The Ratings Game: Lyft earnings spark debate on whether Uber has a financial edge over smaller rival
Lyft Inc.’s latest results have some analysts wondering whether Uber Technologies Inc. has a major edge as both ride-hailing companies aim for eventual profits amid investor unease over the continued steep losses in the ride-hailing industry.
a few days earlier, Lyft
did not move forward its target for when it expects to be profitable on the basis of earnings before interest, taxes, depreciation, and amortization (Ebitda). Uber’s forecast now implies the company could be profitable on an Ebitda basis by the fourth quarter of 2020, while Lyft’s forecast still targets the fourth quarter of 2021.
The Uber forecast has “better optics,” wrote MKM Partners analyst Rohit Kulkarni. “We think Lyft has fewer levers to accelerate its pathway to profitability versus Uber, and we do not believe reducing marketing spend is a healthy and sustainable way to achieve sustainable profitable growth.”
Kulnarni has a neutral rating and $53 price target on Lyft’s stock, which is off more than 8% in Wednesday trading.
Bernstein’s Mark Shmulik wrote that the results from Uber and Lyft in general show that the ride-hailing companies are “on a path of rationalization and narrowing losses/cash burn,” but he still has some questions about the relative performance of the two companies.
Shmulik was left wondering whether Uber was “pushing harder” in the quest to improve bottom-line results, as well as whether the company’s scale and structure enable it to achieve better operating leverage relative to Lyft.
Though Uber and Lyft are both in the ride-hailing business, Lyft has a more narrow focus on the U.S. and ride sharing, while Uber has made a much stronger international push while also expanding into categories like food delivery and freight. There has been some debate since the company went public about which approach is smarter, but Shmulik wrote that after these latest numbers, investors should be asking whether Lyft’s “singular focus” puts it at a disadvantage.
Shmulik has a market-perform rating and $48 target price on the stock.
Others were more upbeat. “Investors were expecting more from Lyft after Uber set a stronger path to profitability last week, but taking a step back this quarter represents Lyft continuing to move the needle firmly in the right direction and we would be buyers on any knee-jerk weakness this morning,” wrote Wedbush analyst Daniel Ives.
He pointed to Lyft’s confidence that its focus on the domestic ride-sharing business helps give the company a margin advantage over Uber, “a view that speaks to our bullish thesis on the name.”
Ives rates the stock at outperform with a $75 price target.
At least six analysts raises their price targets on Lyft’s stock after the report, according to a FactSet count, while at least eight others lowered their targets. The average price target listed on FactSet stands at $65.29.
Lyft shares have added 16% over the past three months, while the S&P 500
has risen 9.2%.