Uber and Lyft’s share prices race to recovery

Uber’s [UBER] share price and Lyft’s [LYFT] share price seemed to follow similar trends throughout 2020 but, of the two companies, Uber’s share price came out on top with a 71.5% gain. In comparison, Lyft’s share price ended the year up 14.2%.

Both stocks got off to a good start at the beginning of last year, with Lyft’s share price closing at $53.94 on 11 February 2020 and Uber’s closing at $41.27 on the same day, which marked year-to-date climbs of 25.4% and 39%, respectively.

However, both stocks fell significantly following the market sell-off in March. On its worst day of trading last year, Uber’s share price fell 50.2% to an all-time low of $14.82 on 18 March, while Lyft reached an intraday low of $14.56 before closing at $16.05 on the same day.

More recently, Uber’s share price reached an intraday high of $60.03 before closing at $56.91 on 14 January 2021. Lyft’s recent share price performance has been positive as well, the stock was up 8.1% for the year at $53.12 on 5 February. However, this was still 32.1% below its all-time high of $78.29, which it reached on 29 March 2019 — the day after its market debut.

Investors will be keen to see which of the ride-hailers comes out on top when Lyft and Uber prepare to report fourth quarter earnings, due to be reported on the 9 and 10 February respectively.

What’s driving Uber and Lyft’s share prices?

When Uber released its third quarter results on 5 November, it posted a loss of $0.62 per share, narrowly missing the consensus estimate from Zacks Equity Research of $0.60 per share but marking an improvement on the year-ago loss of $0.68 per share. Uber’s revenue totalled $3.1bn, which also missed consensus estimates by 0.5% and marked an 18% year-over-year decrease.

Meanwhile, Lyft released its third quarter results on 10 November, with a loss of $1.46 per share, which missed the publication’s consensus estimate. Revenues also fell from $955.6m a year ago to $499.7m but beat the consensus estimate by 0.5%.

In the five days building up to Uber’s third quarter results, both stocks saw a boost. Uber’s share price increased 25.6% between 30 October and 5 November, while Lyft’s share price rose 27.6%.

What’s more, both stocks surged in the three trading days leading up to Lyft’s earnings announcement. Uber’s share price rallied 12% to close at $47, while shares in Lyft climbed 24.2%. Although the stock had rallied more than its peer, it was still down 16.2% year-to-date.

Dara Khosrowshahi, CEO of Uber, struck a positive outlook during the earnings call. He told investors that he expected to continue to deliver “exceptional growth and improving profitability” based on growing demand for delivery services.

As two of the biggest ride-hailing businesses, Uber and Lyft’s performances are key indicators for thematic ETFs such as the ETFMG Travel Tech ETF [AWAY]. Like Lyft, the ETF struggled throughout 2020, but recovered towards the end of the year to close up 4.4% from its 13 February launch date.

Looking ahead to Uber’s next earnings call, the consensus estimate from Zacks suggests it will post a loss of $0.53 per share, up 17.2% from the year-ago period on revenues of $3.6bn, down 11.1% year-over-year. Lyft, on the other hand, is expected to announce a loss of $0.71 and revenues of $553.8m, marking respective losses of 73.2% and 45.6% year-over-year.

Does diversification make Uber more appealing?

Uber’s food-delivery business is “on fire and at the forefront of investors’ conversations,” Ross Sandler, an analyst at Barclays, wrote in a note seen by Barron’s. He sees its hybrid business as a top play, with Uber Eats about to break even.  

In a sign of further expansion, Uber announced on 2 February that it will acquire alcohol delivery service Drizly in a $1.1bn stock and cash deal.

“It was clear that the pandemic has led the company to really lean into delivery of food,” Tom White, an analyst at DA Davidson, wrote in an interview seen by MarketWatch. “But it also led them to take more seriously the opportunity in essential and nonfood items.”

"It was clear that the pandemic has led the company to really lean into delivery of food" - Tom White, DA Davidson

Meanwhile, Sandler believes Lyft will be the initial benefactor of the vaccine roll out and “could outpace Uber in rides for a few quarters”. He also noted fourth quarter results could be affected by incremental costs stemming from Proposition 22 in California.

As a long-term play, Uber appears to be innovating its business, while Lyft could benefit from some short-term uplift. Both stocks have similar weightings in the ETFMG Travel Tech ETF — 4.4% and 4%, respectively — which could be worth considering for investors looking to diversify.