A Tale of Two Companies: Lyft Starting to Look Good Compared to Uber
One thing is clear about ridesharing: it has a massive addressable market and is now very much in the mainstream. With Lyft recently IPO’ing and Uber finalizing the details of their valuation pre IPO, there are soon going to be two big players for retail investors to trade with.
Personal mobility is a growing trend as we start to confront trends like overcrowding and climate change become more important. This positions ridesharing as the “big thing” that Silicon Valley and Wall Street want to get behind. However, recent events are a little more sobering. Uber has recently decreased their proposed valuation in an effort to avoid performance similar to the 20% drop that Lyft went through since IPO’ing.
The Recent Filing
Uber released their S-1 filing last week, and the numbers are very fuzzy. Not a lot of details and hard numbers are shown that can be properly compared to Lyft. Although Uber has the larger market share and is more ingrained in the zeitgeist, this filing does give cause for concern.
Often the rule is that the most important topics are those which people tend to avoid talking about. The fact that Uber is not disclosing driver acquisition costs, retention rates, or even breaking down revenue between different service lines and countries is a bad sign. It’s not as if they have any reason to keep good news a secret, so we can assume performance is hurting.
Uber does say they have incurred losses, but it isn’t clear how much is being lost or what the trends are leading towards. As a retail investor, you can either count on intuition or an information edge. We have a lack of information right now, so it may end up being an intuition dependent investment.
Lyft on the other hand has reported detailed metrics that show a trend of increasing rides per year per cohort. Granted, they are a much simpler company (no Uber Eats or complex service lines), but this paints a way stronger picture for investors. More importantly, it is much more transparent.
Betting on Lyft
The largest assertion that I would like to make here is that even though Lyft has its own problems and might not perform very well in the short-term, it has way more of a fighting chance against Uber than most people realize. Uber, on top of the issues above, has a culture problem that could be its undoing. Lyft has always been seen as the “kinder” employer, and in the long-term, they may be able to capture more market share than Uber.
A lot of times with valuations for major technology companies, it makes more sense to think directionally rather than with a specific valuation in mind. The way I would structure the bet here is go long on Lyft and not touch Uber. The more aggressive move is to short Uber and go long on Lyft, but with the shifts towards ridesharing that is occuring, Uber could still do well in the short-term.
All of this is based on the simple idea that if Uber is unwilling to disclose certain information (that they would definitely have) it must be bad news. Lyft is trailing in terms of market share, but this is a long game and if you want to make 10-year bets, Uber’s victory is by no means assured.
Featured image courtesy of Shutterstock.