Few other sectors suffered as much following the COVID-19 crisis as the ride-sharing industry. A rising star in the increasingly digitalized economy, the sector incurred severe damage following pandemic-related restrictions. Moving out of the malaise, only one winner might emerge from the rivalry between Uber (NYSE:UBER) and Lyft NASDAQ:LYFT).
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On Jan. 4, 2019, a little more than a year prior to the world absorbing a cataclysmic paradigm shift, the Pew Research Center reported that more Americans were using ride-hailing apps. Not surprisingly, young Americans and those in the ages 30 to 49 cohort gravitated heavily toward this pioneering segment of the broader sharing economy. However, Pew also noted that the 50-plus crowd also recognized ride-sharing platforms’ conveniences.
In 2015, only 7% of U.S. adults over age 50 reported having ever used a ride-sharing app. By 2018, this figure increased to a whopping 24%. Unfortunately, the COVID-19 pandemic threw a monkey wrench into the businesses undergirding the top ride-sharing stocks.
Seemingly out of nowhere, the SARS-CoV-2 virus temporarily forced a complete shutdown of non-essential activities. Later, mitigation protocols enabled some mobility but with heavy restrictions. Naturally, the pandemic imposed lasting consequences.
Per the American Psychological Association, 42% of U.S. adults reported undesired weight gain, with the average gain amounting to 29 pounds. This demonstrated that many people pivoted to a sedentary lifestyle. Logically, such a dynamic presents fundamental headwinds for ride-sharing stocks. Therefore, stakeholders looked forward to a full reopening of society.
Recently, government agencies removed several COVID-related restrictions, empowering far greater personal mobility. Unfortunately, the narrative never really benefited ride-sharing stocks. Soaring inflation and general uneasiness about economic stability weighed heavily on the consumer economy. In turn, this negatively impacted ride-hailing apps.
With available consumer dollars dwindling, the main concern is that the sharing economy is only big enough for one ride-hailing platform.
Lyft
The smaller of the two ride-sharing stocks, Lyft features a market capitalization of $4.65 billion. With comparatively limited resources, the company must be creative in how it approaches the broader sharing economy. Rather than attacking the global market as its larger rival, Lyft chose a more financially manageable path. In colloquial terms, it aims small and misses small.
In the most recent financial disclosure (the second quarter of 2022), Lyft generated revenue of $991 million. This represented a 29.5% lift over the year-ago period’s result of $765 million. However, as is typical for a still-growing technology innovator, its net loss in Q2 2022 expanded to $377 million. One year ago, this metric was below parity to the tune of $252 million.
To be fair, the missing small thesis comes into play when investors consider the retained earnings line item. At the most recent count, this stat sits at a loss of $8.93 billion. It’s a smaller number than its rival, which, all other things being equal, makes LYFT a more comfortable proposition. However, as the total addressable market dwindles due to macroeconomic pressures, Lyft may suffer from relevancy loss.
Put another way, in a declining market, it’s more important than ever to be competitive. Therefore, Lyft’s conservative nature may end up hurting the company in the long run.
What is the Forecast for LYFT Stock?
Turning to Wall Street, LYFT stock has a Moderate Buy consensus rating based on 13 Buys, 11 Holds, and one Sell assigned in the past three months. The average LYFT price target is $30.81, implying 137.7% upside potential.
Uber Technologies
On the other end of the spectrum for ride-sharing stocks, Uber Technologies stands as the innovator of the underlying industry. Commanding a market cap of $52.47 billion, it clearly dominates Lyft. In addition, UBER stock features better comparative performance, shedding nearly 40% year-to-date. While an ugly print, LYFT lost over 70% of market value during the same span.
Financially, Uber may also present a better profile for investors. In Q2 2022, Uber generated revenue of $8.07 billion, up more than twice as much as the year-ago quarter. To be fair, the net loss amounted to $2.6 billion, which is where the criticism comes in. In Q2 2021, Uber produced a net income of $1.14 billion.
On the retained earnings line item, Uber is staring at a loss of $32.16 billion. Compared to Lyft’s loss on the metric of $8.93 billion, the smaller firm seems the safer bet. However, Uber aggressively expands internationally, helping to distinguish the brand once the friendly skies fully reopen.
Also, Uber moved into other business arms, such as food and grocery-delivery services. While Lyft is also diversifying, the scale for Uber is simply massive in comparison. Therefore, Uber may rise in relevance while Lyft again loses it.
What is Uber Stock’s Prediction?
Turning to Wall Street, UBER stock has a Strong Buy consensus rating based on 24 Buys, two Holds, and no Sell ratings. The average UBER price target is $47.64, implying 77.8% upside potential.
Uber is the Smarter Risk Between the Ride-Sharing Stocks
To be clear, both UBER and LYFT represent significant volatility threats. As mentioned above, both ride-sharing stocks feature hefty double-digit losses. Clearly, headwinds to the consumer economy don’t augur well. Still, one ride-hailing app could emerge as the clear victor, and that appears to be Uber.
