Uber vs Lyft shares: what to expect from Q1 results
Uber and Lyft shares have tanked as the coronavirus pandemic threatens to put the brakes on both ridesharing stocks. We explain what to watch out for in the first quarter results to be released later this week.
When will Uber and Lyft report Q1 results?
Lyft will be first to report their first quarter (Q1) earnings on Wednesday 6 May 2020, at 13.30 PDT in the US, or 09.30 BST in London. Uber will follow and report at the same time on the following day, on Thursday 7 May 2020. Both reports will cover the first three months of 2020.
Uber vs Lyft: what will be the cost of the coronavirus?
Uber and Lyft both reported their annual 2019 results in February and the focus was on when both companies would become profitable. Both had continued to deliver rapid top-line growth, but shareholders were concerned that it was slowing down and that losses were still hefty. With questions being asked about their sustainability, Uber and Lyft had both taken bold moves to say they were on the cusp of escaping the red and moving into the black.
But the conversation has drastically changed since the coronavirus outbreak began to shutdown economies across the world. Most of the pair’s key markets have gone into lockdown, which will mean less people travelling and using ridesharing apps.
Coronavirus was discovered on the last day of 2019, but the lockdown measures came in later as it rippled from China to Europe and the US. Most major economies began introducing lockdown measures in the latter half of March. This means the effect of the coronavirus will be limited in Q1 and shareholders will be concentrating on what the outlook looks like for Q2, when the full effects will become clear.
The discussion has therefore returned to survival and how each company will be able to respond to the situation, and whether they will be able to bounce back when lockdown measures are finally eased.
What to expect from Lyft’s Q1 results
Lyft is considerably smaller than Uber. It only operates in the US and Canada, and outside of its core ridesharing business its other interests are in other modes of rentable transport, such as scooters. The fact Lyft is smaller, only operates in two countries, and solely reliant on transport means it is much more vulnerable than its peer.
Lyft delivered another year of strong revenue growth and narrower losses in 2019 but was already further away from profitability compared to Uber before the outbreak. Lyft said it was aiming to deliver a 27% to 29% rise in annual revenue in 2020 – significantly slower than the 68% growth reported in 2019. Its adjusted earnings before interest, tax, depreciation and amortisation (ebitda) loss was set to be in the range of $450 million to $490 million.
But Lyft has, understandably, withdrawn that financial guidance. On 21 April, Lyft said the ‘pandemic began to have a negative impact on business trends, including ride volumes, in mid-March, which has continued into April’.
‘In light of the evolving and unpredictable effects of Covid-19, Lyft is currently not in a position to forecast the expected impact of Covid-19 on its financial and operating results for the remainder of 2020,’ the company warned.
It will provide details on what actions it is ‘taking to strengthen its financial position, improve its cost structure, and support drivers and riders on the Lyft platform’ in its Q1 results. It has already sacked 982 employees – equal to 17% of its workforce – and furloughed another 288 from May. It said restructuring costs would be between $28 million to $36 million, the bulk of which will be incurred in Q2 rather than Q1.
Lyft’s Q1 results should be positive and represent a big improvement from the year before, although any progress will be overshadowed by the outlook. Revenue is forecast to have risen 15.7% year-on-year (YoY). Still, that will be much slower than the 52% growth reported in Q4 2019, when it reported quarterly revenue of over $1 billion for the first time. Losses are expected to narrow across the board, with a particularly notable contraction in its net loss attributable to shareholders and loss per share.
|Q1 2019 results||Q1 2020 consensus|
|Revenue||$776 million||$897.86 million|
|Adjusted ebitda||($216 million)||($187.16 million)|
|Net loss||($1.138 billion)||($389.41 million)|
|Earnings per share (EPS)||($48.53)||($1.28)|
What to expect from Uber’s Q1 results
Uber generates the majority of its revenue from its ridesharing operation, but it also has smaller but faster-growing units including its food delivery business Uber Eats and a small freight unit, Uber Freight, that ships goods for other businesses. It is considerably larger than its peer, has greater geographical reach, and is more diverse.
Uber shocked the market last year when it admitted it might never make a profit. But after succumbing to pressure applied by shareholders concerned over the sustainability of the business, Uber boldly stated it would deliver its first quarterly positive adjusted ebitda in the final three months of 2020.
It has now, like its peer, scrapped that goal. Uber said on 16 April that ‘it is impossible to predict with precision the pandemic’s cumulative impact on our future financial results’ and therefore withdrew its guidance for bookings, revenue and adjusted ebitda this year.
Uber has already announced Q1 net income will take a hit of between $17 million to $22 million on support programmes to help drivers, which will increase to between $60 million to $80 million in Q2. It has also warned that it will book between $1.9 billion to $2.2 billion in non-cash impairments in Q1 as the value of its investments in other companies has tumbled since the outbreak began to rock equity markets.
