Buy Uber, Sell Lyft?
Sometimes it's hard to tell Uber Technologies (NYSE: UBER) and Lyft (NASDAQ: LYFT) apart. The two ridesharing services went public earlier this year, quickly buckled below their IPO price tags, bottomed out on May 13, and have been market beaters ever since.
They are both losing a lot of money, but the similarities mostly end there at this point. Uber is larger. Lyft is growing faster. Uber is more diversified in terms of both geography and breadth of services. Both stocks seem to be moving in lockstep -- falling mostly through mid-May before rallying back in recent weeks -- but what if you could only buy one? Let's go over the pros and cons of each ridesharing company before hailing a ride on the winner.
It's a drag race
Uber is huge. There are 93 million monthly active platform consumers all over the world, rising 33% over the past year. Uber's revenue through the first three months of the year rose just 20% to $3.1 billion -- or 14% on a net basis -- but there's more to this deceleration. Uber's revenue doesn't score what it's returning to drivers, and it's been more generous lately as a way to win driver loyalty and get more of its car jockeys to embrace the joys of Uber Eats. Gross bookings actually climbed a hearty 34% to $14.6 billion during the quarter.
Folks will spend more than $60 billion through Uber this year, amazing for a business that wasn't even around a decade ago. Can you imagine where we'll be a decade from now?
Lyft is a smaller yet faster-growing purist when it comes to personal mobility. Lyft isn't following Uber into restaurant delivery or freight logistics, though it's not beyond letting you rent a scooter in some markets. Revenue soared 95% in its first quarter as a public company, but Lyft expects that pace to slow to between 52% and 53% for all of 2019.
Uber is generating nearly five times the trailing revenue of Lyft. Lyft would have to grow at this year's projected 52% to 53% pace for nearly four years (but it won't), and Uber's growth would have to get stuck in neutral (and it won't) for the two to meet up at the same top-line intersection by the end of 2023. This isn't going to happen anytime soon, and that's why the market is valuing Uber at a little more than four times Lyft's market cap and enterprise value.
There is still a lot for both companies to figure out. Will Lyft follow Uber's lead overseas or make the logical extension to rip a page out of the Uber Eats playbook? Uber Eats is huge for the ridesharing leader because it opens up the platform to drivers that don't like hauling passengers around or have vehicles that don't make the cut. On the customer front, Uber Eats is a way for folks that don't need the flagship ridesharing service to still establish a connection with Uber. Home delivery of restaurant food is a no-brainer convenience once you get beyond the delivery and service premiums.
Neither company is going away anytime soon despite the billions in combined annual losses, but this duopoly should remain firmly entrenched as the top two players for the foreseeable future. There's nothing like 10 figures in red ink on the annual bottom line to scare away potential entrants.
However, it's also hard not to like both stocks' chances here. Uber will continue to dominate. Lyft may gradually nibble away at Uber's market share. In the end, the pie itself will expand. Both stocks may have had a rough start to their publicly traded tenures, but both should beat the market over the long haul.
As for the better buy, right now it has to be Uber given its dominant position, success overseas, and the transformative growth at Uber Eats.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.