Shares of Lyft (NASDAQ:LYFT), Hertz Global Holdings (OTC:HTZG.Q), and Avis Budget Group (NASDAQ:CAR) were all soaring more than 21% Thursday morning, likely being driven by Uber's 35% pop after the company held a conference call with analysts to give insight into its business during the COVID-19 coronavirus outbreak.
As major cities and states across the nation take increasingly aggressive measures to help slow the spread of the COVID-19 coronavirus, it's becoming clear that entertainment and transportation stocks, among many others, will be hard hit. Before Uber's Thursday conference call, Uber and competitor Lyft had both suspended pooled or shared rides on their ride-hailing platforms, noting that the health and safety of the communities they operate in are the top priorities. The companies are already seeing an impact, according to Edison Trends, a research firm that reported consumers spent roughly 20% less on Uber and Lyft last week compared to the prior week.
Uber CEO Dara Khosrowshahi told analysts today that ride volume has plunged as much as 60% to 70% in recent days in the hardest-hit areas. While Uber declined to update its financial guidance due to the volatility and unpredictability of the COVID-19 coronavirus outbreak, management did calm waters by announcing, "We are well-positioned to weather this storm and have ample liquidity." That statement of confidence, even in the face of a worst-case 80% full year plunge in rides -- which Uber doesn't expect to materialize -- was enough to confirm investors' long-term outlook amid this near-term doom and gloom.
Uber management noted the company has $10 billion of unrestricted cash and expects to have $6 billion in cash on hand at the end of 2020, in addition to a $2 billion debt revolver. Even in the previously mentioned worst-case scenario, the company believes it will still have $4 billion in cash reserves and the revolver.
Lyft has also announced it will stop adding new drivers in New York, San Francisco, Seattle, and other regions struggling to contain the coronavirus in an attempt to protect the earnings of existing drivers the company wants to support. Uber also axed almost all marketing campaigns to recruit new drivers.
While Avis and Hertz are likely getting a boost from Uber's confidence about weathering the COVID-19 coronavirus storm, others aren't so sure. J.P. Morgan analyst Ryan Brinkman cut his price target on Hertz from $19 to $6 and on Avis from $56 to $20, noting he believes Avis is better prepared to withstand challenges with less financial leverage and better free cash flow.
It's a complicated time to understand and invest in the automotive industry, and the novel coronavirus won't make it any easier in the near term. Ultimately, it's important for investors to hear companies have the liquidity to survive developments such as the COVID-19 outbreak, but make no mistake that the economic impact will be felt. Markets have historically rebounded from significant disruptions and stock market declines, but investors need to do their due diligence, dust off investing theses, and make sure companies have strong balance sheets and compelling long-term growth stories.