What's the Panic With Holiday Shopping?

Average fares on Uber Technologies (UBER -0.38%) and Lyft (LYFT 1.87%) have been going up and aren't likely to go back down. Motley Fool analyst Jason Moser analyzes that story and discusses Amazon (AMZN 3.43%) getting a very early jump on its "Black Friday" deals.

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This video was recorded on Oct. 4, 2021.

Chris Hill: It's Monday, Oct. 4. Welcome to MarketFoolery. I'm Chris Hill. With me today, Jason Moser. Good to see you.

Jason Moser: Good to see you.

Hill: We've got some retail news to discuss. We've got a fair amount about the, let's just call it the business of moving people and we're going to start with Delta (DAL 0.08%). Delta Air Lines reports third-quarter results next week. A month ago, they cut revenue guidance for the quarter, and today, they reinstated the original guidance. CEO Ed Bastian said that ticket sales have improved, they also expect bookings in 2022 to be higher than they were in 2019. Not that the stock is shooting up 5%, 10% today, but it is ahead of the market in terms of being down. It's basically flat for the day on a day when the market is down 2%, 3%. This is interesting to see in what is a relatively short amount of time Delta coming out and saying, "Yeah, no we're going back to the original numbers."

Moser: Yeah, it does. It feels like that happened very quickly. I certainly give them credit for getting out there and keeping investors up to speed with what's going on. Because I think that's the one thing we've learned over the past year and a half. Everything that's really been going on, we're dealing with a lot of unknowns. It's new territory for a lot of us and it's a fluid situation, I mean, things change very quickly. But generally speaking, I think this makes a lot of sense. The language, essentially is that they bottomed out in the latter part of August and really the early part of September. That seems to line up with a lot of the language in regard to hitting peak delta. I mean, hitting peak delta variant, not the airline. When you look at language from entities like International Air Transport Association, for example, they're using language like business traffic is growing back in the US. They put some numbers around this. They continue to believe that globally airlines are going to continue to lose money in 2022, but that's going to be significantly lower than what has been lost in 2021. They think ultimately losses in 2021 are going to total greater than $51 billion. Not terribly surprising, again, given where we were, but if you start looking at what's going on around us, if you start taking just a pragmatic view and start to digest people's attitudes, it starts to make a lot more sense. Again, we talked about this before, just looking at the world of sports. I mean, football. You watch any football on Saturday or Sunday, college or NFL, you see the stadiums are packed, people are happy to get out and go to these games. Look at events. CES, the electronic show, that's going to be in-person in January. The Augmented World Expo, Chris, an event that prides itself in all of the latest developing technology in augmented and virtual reality is going to be in-person, Chris, in November. Listen, we're getting to a point where I think people are just becoming a bit more comfortable with the risk-reward scenario.

That spurs more consumer travel, that spurs more business travel. Adobe in their most recent earnings call just a week ago, they noted that they've got employees coming back to the office slowly, but surely. Business travel for the company is starting to tick back up. It's just worth remembering that when we see the headlines of Microsoft, Google, Facebook, and Amazon in a race to see who can keep the offices closed the longest, there's a whole world out there that's getting back to work and going and doing things because we have the tools now to deal with this situation that we didn't have a year ago, whether it be testing or vaccines, or hopefully this pill that seems to hold a lot of promise. We are in a much different position today than we were a year ago, which really I think it makes a lot of sense that we would see people ready to get back out about there, and air travel is one way we get from point A to point B.

Hill: It is going to be interesting to see what we hear from other airlines this earnings season, which is just going to kick off in a week or so. Part of that conversation is going to be about capacity, the extent to which any of them are really expanding capacity. Because for anyone who has flown recently, chances are they may have been surprised by how packed their flight was, just because airlines partly because of labor, but airlines have pulled back on capacity. We're interested to hear the actual results next week out of Delta and the extent to which they want to give any color on capacity and holiday travel.

Moser: Yeah. I'm glad you brought up holiday travel because there was an interesting point earlier today. I noted, Scott Gottlieb, one of the voices we've been paying attention to over the past year and a half, he said really that there's nothing that stops us from gathering this holiday season. Now, I think I would add a little to that and just saying really the only thing that stops us is ourselves. There are going to be people who don't want to do that, who maybe don't have the comfort level in doing that. That's fine, it's understandable. But I think he's right. I think that you just look at the boots-on-the-ground assessment of what's going on around the country and you're seeing for the most part, it seems to be at least the majority of people are happy to be able to get back out doing things. Again, you go back to this, it is a fluid situation, no question, but the flip side of that is we have the tools to deal with this that we didn't have a year ago. When you have someone like him getting out there and saying there's really no reason in the world, there's nothing that prevents people from getting together, I think a lot of people are going to see that as a green light and maybe feel a little bit more comfortable making holiday plans than they would have otherwise. It's not going to be everyone, but it's going to be some people and that's going to be really one more step in trying to get things back to some sense of normal.

Hill: People in big cities who want to save money on ridesharing may want to think about hailing a cab. The Wall Street Journal reports that during the pandemic, average fares for taking Uber and Lyft rose nearly 50$, and that even as COVID cases and the delta variant are mostly on the decline, it does not look like those prices are going to be on the decline.

Moser: [laughs] Well, the power of economics, right, Chris? This is a really interesting situation. It brings a lot of questions into play from the investor's perspective. One of the bigger questions we've always had in regard to companies like Uber and Lyft is ultimately how do they get to profitability? Not just profitability, but really sustained profitability. The article in The Wall Street Journal, my favorite quote from this article: "Elevated prices could persist in part to keep drivers on the platforms. Uber and Lyft won't want to motivate drivers out of their own pockets forever if sustained profits are the goal." It was the, "if sustained profits are the goal" thing that just can be maybe chuckle because I feel like isn't that really the goal for all of these companies? At some point or another, you're going public to ultimately achieve sustained and deliverable profits. That's going to be I think the big question yet for Uber and Lyft, but one of the ways that they will be able to get there if they can get there is through pricing power.

