You’ve probably heard a friend say it late at night or even said it yourself — “I’ll get an Uber.” It would not have made any sense years ago, but rideshare services have edged their way into the culture of this generation.
With so much talk and popularity, one may think stock in companies such as Lyft and Uber should be skyrocketing. But is the rideshare industry worth investing in?
It is well-known that during the past year, the economy has been in turmoil with supply chain woes, rising inflation and other issues related to the COVID-19 pandemic. Investors awaited quarterly earnings reports, hoping they would see improvement.
While other companies reported disappointing numbers, Uber delivered, with gains in quarterly revenue and adjusted profit. As a result, its stock went up 12% the day the results were announced.
The company reported a 72% increase in revenue in the quarter from a year ago, to $8.34 billion. Uber’s gross bookings also rose in the quarter by 26% to $29.12. Although these two numbers are major improvements and show a move toward pre-pandemic numbers, Uber also forecasted slower bookings growth which concerned some investors.
On the other hand, Lyft’s earnings report is a rocky situation. The company is a giant in the rideshare industry just like Uber, but unlike its competitor, Lyft reported revenue of $1.05 billion, while analysts predicted $1.06 billion, and did not show as strong a move toward pre-pandemic numbers. The company also reported 20.3 million active riders when investors were expecting 21.2 million. Those two misses caused the stock to drop by 22% after the report.
Lyft also announced that the company will be laying off 13% of its workforce in anticipation of a recession. The company cited another, often overlooked, reason for the layoffs — rising insurance costs. On one hand, one could say that the layoffs could save the company money, but on the other, one questions why it needed to take that step. That, along with the earnings report, could indicate poor performance for the company in the future, which would cause its stock to fall even further.
While Uber reported better earnings than Lyft, it is important to look at more than that when considering investing. While both companies are in the rideshare industry, Uber has more plans to expand than Lyft.
Uber has a branch of the company dedicated to food delivery, called Uber Eats. It is a great expansion opportunity as people are prone to pay extra for convenience such as delivery. Major restaurants such as McDonald’s offer delivery through companies like Uber Eats, which allows Uber to capitalize on the additional market.
If expansion into the food industry is not enough to draw attention, Uber is taking a play from Amazon’s book and recently launched Uber One, a subscription service.
The idea seems to be spreading to every company and Uber does not want to fall behind — likely because it is a popular way to boost profits. The service offers benefits such as a $0 delivery fee on Uber Eats, 5% off on Uber drivers and the Uber One Promise to give subscribers $5 in Uber Cash if their order is late. All this comes at $9.99 per month and an average savings of $25 each month.
Lyft has a similar package in its program called Lyft Pink. With the slogan, “Ride like a VIP every time,” the program includes a free year of Grubhub+ and free priority pickup. While Uber has its own food branch, Uber Eats, Lyft partnered with Grubhub to offer food services. While Lyft Pink benefits the company through the subscription strategy, it does not offer as much as Uber One.
Uber seems to have a better plan currently set up for expanding its company into new markets, making it look like Lyft is trying to keep up, indicating the company is not the leader in this industry.
When buying stocks, one is not looking at the current value, but rather the future value. Investors should target companies that have plans for the future and are not complacent, which is what Uber is showing with its new programs.
For those looking to invest in either company, Uber is currently the better option. These companies will most likely continue to struggle in the coming years to recover from the pandemic, which is why I am not bullish about either. While both are in the same industry, Uber has better plans for expansion and showed more improvement in its recent earnings than Lyft, something that should translate into gains for its stock.
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