Uber v/s Lyft: Which Stock is a Better Bet?

With the worst of the pandemic behind us, ride-hailing service providers are seeing an uptick in demand for their offerings. People are venturing out again freely, which is boosting the growth prospects of service providers like Uber and Lyft, two stiff competitors.

Being the pioneer, Uber has the upper hand and operates in two segments, food delivery and ride services. Meanwhile, Lyft is comparatively newer and only operates in the ride-hailing segment.

Let’s delve deeper into how both the companies are seeing their performance in the upcoming quarters and analysts’ views on the sector.

Uber Technologies (UBER)

Uber shares closed down 3.5% at $30.41 on March 10. Year-to-date its stock has lost 30.8% amid the broader sell-off in the market owing to the ongoing war.

Recently, Uber raised its Q1FY22 forecast for earnings before interest tax depreciation and amortization (EBITDA) to fall in the range of $130 million to $150 million against prior guidance of $100 million to $130 million. The guidance is backed by sequential improvements in both its Delivery (Uber Eats) and Mobility (Uber Ride) segments.

Uber witnessed a surge in the Mobility business during February, with trips recovering 90% and Gross Bookings (GB) recovering 95% compared to the pre-pandemic levels of February 2019.

Moreover, Uber witnessed its Delivery segment’s annualized GB run rate reach an all-time high in February. Even airport GBs in February rose 50% sequentially.

Happy with the accelerated recovery in demand for its services, Uber CEO, Dara Khosrowshahi, said, “We’re preparing for the upcoming travel season to be one of the strongest ever.”

“Whether for travel, commuting, or going out at night, we’re seeing healthy and growing demand across all use cases, highlighting just how eager consumers are to get moving again,” Khosrowshahi added.

Following the news, analyst James Lee of Mizuho Securities followed suit and increased the estimates for Q1FY22 EBITDA, but left the long-term EBITDA unchanged. Lee is conservative on the near-term outlook for the ride-hailing sector due to increasing prices of both crude and gasoline.

Meanwhile, Lee reaffirmed his Buy rating on the UBER stock and has assigned a price target of $72 based on a sum of the parts valuation. Lee assigns a premium to Uber’s Mobility segment due to its global scale compared to its peers. Whereas, in the Delivery segment, Lee considers the stock in line with peers due to increased competition and fragmentation.

Other analysts on the Street have also awarded UBER stock a Strong Buy consensus rating based on 23 Buys and 1 Sell. The average Uber stock prediction of $62.63 implies 106% upside potential to current levels.  

Lyft, Inc. (LYFT)

American ride-hailing service provider Lyft ended fiscal 2021 with record numbers in Q4. Driven the by reopening of the economy and momentum in demand for ride-hailing services, all of its important metrics reached new highs in Q4, including Revenue per Active Rider, Contribution Margin, and Adjusted EBITDA. Lyft even reported its first positive EBITDA in fiscal 2021.

Lyft shares closed at $37.63 on March 10. Year-to-date, its stock has lost 15.6%.

Though Lyft has not provided any update for its FY22 performance, the company did mention in its Q4FY21 results that, “Despite short-term headwinds from omicron, we remain optimistic about full-year 2022.”

For Q1FY22, Lyft expects revenue to fall between $800 million and $850 million, which is way below the consensus of $984 million. Similarly, adjusted EBITDA is forecasted to be between $5 million and $15 million, which is way below the consensus estimate of $76 million. An even contribution margin of approximately 56.5% fell marginally short of the consensus estimate of 57.4%.

The lower-than-expected forecasts have compelled Wall Street analysts to be cautiously optimistic about Lyft stock. The stock has a Moderate Buy consensus rating based on 17 Buys and eight Holds. The average Lyft stock prediction of $57.09 implies 51.7% upside potential to current levels.

Concluding Views

Uber currently trades at a Price to Sales (P/S) multiple of 3.42 times and Lyft currently trades at a P/S multiple of 3.94. The industry average of P/S currently is 1.50, implying that both Uber and Lyft are trading at very high multiples, making them a pricey bet.

However, looking at both companies’ forecast for Q1FY22 and analysts’ views on the stock, coupled with implied stock price appreciation for the forward twelve months, Uber looks like a better bet over Lyft.

Having said that, the threat from high energy prices, as suggested by analyst Lee, poses a threat to both companies.

Additionally, driver retention and attraction will cost the companies suppressed margins since drivers may shy away from working for ride-hailing services due to higher energy prices.

Considering all the points, it may be advisable to hold on to stocks until stock prices recoup some of the past losses, and until we have clarity on the war and energy prices.

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