Will Uber shares outperform Lyft after poor Q4 2020 earnings?
Global ride-share giant Uber recently posted disappointing Q4 2020 earnings that were 5% down year-on-year. Losses for both Uber and ride-share rivals Lyft continue to mount, so why does positivity remain over Uber shares?
- 5% year-on-year (YoY) decline in the fourth quarter (Q4) 2020 earnings for Uber
- $968 million Q4 2020 loss for Uber & $458.2 million Q4 2020 loss for Lyft
- How can Uber and Lyft expand to plug their losses?
- Want to trade Uber shares? Open an account today
Uber’s share price slid earlier this month after missing analysts’ predictions for Q4 2020 earnings. Uber Technologies Inc (UBER.N) reported revenue of $3.17 billion in the last quarter, which was over $400 million less than analysts anticipated. It was also down 5% YoY on its Q4 2019 earnings.
The company’s overall operating loss for Q4 2020 totalled a staggering $968 million, equating to 54 cents per share. Despite this, Uber shares rose higher during the session in which the figures were published, reaching a high of $64.05.
Lots of value for consumers but little value for Uber shareholders?
There is no doubting that Uber’s ride-share service offers the utmost convenience for consumers, as do those of its competitors like Lyft Inc (LYFT.O). Safely negotiating urban areas is now more efficient and cost-effective than ever before. However, is that enough to appease Uber shareholders, and is the company delivering necessary value for its investors?
Uber’s earnings before interest, taxes, depreciation and amortisation (EBITDA) for the last three years is -0.9%, with this proving to be worse for Lyft shareholders given that the company’s EBITDA is -20.2% over the same period. Both companies have negative economic profit too, meaning that their growth actually harms their value rather than sustaining it.
However, there is some hope for Uber shareholders, given that Morgan Stanley analyst Brian Nowak believes Uber’s EBITDA for 2021 will reach breakeven levels for the first time. Furthermore, it's worth noting that, in January, Deutsche Bank ranked Uber as their top investment pick for 2021.
Will Covid-19 vaccination programmes breathe new life into ride-sharing?
In January 2021, Lyft revealed that ride-share services were still down over 50% YoY, while Uber also posted bookings at 43% lower YoY in the same month.
Despite this, investors seem convinced that the rapidly advancing Covid-19 vaccination programmes across Europe and North America will turbocharge a ride-share recovery. It’s true that tighter economic conditions for citizens post-pandemic could see a continued shift from car ownership to transport-as-a-service solutions like Uber and Lyft. However, changing work-life balance trends, such as permanent work-from-home policies, could put such a swift recovery on hold.
Uber banking on the growing delivery habit, but what’s new for Lyft?
Despite losing $968 million in the last quarter, Uber’s chief executive officer (CEO) Dara Khosrowshahi remains hugely positive about the future for the company. The basis for this is Uber’s fast-growing delivery business, which Khosrowshahi says is experiencing 'very high rates' of growth. He alluded to the ‘delivery habit’ that’s ensued during the last 12 months of the Covid-19 crisis, which he feels will ‘not only stick but grow’. Bookings in Uber’s delivery service alone rose by 130% in Q4 2020, generating earnings of $10.05 billion.
While Uber’s delivery arm has offered significant respite in the last 12 months, giving the company confidence to state that it’s ‘well on track’ to meet 2021 profit targets, the same cannot be said for Lyft.
Furthermore, Lyft is hamstrung in its ability to expand its ride-sharing services abroad. It’s strictly limited to the US at present, with many potential investors wondering why the company has chosen not to expand as aggressively as Uber into Europe and beyond.
The reality is that Lyft’s war chest is simply nowhere near as deep as Uber's, meaning they are restricted in how much cash they can burn when entering new markets. Lyft continues to try and maximise returns by doubling down on its domestic market instead – which could be to the detriment of the Lyft share price, and, in turn, give Uber a clear run overseas.
Will Uber shares continue to outperform the Lyft share price?
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