Uber (UBER +0.19%) and Lyft (LYFT 1.32%) both operate well-known ride-hailing services, but their business models are radically different.
Uber is larger and more diversified than Lyft. It operates in 72 countries, and it generated just half of its revenue in the United States in the first nine months of 2021. It also provides food delivery services through Uber Eats.
Lyft only operates in the United States and Canada. It doesn't provide dedicated food deliveries like Uber Eats, but its delivery platform enables its drivers to pick up food, retail products, and auto parts for customers. Uber and Lyft both provide bicycle and scooter rentals in select cities.
Image source: Uber.
Uber and Lyft might be fundamentally different, but the prices of both stocks declined more than 20% over the past three months as rising interest rates sparked a rotation away from higher-growth tech stocks. Should investors consider buying either beaten-down ride-hailing stock yet?
How fast is Uber growing?
Uber's revenue fell 14% to $11.14 billion in 2020 as the pandemic's disruption of its mobility unit, which accounted for 55% of its revenue, offset the growth of its food delivery unit, which brought in 36% of its revenue.
The rest of Uber's revenue mainly came from its freight business. It notably sold its unprofitable advanced technology group (ATG) business, which had been mainly developing autonomous vehicles, last January.
In the first nine months of 2021, Uber's revenue jumped 46% year over year to $11.68 billion as its mobility unit recovered in a post-lockdown market. Its delivery and freight businesses also continued to generate high double-digit sales growth against tough year-over-year comparisons.
Uber's net loss narrowed from $8.5 billion in 2019 to $6.8 billion on a generally accepted accounting principles (GAAP) basis in 2020, and also narrowed on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis from a loss of $2.7 billion to $2.5 billion.
In the first nine months of 2021, Uber's GAAP net loss narrowed year-over-year, from $5.8 billion to $1.4 billion, as its adjusted EBITDA loss narrowed from $2.6 billion to $860 million. It also posted its first adjusted EBITDA profit ever in the third quarter.
Those bottom-line improvements can be attributed to the post-lockdown recovery of its higher-margin ride-hailing business and its divestment of the deeply unprofitable ATG segment -- which both helped offset its investment-related losses in DiDi Global (DIDI +0.00%), the besieged Chinese ride-hailing leader that is being forced to delist its New York Stock Exchange shares.
Analysts expect Uber's revenue to rise 53% in 2021 and 49% in 2022, and for it to narrow its net losses in both years. Those are impressive growth rates for a stock that trades at less than three times next year's sales.
How fast is Lyft growing?
Lyft's revenue plunged 35% to $2.4 billion in 2020. It suffered a much steeper decline than Uber because it couldn't offset its loss of ride-hailing revenue throughout the pandemic with a dedicated food delivery platform like Uber Eats. Lyft doesn't disclose its retail deliveries, which are intertwined with its ride-hailing platform, as a separate business segment.
In the first nine months of 2021, Lyft's revenue rose 25% year over year to $2.2 billion as its ride-hailing segment recovered. However, it still only controlled 30% of the U.S. ride-hailing market at the end of 2021, according to Second Measure, while Uber dominated the remaining 70%.
But despite that fierce competitive pressure, Lyft still narrowed its GAAP loss from $2.6 billion in 2019 to $1.8 billion in 2020, and year over year from $1.3 billion to $751 million in the first nine months of 2021. Its adjusted EBITDA loss widened from $679 million in 2019 to $755 million in 2020, but actually turned positive with a profit of $18 million in the first nine months of 2021 as it posted two consecutive quarters of adjusted EBITDA profitability.
Lyft achieved stable adjusted EBITDA profits before Uber for three simple reasons: It didn't own an unprofitable food delivery platform, it didn't invest in struggling companies like DiDi, and it wasn't aggressively expanding into lower-margin overseas markets with loss-leading strategies.
Analysts expect Lyft's revenue to rise 34% in 2021 and 38% in 2022, and for its GAAP losses to gradually narrow. Like Uber, Lyft's stock also trades at less than three times next year's sales.
Shared opportunities and challenges
The bulls will claim that Uber and Lyft both have room to run as the ride-hailing market expands. Their safety and profitability could also improve as autonomous vehicles replace human drivers.
But both stocks are trading at discounts to their growth for two reasons: Rising interest rates are still punishing tech companies that don't generate stable GAAP profits, while ongoing calls for higher wages and the reclassification of drivers from contractors to full-time employees could squeeze both companies' operating margins before they ever turn profitable on a GAAP basis.
The better buy: Lyft
I'm not eager to buy either stock right now. But if I had to pick one, I'd stick with Lyft because it isn't burdened with as many money-losing businesses as Uber. Uber is taking some steps in the right direction, but it will likely remain less appealing than Lyft as long as interest rates keep rising.
