Investors got mixed messages from the ridesharing industry last week. The market initially cheered Lyft's (NASDAQ:LYFT) better-than-expected second-quarter results, only to be let down by Uber's (NYSE:UBER) ho-hum financial update a day later.
Shares of Lyft soared as much as 9% the day after it posted its fresh financials, settling for a 3% gain by the end of the trading session. Uber stock took a 7% plunge the next day, as it failed to boost its margins and posted weaker-than-expected top- and bottom-line results.
It would definitely seem as if Uber and Lyft are going in different directions at first glance, but pull back, and things start to look different. Lyft shares rose by less than 1% for all of last week. Uber stock limited its weekly slide to less than 1%. Both stocks also kicked off this week by falling sharply on Monday.
Going for a test drive
There may very well come a time when the two stocks trade on their own individual merits, but for now they still seem joined at the hip. It doesn't seem to matter that Lyft is growing substantially faster or that Uber has a much wider geographical reach as well as more services. For now investors view the two investments as broken IPOs posting 10-figure annual losses.
It's not fair. Lyft is a speedster. Revenue revved 72% higher in last week's quarterly report. Even the most ambitious Wall Street pro was betting on a 66% jump. Uber's 14% year-over-year increase in revenue understates its actual growth -- as gross bookings rose 31% or an even heartier 37% adjusted for currency fluctuations -- but it's still farther out in its growth cycle.
Uber and Lyft are different, even if you find yourself comparison shopping between the two whenever you need to hail a ride service. Lyft is limited to just North America right now, and its CEO has said that it has no intentions of expanding overseas in the near future. Uber is trying to have a presence in as many countries as it can legally operate in. Uber is also a major player in food delivery, and Lyft hasn't tipped its hand as to whether it will follow the Uber Eats lead.
Both companies are losing a lot of money, and one reason is that they are both spending heavily on keeping drivers financially incentivized to drive for them while also offering a deluge of promotions for riders to stay loyal. However, Uber's red ink is also weighed down by start-up costs overseas and the need to ramp up its Uber Eats platform in a cutthroat niche. Analysts don't see either company turning a profit until at least 2023.
We will eventually get to the point where the two companies rise and fall on their own distinctive merits. A big reason Uber and Lyft had essentially flat performances last week despite the disparate reports and initial market reactions is that Uber stock rose sharply after Lyft's positive results came out. Then Lyft gave back a good chunk of its gains the next day when Uber proved mortal. As the ridesharing market evolves, Lyft will be either rewarded or punished for sticking close to home. Uber will be penalized or applauded for being an early leader in third-party restaurant delivery. The two companies are not the same, regardless of how their stocks may appear in the eyes of the market right now.