The ride-sharing market is dominated by two major players: Uber Technologies (UBER -0.32%) and Lyft (LYFT 3.59%). At a high level, Uber and Lyft primarily compete within the same domain in that both companies offer consumers personal taxis at the click of a button. Given the similarities in their respective business models, Uber and Lyft are constantly competing for user acquisition. However, undercutting one another by offering riders lower fares is not a long-term sustainable solution.
Over the last couple of years, Uber in particular has made a number of strategic investments. The company's last two earnings reports illustrate that these moves are beginning to pay off. Wall Street has taken notice too, and major investors have expressed bullish sentiment on Uber stock. Let's examine what Uber is doing to differentiate itself from Lyft, and why the company may be a good addition to your portfolio.
Uber is playing chess while Lyft plays checkers
The majority of people on Uber or Lyft use the platforms for the same reason: being picked up at one location and dropped off at another, with the added benefits of speed, comfort, and convenience. But while Lyft primarily operates as a ride-hailing application, Uber is offering consumers more choice.
Over the last two years, Uber acquired Postmates in an effort to augment its already existing Uber Eats food-delivery service. The company doubled down on food delivery and subsequently acquired Drizly, an online platform that allows users to order alcohol from local merchants and have it delivered to their door.
These investments outside of the core mobility (taxi) business appear to be working. According to the company's fourth-quarter earnings report, gross bookings for the delivery segment totaled $14.3 billion, up 14% year over year on a constant currency basis. This translated into $2.9 billion in revenue, up 33% (also in constant currency).
Uber's monthly active platform consumers (MAPCs) reached 131 million in the fourth quarter. In comparison, Lyft's active riders reached 20.4 million as of Dec. 31. It is important to note that MAPCs and active riders are not exactly the same metric. However, the point that is being illustrated here is that given Uber's diverse product offerings, the company is able to attract more users to its platform, whereas Lyft's serviceable market reach remains constrained to rideshare customers.
In addition to the budding delivery segment, Uber's mobility segment generated $14.9 billion in gross bookings last quarter, up 37% year over year in constant currency. These results represented Uber's strongest quarter ever in mobility as monthly active consumers and drivers reached record highs.
What does Wall Street say?
Following the earnings report, CNBC interviewed two respected investors on Wall Street: famed venture capitalist Brad Gerstner and wealth advisor Josh Brown. Gerstner applauded Uber's leadership in the fourth-quarter report and made it clear that he believes the company is headed toward a path of strong margin expansion, which would separate it from Lyft even more.
Both Lyft and Uber are still burning cash on a free-cash-flow basis, and each company reports several non-GAAP reconciliations in their respective earnings reports to illustrate profitability. Given that these reconciliations contain non-cash adjustments such as stock-based compensation, among other financial instruments, it's tricky to compare each company's reported profitability profile.
Brown, the CEO of Ritholtz Wealth Management, seconded Gerstner's point without referencing specific cash flow figures. Brown noted that during the height of the pandemic, Uber spent two years building and augmenting its delivery business and essentially replaced its mobility segment.
As pandemic fears have eased and consumers travel more frequently, Uber now has two gigantic businesses, mobility and delivery, operating at peak levels. Given the reach of Uber's platform is nearly 6 times that of Lyft, Brown believes that if Uber can maintain its current expense profile, the company could reach profitability by the end of this year.
Image source: Getty Images.
Which stock deserves a spot in your portfolio?
For full-year 2022, Uber's total revenue was $31.9 billion, up 83% year over year. On the other hand, Lyft reported 2022 revenue of $4.1 billion, up 28%.
As of this writing, Uber's market capitalization is approximately $70 billion, or a little more than 2 times the company's trailing sales. It has a larger, more robust platform than Lyft as evidenced by the number of offerings outside of taxi rides. Should Uber reach a profitable scale by the end of the year, it will have even more operating leverage and flexibility to make strategic investments and separate itself from the competition.
While Uber faces a long, arduous road, Wall Street seems to believe its best days are ahead. The company could soon become a profitable growth stock, making this an opportune time to initiate a position in Uber and own shares in a clear market leader.
