It's been a rough first two weeks for Lyft (LYFT -0.89%) as a publicly traded company, and things got even worse late last week when Uber's S-1 filing revealed the industry's challenges. Taking a glimpse at the world's leading ridesharing platform was a rude awakening for the thinning herd of Lyft bulls.
Uber's trailing revenue of $11.3 billion -- widely reported ahead of the actual filing -- drove home how much larger it is than Lyft with its $2.2 billion in 2018 revenue. Concerns about Lyft's lack of profitability only grew louder after it was revealed that Uber generated an operating deficit of more than $3 billion last year. There isn't a lot of hope for positive earnings in the near term if the two top dogs combined for an operating loss of $4 billion in 2018. Uber has a size advantage in an industry oozing red ink, but this doesn't mean that Uber's upcoming IPO will be a bad thing for Lyft.
Driving with your hazard light on
Lyft's market cap has fallen to $17 billion. Uber was initially being valued at $120 billion -- seven times as much as Lyft -- but that is being talked down closer to $90 billion to $100 billion. Is Uber worth more than five times as much as Lyft? The new prices lead to similar revenue multiples for both companies, and some Lyft bears argue that Uber deserves a premium as the runaway market leader. There's more to this story.
Stocks are valued based largely on future potential, and here is where Lyft gets more interesting. Uber's ridesharing revenue is actually just $9.2 billion. The balance comes from businesses including Uber Eats, Uber Freight, and vehicle financing that Lyft doesn't presently offer. This isn't just about checking down Uber's ridesharing revenue to a multiple just above four instead of five Lyft's top-line results. Lyft will inevitably get into some of these secondary markets, and the payoff could be substantial.
The inevitable launch of Lyft Eats will be about more than just incremental revenue. The average Uber customer who also uses Uber Eats averaged 11.5 trips a month, more than double the 4.9 trips for folks only leaning on Uber for personal mobility. Uber Eats also helps expand Uber's potential driver pool, as it opens up the gigs to drivers who have cars that don't meet the minimum requirements for wheeling patrons around.
Another interesting disparity in the two ridesharing giants is that Lyft averaged 1.7 million rides a day last year, pitted against 14 million for Uber. Why is Uber generating more than eight times the rides but just a little more than five times the revenue? Uber's presence in international markets where there's less money to pay for rides is a factor. Lyft's growing its top line a lot faster last year -- 103% vs. just 42% for Uber -- also blurs the performance. It all leads to the superior quality of Lyft's current revenue.
Uber is the undisputed champ in this niche, and it will be a popular IPO. However, Lyft won't stay out of favor for long. This is an ugly niche for fans of near-term profitability, but growth investors should appreciate that this will never be a winner-take-all market. Consumers need two strong players, and the same can probably be said about investors, too.