Uber (UBER -1.39%) and Lyft (LYFT 0.23%) are often mentioned in the same breath, as they both provide ride-hailing services and vehicle rentals, but the two companies are fundamentally different. Uber is larger and more globally diversified, and it operates a dedicated food delivery platform. Lyft is smaller, only operates in the U.S. and Canada, and provides food deliveries through a partnership with Grubhub instead of its own platform.
I compared these two stocks just over a year ago, and said Lyft was a better buy because it had achieved profitability on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis before Uber. But since then, Lyft's stock has plunged nearly 70% as Uber's stock stayed flat. Let's see why Lyft underperformed Uber by such a wide margin -- and if it can narrow that gap over the next few quarters.
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What happened to Lyft?
Lyft's revenue rose 28% to $4.1 billion in 2022, decelerating from its 36% revenue growth in 2021, as its net loss widened from $1.1 billion to $1.6 billion on a generally accepted accounting principles (GAAP) basis. That slowdown was disappointing, but an abrupt revision to its adjusted EBITDA calculations -- which was mandated by the Securities and Exchange Commission (SEC) to include its insurance reserves, or the cash it sets aside to pay for insurance expenses -- was even more shocking.
Under Lyft's original reporting method, it had claimed to generate a positive adjusted EBITDA of $92.9 million in 2021. That was one of the main reasons I chose Lyft over Uber a year ago. But under its new reporting method, which took effect last year, Lyft actually posted a negative adjusted EBITDA of $157.5 million in 2021, and that loss widened to $416.5 million in 2022. That stunning revision, which Uber didn't have to make, crushed my original thesis.
As Lyft's losses widened, its growth cooled off. Its number of active riders only rose 9% to 20.4 million at the end of 2022, compared to its 14% growth at the end of 2021. That slowdown was caused by a persistent shortage of drivers throughout the year, which triggered its "Prime Time" surge pricing more frequently. Those higher rates boosted its revenue per active rider, but they also eroded its competitive defenses against Uber.
Lyft expects its growth to decelerate in the first quarter of 2023 as it grapples with a seasonal decline in bike and scooter rentals, lower Prime Time rates as the supply-demand balance is restored, and a reduction to its base prices to stay competitive. It also pulled its original long-term targets for generating $1 billion in adjusted EBITDA and over $700 million in free cash flow (FCF) by 2024. For now, analysts expect its revenue to rise 9% to $4.5 billion, with a positive adjusted EBITDA of $260 million -- but those estimates could still be too bullish in light of its recent guidance.
What happened to Uber?
Uber's revenue rose 83% to $31.9 billion in 2022, while its gross bookings -- its preferred growth metric -- increased 28% to $115.4 billion. That also represented a slowdown from its 56% bookings growth in 2021. Its GAAP net loss widened from $496 million in 2021 to $9.14 billion in 2022, but that was mainly caused by investment-related declines. Its adjusted EBITDA, which excludes those paper gains and losses, improved from a loss of $774 million to a profit of $1.71 billion.
Uber's monthly active platform customers (MAPCs) increased 11% year over year to 131 million at the end of 2022, compared to its 27% growth at the end of 2021. Its number of trips rose 20% for the full year, which only cooled slightly from its 23% growth in 2021. In other words, even though Uber is already larger and more globally diversified than Lyft, it's still growing at a faster rate. Uber also generated a positive FCF of $390 million in 2022, compared to negative $743 million in 2021, while Lyft reported a negative FCF of $244 million in 2022.
Uber's scale and diversification shielded it from the widespread driver shortages that severely throttled Lyft's growth last year. Looking ahead, analysts expect Uber's revenue to rise 16% to $36.9 billion in 2023 as its adjusted EBITDA increases 87% to $3.2 billion. Unlike Lyft, Uber hasn't given investors too many reasons to doubt those forecasts. Uber also believes it can turn profitable on a GAAP basis this year as it cut costs, reins in its stock-based compensation, and streamlines its business. Its investment portfolio could also warm up again if a new bull market starts.
The obvious winner: Uber
Lyft trades at less than one times this year's sales. It might initially seem cheaper than Uber, which trades at two times this year's sales, but it deserves that discount. Uber's superior scale, stronger growth, and higher profits make it the better buy right now, while Lyft's disappointing EBITDA revision and sluggish growth rates make it the weaker investment.
