Two of the most important ride hailing companies of the United States – Uber and Lyft, are focusing differently for growth. While Uber continued to invest in money-losing side businesses, Lyft has completely focused on investing on its core businesses of commuting.
This Thursday, Uber announced that it expected to notch up profits throughout the company by the fourth quarter of 2020 which would be a year ahead of what it had forecast earlier, which resulted in the shares of the company rising by 9 per cent h the next day. The profitability of Uber is however based on exclusion of the expenses for stock-based compensation and other items which, when taken into account, is most likely to result in losses for the company of over $1 billion for the entire period of 2020.
Even though both Uber and Lyft are based out of San Francisco, US, they are very different. While Uber is a much larger company that racked up revenues of $3.8 billion in the first nine months of 2019, Lyft is smaller – it made only about $956 million in te same period. And the market valuation of Uber is five times that of Lyft.
Additionally, Uber is present in many more markets around the world compared to Lyft which is only focused on North America. Uber however has had a fall out with regulators in the United Kingdom and Germany and is not doing well in some Asian markets. In fact Uber had had to exit from a couple of Asian markets already with the latest one being divestment of Ubr Eats in India to a domestic rival.
Despite its small size, one of the leveraging points for Lyft is that it has managed to find ways to retain high-paying repeat riders in almost all the cities it operates in with the use of single subscription model which was launched by it last October.
Uber however believes that 2020 would be the “year of subscriptions” as it plans to create a single loyalty program for its users by bringing in its rides and food delivery services in a bundled plan, the company told investors on Thursday.
Currently, Uber makes profit from its ride-hailing business and revenues from the business comprises about three quarters of its total revenue. However the company’s profits are being weighed down by losses in its other operations. There are a number of diversified business ventures that Uber has ventured into in the last five years which includes its food delivery business called Uber Eats, development of self-driving cars, engaged in developing long-haul trucking operations and has invested money into creating commercial passenger drone shuttles.
The company is losing money on all of these investments. In the last two quarter of 2019, an adjusted EBITDA loss of $777 million was recorded by Uber Eats – the only two quarters where the company presented a breakdown of the losses.
Despite the company making losses, stocks of Uber are preferred by most major analysts. Angelo Zino, analyst at CFRA said that the Uber is a long term safe bet because of the size of the company, the profitability of its ride-hailing business and the capacity of the company to ride through regional downturns or regulatory pressure in one market.
However some investors prefer shares of Lyft because it is less risky.
“We prefer Lyft because it focuses on the most profitable business in North America, the largest rides market,” Cascend Securities analyst Eric Ross said.
“If you’re losing as much money as Uber, it makes sense to leave those businesses to other companies who have the competency,” said Dan Morgan, portfolio manager at Synovus Trust,
(Adapted from Reuters.com)