Lyf (NASDAQ:LYFT) and Uber (NYSE: UBER) are forever connected because they are the original carpooling duopoly. However, the pandemic has revealed a clear differentiator: UBER’s diverse business model has allowed it to grow its food delivery business even as its ridesharing business stalled, while competitor LYFT could simply stand still. Yet, on the other hand, LYFT offers a pure ridesharing investment proposition, starting from a smaller base, which should imply faster future growth. Both of these stocks are trading low based on the ask price, what is the best buy today? The answer to this question depends on one’s investment style, as each stock has something unique to offer.
Key indicators for Lyft and Uber stocks
LYFT has seen a continued recovery from the pandemic, with revenue growing 44% to $876 million, comfortably beating their forecast of $800-850 million.
While LYFT modestly increased the number of active passengers to 32% year-on-year, the company also increased average revenue per passenger by 9%, which was above pre-pandemic levels.
While overall revenue is still below pre-pandemic levels, LYFT has stronger adjusted EBITDA than ever. LYFT generated $55 million in adjusted EBITDA, also significantly beating expectations by up to $15 million. LYFT has now generated positive Adjusted EBITDA for 4 consecutive quarters.
UBER delivered solid revenue growth of 136% year-over-year.
This is a huge outperformance compared to LYFT. There are a few adjustments we can make. Mobility revenue in 2021 was reduced by a provision of $600 million for driver reclassification in the UK, and mobility revenue in 2022 benefited from $200 million of business model changes in the UK -United. Even adjusting for these changes, UBER still increased revenue by 90%. UBER also generated strong adjusted EBITDA of $168 million, representing a margin of 0.6%.
How are Lyft and Uber different?
While both LYFT and UBER are giants in the ride-sharing industry, UBER has differentiated itself through its delivery business and (less significantly) its freight business. Despite tough competition, UBER saw 49% growth in revenue from its delivery business. That said, delivery activity is weighing on Adjusted EBITDA margins, as the 0.2% margin posted in the quarter is very low, albeit above pandemic levels.
UBER also has a large equity portfolio totaling $6.8 billion last quarter, but that figure is likely overstated amid the ongoing crash in tech stocks.
UBER has $4.2 billion in cash versus $9.3 billion in debt. LYFT, on the other hand, despite having no stock portfolio, has $1.4 billion in net cash.
Is Lyft more profitable than Uber?
It’s a complicated question. We should first start by showing how both companies aggressively streamlined their cost structure during the pandemic. We can see below that LYFT reduced its fixed costs by more than 30% in 2020 and was able to show operating leverage in 2021 as the business recovered.
UBER was able to significantly reduce costs and show operating leverage in 2021 (note: numbers read left to right).
For the last quarter, however, LYFT lost $199.3 million in operating profit on $875.6 million in revenue.
UBER posted a narrower loss at $482 million against $6.9 billion in revenue.
This makes UBER seem more profitable than LYFT, but on an adjusted EBITDA basis, LYFT generates a significantly higher margin at 6% compared to 0.6% for UBER. Additionally, since UBER has net debt (it does not earn interest on its equity portfolio), it pays much higher interest expense and therefore LYFT has a stronger profitability profile from the point from a cash flow perspective.
Are Lyft and Uber stocks good for long-term investing?
Both stocks are trading low after the tech crash, and I expect both companies to continue to grow as there are some real secular tailwinds driving both ride-hailing and delivery businesses. We can see the consensus revenue estimates for LYFT below:
We can see the consensus estimates for UBER below:
These estimates appear to imply stronger growth for UBER, possibly due to the company’s exposure to its still-new freight business. Still, intuitive logic would suggest that LYFT should grow stronger from a much lower revenue base.
Is LYFT or UBER Stock a Better Buy?
LYFT potentially poses faster future growth, which may make it cheaper compared to UBER. Additionally, LYFT’s net cash of $1.4 billion represents almost 20% of the market capitalization. On the other hand, UBER’s diverse lineup of businesses arguably makes it less risky, even though it has yet to achieve as much operating leverage. That’s not to say LYFT is risky – the company is generating cash, removing what was once the main bear thesis (no path to profitability). One could argue that UBER’s ability to offer rewards in its delivery and mobility business may lead to greater retention, but one could also argue that the demand is so strong that the market is big enough for them anyway. of them. One of the main risks for both stocks is that its drivers would be classified as employees, which would have negative consequences – either UBER would have to offer greater benefits (impact on margins) or its drivers would receive less take-home pay. (reducing the demand for drivers). Yet with stocks whose valuations have been reset amid the tech crash, such risk may already be priced in. Both UBER and LYFT seem purchasable here and perhaps the best answer is that one could own both to capitalize on the growth stories of ridesharing and delivery.