By Michael Brush
“The potential remains enormous,” Khosrowshahi has said. So far, at least, reopening has not hit food delivery too hard.
In contrast, Lyft is only in ride share. It’s not in food delivery or logistics.
The broader diversification gives Uber an edge because it has more avenues for growth. It also makes it more attractive for drivers to work with Uber, since they have the fallback of food delivery on the same platform when ride demand declines. And there are benefits of cross-selling to customers.
The bottom line: In diversification, Uber seems to have the edge.
Uber also has much better international reach. This matters because during economic rebounds, many foreign economies grow faster than the economy in the U.S. Uber is in more than 70 countries — mainly in the U.S. and Canada but also in Latin America, Europe, the Middle East, Africa and Asia. It gets 30%-35% of its revenue from outside North America. Lyft serves fewer riders in part because it is focusing mainly on the U.S. market. Here again, Uber has the advantage.
Lyft says it may expand its international offerings, and Lyft bulls might argue that the lack of an international presence merely creates an opportunity for bigger growth than at Uber, which has already rolled out its service abroad.
Lyft looks cheaper, based on forward price-to-sales estimates (see above).
But by Morningstar’s “fair value” analysis, Uber looks cheaper. Uber trades 40% below Morningstar’s estimated fair value of $67 per share. Lyft trades 21% below Morningstar’s estimated fair value of $61. At Morningstar, “fair value” means where the stock should trade now based on expected medium-term earnings growth.
Both companies look cheap, relative to other tech companies. For example, J.P. Morgan analyst Anmuth has year-end price targets for Uber of $74 and $72 for Lyft. That’s only around five times its 2022 sales estimates, compared to eight times for their internet marketplace peers, he says.
Next, growth-oriented tech companies like Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL +0.71% , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +0.28% , Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.06% , Facebook Inc. /zigman2/quotes/205064656/composite FB +2.02% , Netflix Inc. /zigman2/quotes/202353025/composite NFLX -0.15% , DoorDash Inc. /zigman2/quotes/222973991/composite DASH +1.62% and Etsy Inc. /zigman2/quotes/202790087/composite ETSY -0.36% trade for current price-to-sales ratios of five to 10 or higher. This suggests Uber and Lyft shares could be a lot higher in two years, given that these two ride-share companies trade for 3.7 to 4 times expected 2022 sales now.
The majority of Wall Street analysts are bullish on these two ride-share companies. That’s a positive. The analyst skew favors Lyft, since there are more analysts remaining to turn positive and drive clients into the stock. One-year price targets — which aren’t always accurate, of course — suggest gains of 50% for Uber and 43% gains for Lyft over the next 12 months.
“Lyft remains a Top Pick in 2021, and as a pure-play ride-share business, our favorite recovery idea,” says Anmuth. He has an “overweight” rating on Uber.
The biggest near-term problem for both companies is a shortage of drivers. But higher prices are offsetting that to some degree. The decline of COVID-19 and the increasing vaccination rate will help improve driver availability. So will company incentives, and the decline in generous federal subsidies to unemployed workers in September.
“Once the disincentive of enhanced unemployment benefits expires in early September, drivers will respond quickly,” says Deutsche Bank analyst Lloyd Walmsley, who has a “buy” rating on the stocks.
Medium-term, both companies face public policy risks, or the forced reclassification of gig workers as full-time employees.
“We think they are more than priced-in at current levels,” says Mogharabi at Morningstar.
Michael Brush is a columnist for MarketWatch. At the time of publication, he had no positions in any stocks mentioned in this column. His stock newsletter is Brush Up on Stocks. Follow him on Twitter @mbrushstocks .