Better Buy: Lyft (LYFT) or Uber (UBER)?

Better Buy: Lyft (LYFT) or Uber (UBER)?

Posted On May 14, 2019 9:25 pm

It’s not easy being a ridesharing IPO this year. Uber Technologies (NYSE:UBER) tumbled in its first two days of trading, losing nearly 18% in the process. Smaller rival Lyft (NASDAQ:LYFT) has had some more time to fall out of favor, shedding a third of its value since going public in late March.

Both companies are growing in popularity, but steep losses and a lack of visibility on a path to profitability are scaring away early public investors. Things might turn around for Lyft eventually as the faster-growing of the two ridesharing specialists. But the easier money here has to be banking on an Uber bounce as the undisputed top dog in a rapidly expanding niche. Let’s go over three reasons the initial sell-off in Uber could be overdone.

1. Uber has actually fallen by more than you think

Pull up a stock chart, and it seems as if Uber shares have plunged 17.6% since their rough Friday morning debut, but in reality we’re looking at an even bigger hit. Some underwriter proposals late last year had Uber worth as much as $120 billion. Even last month — with Lyft already tanking as a debutante — documentation sent to holders of Uber’s convertible notes pegged its value between $90 billion and $100 billion.

The market’s lukewarm reaction to Lyft’s IPO dampened enthusiasm for the slower growing but much larger category leader. Uber had to settle for a fully diluted market cap closer to $82 billion, and two trading days later we’re talking about a fully diluted price tag closer to $68 billion.

Investors will say that Uber has shed nearly 18% of its value, but we’re actually more like 43% below peak Uber. One can argue that the hype was too much a few months ago, but it reality suggests that it’s the pessimism that is now overdone.

2. Uber is about more than just ridesharing

When Lyft hit the market with less than a fifth of Uber’s trailing revenue, it was hard to fathom that it owned a third of the stateside ridesharing market. The math makes more sense when you consider Uber’s growing presence overseas as well as its many other revenue streams.

Ridesharing accounts for $9.2 billion of Uber’s $11.3 billion in 2018 revenue, but the balance comes from a wide range of offerings that go beyond hailing rides for people. Takeout orders and other merchandise need rides, too. Uber Eats, Uber Freight, and vehicle financing are all part of the mix at Uber.

Uber Eats is important, and not just because it’s a great way to score some pad Thai for lunch. It opens the door for…

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