try to price their first offer as high as the market will bear, Uber did the opposite, priced at just $ 45 per share after initially declaring a range between $ 44 and $ 50. Today, a company that Wall Street bankers once valued at $ 120 billion is now worth less than half that; the market price was $ 59 billion on Friday.
In Uber's prospectus, Khosrowshahi often sounded apologetic about the company's past behavior, and promised to do better. In his personal letter to investors, he said: "I will end with my commitment to you: I will not be perfect, but I will listen to you; I will make sure we treat our customers, colleagues and our cities with respect; and I want to run our business with passion, humility and integrity. "Later in the document, the company promised to" do the right thing. Period. " It is a statement that investors will take for granted from any other listed company.
No doubt Khosrowshahi is in a tough position because of Kalanick's behavior, but it is worth asking if something important is lost with Kalanick. After all, Kalanick is the one who built the company from the ground up and made it a global behemoth, the envy of other startup companies. Many early investors feel loyal to Kalanick (who still sits on Uber's board) when he made them a fortune. Bradley Tusk, an early investor in ridesharing juggernaut and the first "political strategist," recently said on CNBC's Squawk Box "They've lost their mojo. Obviously, there's not a lot of trust in management. Travis represented innovation, change and intensity in the company now, and the stock clearly reflects that. "
Khosrowshahi has a challenging job ahead: dealing with the demands of drivers who want better wages and benefits, customers who want low prices and good service, and investors who want to see growth and profitability. The fact that he has to repair conditions and the company's reputation in the wake of the turbulent Kalanick era, while dealing with critics who are still waiting for Kalanick to return, only makes things more difficult.
Lift does not face any such dilemma. The founders of the founders, John Zimmer and Logan Green, are strong in comparison, and the company has generally been perceived as being friendlier by the two ridesharing services. It was the first one that allowed drivers to be tipped; there are increases in "surge prices" generally more modest; and it was Lyft, not Uber, who introduced the basic innovation in a ridesharing service where drivers drove their own cars. In its early days, Uber was just a luxury black car service.
Recently, Lyft promised in April last year to make its trips carbon neutral, purchase purchase quotas, and the company has completed that promise. Uber has not made any such proposal to address the environmental impact of the business. What was left to do the right thing?
Lift's mission statement is also much clearer and more achievable than Uber's. According to Lyft's prospect, its mission is to "improve people's lives with the world's best transportation." It's a simple statement, but still potentially world-changing, especially when you imagine things that self-driving cars take off. Uber's mission is so vague that it is basically meaningless: "We light up the opportunity by starting the world." I don't know what that means, and I don't think Uber does either.
In particular, Uber does not have the singular focus on ridesharing that Lyft does. Layering on companies like Uber Eats, Uber Freight and Uber Copter may appeal to growth-minded investors, but this strategy can also be a distraction from the company's core business, ridesharing and potential profitability. With his extensive ambitions, it's not surprising that Khosrowshahi loves comparing Uber to Amazon but Uber's ability to match Amazon's growth over the last generation seems questionable at this time.
That Lyft continues to be led by the same duo that built the company seems like a clear benefit to the # 2 ridesharing service, and so is the clarity of the mission statement.
3. Lifting is better positioned for the self-driving revolution
With each passing month, it seems that the so-called self-driving revolution can turn into science fiction. Automakers and technology companies are trying to design vehicles that can run safely in a wide range of situations that human drivers face, but find the challenge to be extremely difficult.
However, technology is always improving, and it seems like a good bet that autonomous vehicles will be mainstream someday, although it takes longer than many technologists thought just a few years ago. The shift is likely to be gradual rather than sudden, and Lyft seems to be better prepared than Uber.
Partly because it has been able to leverage its reputation as a much more reliable partner than Uber, Lyft has significantly more partnerships with AV technology companies and automakers than its main rival does. Lyft has partnered with Aptiv (NYSE: APTV) an AV technology company, to offer more than 50,000 self-driving rides in Las Vegas through May next year, one year into the partnership. In Phoenix, Alphabet & # 39; s (NASDAQ: GOOG) (NASDAQ: GOOGL) Waymo has made rides in its autonomous vehicles accessible through Lyft.
In addition, General Motors (NYSE: GM) is a major investor in Lyft, plus $ 500 million for a 9% stake in 2016. GM's Cruise AV division is now valued at $ 19 billion, a sign that it is set to be a serious player in autonomous vehicles. Although GM's working relationship with Lyft appears to be dormant at the moment, as long as it remains an investor (with a stake now worth over $ 1 billion), meaningful partnerships on AVs can come alive at any time. Recently, Ford (NYSE: F) also said it teamed up with Lyft to take AV's mainstream.
However, Uber's involvement in autonomous vehicles is probably best known for the first and only pedestrian death caused by a self-driving vehicle when one of the AV devices hit a woman who crossed a road in Tempe, Arizona, in March 2018. suspension of AV tests for eight months. Since the AVs are on the road for testing, but the company's reputation as excessive risk-taking and as a corporate bully who is willing to flow regulations seems to make it ill-suited to lead the AV revolution – especially considering the risk and the negative press around AV-related traffic accidents.
Uber has forged a partnership with Toyota (NYSE: TM) that appears to be the only important bond with a car manufacturer or AV tech company. Last year, Uber received a $ 500 million investment from the Japanese automaker, and the two companies committed to deliver self-driving cars by 2021. Lifting is still, in terms of AV-related conditions.
Lyft has significantly more partnerships than Uber, but the status of the No. 2 ridesharing service makes it more attractive for automakers and AV technology companies to join. Lifting poses much less of a threat to them than Uber, which some view as a violent monopoly. Similarly, Uber has swept with Waymo, in and out of court, and those fights make it unlikely that Waymo, widely regarded as a leader in AV tech, will cooperate with Uber in any significant way, and serve as a reminder to other potential partners about Uber may not be a wanted ally.
In a high-level comparison between the two companies, it is clear that Lyft is growing much faster than Uber, has a leadership team with better results and has some clarity about the future that Uber lacks. Finally, Lyft's stronger reputation and positioning have made it possible to create a number of partnerships with companies that are most likely to make autonomous vehicles a reality.
Both companies are bleeding cash and remain overvalued in terms of risk, but at this point Lyft looks like the much better buy.