This is going to demonstrate whether they really have it or not because the flip side of this argument could be, if taxis just developed some decent technology and have an app where it was just easy to get a cab, then more people probably opt to take a cab if the pricing demands it. To me, it's a really interesting point to note. I think that when you look at a business like Uber, for example, one thing they're doing that I think is really pretty cool and I think this is something that could play into that pricing power question, you look at something like Uber Pass, which is ultimately that subscription service that they offer. It's like $25 a month, but it gets you free delivery, it gets you discounted rides, it gets you discounts on restaurants. If they can create that relationship and over time really exploit value from that relationship, then that much like something like you would see from a Costco or an Amazon could, I'm not saying it will, but it could afford the company some pricing power. That subscription model can be very powerful. We've seen before. It seems like these prices are going up and much as wages. Once companies can realize those prices can go up and they can keep them that way, it's very difficult to pull that back.

Hill: That's a great point because neither Lyft nor Uber has presented such an amazing value proposition that it has resulted in people saying, "Well, I'm going to delete this other one from my phone."

Moser: Yeah. I've got both on my phone.

Hill: Everyone who's got one has the other on their phone.

Moser: Yeah. To me, I wonder if Uber and Lyft can do the same thing that Amazon prompted for us as consumers, we value our time a little bit differently. Now, convenience plays more into our decision-making than ever before because it exists. We just used to not really have that choice. But Uber and Lyft were so good at making this such a seamless and easy experience. "What? You mean, I can just hail a ride by punching a little button on my phone? Well, that's great. I can pay for it without even having to do anything? That's even better." The convenience was just second to none. Maybe consumers are OK taking those higher prices because, A, they feel like that convenience is worth it, and maybe also these companies can create that understanding that if prices are going up, the drivers are benefiting from that as well. Now the question is, if those prices go up and then drivers are getting paid more, what's the delta there on what the company is actually going to be able to keep? That is a bigger question toward that sustained profitability that we'll continue to discuss, I think for many quarters to come with these businesses. But I look at things like Uber Pass, for example, and the way these companies are trying to diversify their revenue streams and into delivering more than just people. I think it makes a lot of sense.

Hill: Speaking of Amazon, Black Friday is nearly two months away, but that didn't stop Amazon from releasing a list of what it is calling Black Friday-worthy deals. [laughs] You and I have not talked about this story yet. We were going back and forth on Slack very briefly. I could be wrong, but I think you and I had different reactions to this story because what you wrote to me was, "It's official, Black Friday is now one long year.

Moser: That was tongue-in-cheek. A little bit sense of humor, I guess, I was trying for, but it feels that way, doesn't it?

Hill: It does, but I saw this story and I thought to myself, I think part of what is driving this decision by Amazon, besides the obvious reason which is money, I think part of what's driving it is fear. I think the more data we get, The Wall Street Journal coming out recently with this data point that the cost of shipping containers has increased by a factor of 10 in the past year. Again, it's not the main reason, but I think it goes on the list. I think Amazon and some of these big retailers are starting to get genuinely worried about their ability to fulfill customers' desires this holiday season.

Moser: I think you're right. I absolutely had that thought run through my mind. I think you're right. We've made some jokes on Motley Fool Money recently and I know on this show about have you started your Christmas shopping yet, your holiday shopping, and you better start your holiday shopping now. That's a little tongue-in-cheek, but really, that's pretty honest. You better be out there getting your holiday shopping done now. I think that Amazon is looking at it from that perspective partly. Then the obvious reason, you said money, let's say it's greed. They're trying to get out there in front of this and make as much money as they can from a holiday season. But I'm sure they are absolutely deathly afraid of just awful customer experiences the closer the holidays get, and there's a real potential for that. Not being able to deliver on a promise for a business like Amazon, that's the ultimate sin. They try to do what they say they're going to do. Being able to get out in front of this, I think, makes a lot of sense. We're seeing the same from companies like Target. I know Target is getting out there and starting these deal days earlier as well, it makes a lot of sense given the conditions around the world right now. I certainly understand it, but if you look at just the opportunity there, according to Adobe Digital Economy Index, U.S. consumers spent over $541 billion in e-commerce from January through August just of this year. That's 58% more than what we saw two years ago. I think they see absolutely the opportunity there as well, the greed, so to speak, this opportunity to capitalize on what clearly has been a more digital-friendly consumer than ever before. But no question, in my mind, at least, there is some fear there and they are trying to get out in front of this as diplomatically as possible.

Hill: It's going to be more of threading the needle than it typically is. If you just think about, particularly when it comes to consumer electronics, how there are manufacturers out there that liked to release things a little bit closer to the holidays, buildup that demand, and now it's like, "Okay, how am I supposed to order something if I don't really know what the specs are, if in a normal year, that information isn't available until November?" It's going to be fascinating to watch, and I just hope for all the obvious reasons, I hope it goes as smoothly as possible. But it's hard for me not to think that we're just going to see some little train wrecks here and there across the retail landscape.

Moser: Yeah. I feel like we will. I'm hopeful that none of those train wrecks will exist in my home. I'm really trying to noodle over the Christmas gifts now. We have a birthday sandwiched in there, a wedding anniversary as well. It's a high-demand season in December in the Moser household. I'm already thinking now as to how we're going to get out in front of us.

Hill: Good luck, my friend.

Moser: Thank you.

Hill: Jason Moser, thanks for being here. As always, people on the program may have interest in the stocks they talked about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Rick Engdahl. I'm Chris Hill, thanks for listening. See you tomorrow.