Shareholders should brace themselves. Uber should outline its detailed response to the crisis and what it means for its core ridesharing business and its drivers. Job cuts are a likely possibility, as are new measures to keep drivers and passengers safe. Ultimately, investors will have concentrate on the cost impact of Uber operating in a post-coronavirus world.
Eyes will also be on Uber Eats, where investors will be hoping for some resilience. Food delivery has been one of the few industries to be able to continue operating and investors will hope that Uber has managed to capitalise on the current situation.
With the coronavirus set to have a limited impact in Q1, analysts are still expecting strong numbers from the company. Revenue is forecast to climb 13.3% YoY. While still strong, it is a marked slowdown the 20% YoY revenue growth reported in Q1 2019 and the 37% YoY increase reported in Q4 2019. Uber will remain loss-making as expected. Adjusted ebitda and the loss per share is expected to narrow but its bottom line net loss attributable to shareholders is expected to widen.
|Q1 2019 result||Q1 2020 consensus|
|Revenue||$3.099 billion||$3.512 billion|
|Adjusted ebitda||($869 million)||($729.06 million)|
|Net loss (to shareholders)||($1.012 billion)||($1.369 billion)|
Uber vs Lyft: how to trade the Q1 results
Uber and Lyft shares have collapsed since February. Both of them hit all-time lows on 18 March and have recovered some of their value since then. Still, Uber shares are trading more than 8% lower than at the start of the year and Lyft shares are trading 32% lower.
The recovery since mid-March was partly driven by investors warming to the pair’s response to the pandemic. Both sets of shareholders seemed buoyed by the small cost impact of the response made so far, particularly Uber’s. Shareholders are bracing for a poor outlook, but the main driver of the share price is more likely to be on how much it will cost to weather the storm and how quickly they can bounce back.
The fall in value over recent weeks means brokers are currently bullish on both stocks. Current target prices suggest there is 34% potential upside to Uber shares and a staggering 64% potential upside to Lyft shares. However, brokers will undoubtedly review their position after the results and investors should watch for updated target prices and ratings over the next couple of weeks.
|Average Target Price||$38.02||$48.44|
Recommendations correct on 04 May 2020 | Source: Reuters
How to trade Uber and Lyft shares
With IG, you can trade on the world’s best trading platform and back whether Uber or Lyft shares will rise or fall in value. Go long (buy) if you think the shares will increase in value, or go short (sell) if you think they will decrease in value.
To take a position, follow these simple steps:
- Create an IG trading account or log in to your existing account
- Type ’Uber’ (UBER) or ‘Lyft’ (LYFT) in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
Focus is on short-term survival but there will be long-term consequences
The immediate concern for investors is whether the two ridesharing stocks can weather the storm and if they can simply pick up where they left off once the pandemic subsides. Uber has already provided the confidence investors need to maintain their long-term belief in the company.
Chief executive Dara Khosrowshahi said last week that the company can comfortably survive with around $10 billion of unrestricted cash to fall back on, stating that ‘liquidity is key’ in any crisis. Its ‘worst case scenario’ would see revenue from its core rides business collapse 80% for the remainder of the year and leave it with $4 billion at the end of 2020. In a more likely scenario, where the virus peaks in Q2 and business starts to recover in the second half, it would have $6 billion left in the bank at the end of the year.
Uber has cash, scale, global reach and is diverse with its food delivery and shipping operations – both of which should prove more resilient during lockdown. The huge sums that have been invested in Uber’s global brand means its major investors are less likely to let it collapse, especially if the long-term potential of the business model is still intact.
Things aren’t the same at Lyft. The original attraction was a more focused, concentrated and streamlined operation than an ever-expanding Uber, but those things are now going against it. It only operates in two countries, doesn’t have any diverse pockets of the business to fall back on like Uber Eats, and it certainly doesn’t have the cash resources that Uber has. Lyft had $564.5 million in cash and equivalents at the end of 2019.
That makes Lyft more fragile – and it raises the likelihood that it could need to secure more funds depending on the how long the situation lasts, either in the form of debt or equity. The fact Lyft shares have experienced a much larger fall than Uber demonstrates the fact investors do not hold the same level of confidence in each stock. The steep fall in value also means Lyft could become vulnerable to a takeover – possibly by Uber.
Coronavirus will have long-term ramifications for the ridesharing industry as a whole that Uber and Lyft will have to respond to. For example, will more people prefer to travel in a car than use public transport once lockdown ends? Will overall demand decline because more companies realise the benefits of allowing people to work from home? Will drivers be satisfied with how the gig economy works after Uber and Lyft use its flexibility to their advantage? And, most importantly for investors, can Uber and Lyft swiftly return to the path toward profitability once the crisis is over?
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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