Top Investment Opportunity at the Moment: Uber versus Lyft
Uber (UBER) and Lyft (LYFT) are essentially interchangeable when it comes to ride-hailing services. While Uber leads the pack in numerous nations, including the US, Lyft is primarily limited to operations in the US and Canada.
Uber offers additional services through Uber Eats, facilitating food and product deliveries, while Lyft relies on third-party partners like DoorDash for deliveries. They both provide bike and electric scooter rentals in select cities.
Both companies made their IPO debut in 2019. Uber's stock is currently up by 36% above its initial offering price of $45. On the other hand, Lyft's stock has seen a significant drop, plummeting more than 80% since its initial offering price of $72. Investors have taken a liking to Uber due to its streamlined operations and economies of scale, while Lyft's smaller business continues to struggle with sluggish growth and ongoing losses.
So, which company will likely be a better investment moving forward? Let's delve deeper into both ride-hailing services to find an answer.
Which company is expanding quicker?
From 2018 to 2023, Uber's gross bookings saw a compound annual growth rate (CAGR) of 23%, with revenue climbing at a CAGR of 27%. Its user base expanded from 91 million at the end of 2018 to 150 million by the end of 2023. Uber's ride-hailing business experienced a slowdown during the pandemic, but it managed to offset some of the pressure by promoting more food deliveries through Uber Eats.
For 2024, Uber forecasts a 17%-18% increase in its gross bookings. Analysts anticipate its total revenue to grow by 17% in 2024 and reach $50.6 billion by 2025. This growth is expected to be primarily fueled by its subscription service Uber One, which boasted over 25 million members in its latest quarter; Uber Teens, a service permitting parents to authorize rides and deliveries for their teenage kids; and its enterprise and healthcare delivery services.
From 2018 to 2023, Lyft's revenue grew at a CAGR of 15%. It began publicly disclosing its gross bookings only in 2023. Over this period, its active riders increased from 18.6 million to 22.4 million.
During the pandemic in 2020, Lyft faced a steeper slowdown than Uber because it did not offer food delivery services. It also grappled with more driver shortages than Uber and experienced a surge in average prices as a result.
For 2024, Lyft predicts a 17% increase in its gross bookings, compared to the 14% growth it achieved in 2023. Analysts expect its revenue to climb 31% for the entire year and reach $6.6 billion by 2025. This growth is attributed to new features such as Price Lock, a subscription-based service that allows riders to lock in prices for set destinations; Lyft Media, which broadcasts media content and ads within its app and in-car tablets; its delivery partnership with DoorDash; and numerous updates to its core app.
Which company is more profitable?
Both Uber and Lyft typically baselines their bottom-line growth using adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Uber achieved a positive EBITDA in 2022, with the figure more than doubling in 2023. Lyft’s EBITDA also turned positive in 2023.
According to generally accepted accounting principles (GAAP), Uber recorded profits in 2023. Its profits surged as it divested several unprofitable non-core businesses, downsized its freight and recruitment divisions, and drastically reduced costs. Analysts expect Uber's bottom line to remain in the black, and its GAAP EPS to increase by 117% in 2024 and 22% in 2025.
Lyft remains unprofitable under GAAP, but it's also working towards cutting expenses to stabilize its business. It's showing no interest in expanding to overseas markets like Uber. Analysts predict that Lyft will finally turn a profit under GAAP in 2025.
Which stock is a better bet right now?
Uber still appears to have a promising future ahead, while its stock seems reasonable priced at 15 times next year's EBITDA. However, its valuations are being affected by the recent Federal Trade Commission inquiry into Uber One's subscription policies. Lyft, which is free from similar probes, is currently trading at just eight times next year's EBITDA.
Uber will likely overcome its current hurdles, but Lyft might provide additional investment opportunities at these levels. Despite being the underdog and considered a riskier long-term investment than Uber, Lyft may present a slightly more attractive option at the moment.
Considering Uber's recent financial performances and its ability to turn a profit under GAAP, investing in Uber might be an attractive option due to its reasonable valuation of 15 times next year's EBITDA. However, Lyft, currently trading at eight times next year's EBITDA, could provide additional investment opportunities, especially for those who are willing to take on a slightly higher level of risk. Regardless of the choice, it's essential to conduct thorough research and consider personal financial circumstances before making any investment decisions in the finance sector, specifically in companies like Uber and Lyft.
