Company / Analytics

Analytics, 05 August 2021

Analysis of Uber and Lyft better than estimate

Leading ride-hailing companies Uber and Lyft are among companies that reported earnings this week. Both companies beat analyst estimates, with Lyft reporting achieving a measure of profitability a quarter earlier than expected, marking a surprising comeback after the pandemic initially crushed demand for its ride-share service and later left it dealing with driver shortages.

Meanwhile, while Uber beats estimates, its core business lost $509 million in Q2 2021. Uber reaffirmed expectations that it will reach profitability by the end of this year.

Lyft Earnings

Lyft reported second-quarter results that handily exceeded estimates, with the ride-hailing giant’s results boosted by improving mobility trends as vaccinations picked up in the spring. Shares rose more than 3% in late trading following the report.

In aggregate, the company’s performance was a rebound from the year-ago second quarter, which was heavily impacted by the onset of the COVID-19 pandemic and resulting lockdowns in the United States.

Lyft managed to produce positive adjusted EBITDA in the quarter, a profit metric favored by technology upstarts that have yet to generate net income, a stricter method of calculating profitability. Adjusted EBITDA for the second quarter was $23.8 million.

The company’s adjusted EBITDA reached a nadir in Q2 2020 when it totaled -$280 million. Since then Lyft has posted successive gains to adjusted EBITDA in every quarter. The company’s adjusted EBITDA margin came to 3% in its most recent quarter. After promising investors that adjusted profits would come, Lyft delivered.

Lyft reported revenue of $765 million in the second quarter, more than double the $339.3 million it brought in during the same period last year. While that is remarkable, remember last year at this time the economy and ride-hailing were getting pummeled by the COVID-19 pandemic. In other words, we expected this. Importantly, Lyft’s Q2 revenue grew 25.6% over last quarter’s $609 million. That means that despite rising case counts in the United States thanks to the delta COVID-19 variant, Lyft still managed to grow.

The company said it had 17.1 million active riders in the second quarter, up 97% from the 8.68 million riders it had on its network in the same period last year. In the first quarter, Lyft said it had 13.49 million active riders in the first quarter. The company also saw more revenue per active user in the second quarter ($44.63) than it did in the year-ago Q2 ($39.06). The company’s revenue per active rider metric slipped slightly from its Q1 2021 result of $45.13.

Lyft’s growth bested street expectations, which anticipated revenues of $696.2 million, per Yahoo Finance data. Despite this growth, Lyft is still losing money when all costs are counted. Lyft reported a net loss of $251.9 million in the second quarter, a 42% improvement from the $437.1 million it lost in the same period last year, but still a steeply negative figure.

There are signs that Lyft’s business is maturing into something more profitable than it once was. The company’s contribution margin, a non-GAAP figure that is used to indicate profitability of its ride-hailing model sans corporate costs, rose to 59.1% in the second quarter, an all-time record result. In the year-ago period, the metric fell to 34.6%, its worst result since Q1 2017.

Lest we all forget, Lyft is now free of its costly autonomous vehicle technology program called Level 5. Lyft sold Level 5 to Toyota’s Woven Planet Holdings. That deal closed on July 13. The company said during the call it expects to remove roughly $20 million of related costs in the third quarter, relative to the second quarter.

That doesn’t mean the company isn’t interested in getting into the robotaxi game. Last month, Lyft announced a partnership with Argo AI and Ford to launch at least 1,000 self-driving vehicles on Lyft’s ride-hailing network in a number of cities over the next five years, starting with Miami and Austin. The first Ford self-driving vehicles, which are equipped with Argo’s autonomous vehicle technology, will become available on Lyft’s app in Miami later this year.

Uber Earnings

Uber on Wednesday reported widening losses as it spent more to entice drivers to return to its platform, sending shares of the ride-hail and food delivery company down in after-hours trade.

Investors sold the shares despite Uber management’s assurances that the company can deliver a sharp turnaround in profitability even as New York and other major cities reimpose some pandemic restrictions.

Uber posted an adjusted $509 million second-quarter loss before interest, taxes, depreciation, and amortization - a metric that excludes one-time costs, including stock-based compensation - widening losses by nearly $150 million from the first quarter.

Analysts on average had expected the company to report an adjusted EBITDA loss of around $324.5 million, Refinitiv data showed.

Uber warned investors that uncertainty from the Delta variant of the coronavirus continues to impact visibility into recovery. Chief Executive Dara Khosrowshahi told analysts on a conference call that the company’s food delivery business provided a hedge against potential ride-hail declines and that July trends support the company’s confidence for the second half of the year.

Gross bookings during the second quarter reached an all-time high of nearly $22 billion, with more passengers returning for trips while food delivery orders also increased. Still, the earnings call was dominated by questions over driver supply and the ongoing impact of the pandemic.

Investors are worried about the ongoing shortage of drivers in the industry as demand ramps up. Uber’s smaller rival, Lyft, on Tuesday, said it expected limited driver supply to continue in the next quarter, requiring further investments in driver incentives.

Uber said riders returned to its platform in greater numbers in July and it expects the trend to continue in the coming months, together with strong food delivery orders.

Uber reaffirmed its goal of hitting profitability on an adjusted EBITDA basis at the end of this year and said it would reduce losses to $100 million in the third quarter. That assumes the more contagious Delta variant does not reverse a gradual reopening of the U.S. economy, an issue that Lyft said on Tuesday it was monitoring.

Uber on Wednesday said monthly active drivers and food delivery workers had increased by nearly 420,000 from February to July. Passengers wait times in major U.S. cities also decreased during that time. Uber spent a massive $250 million in driver incentive investment in the second quarter, which increased losses at its ride-hail business. Uber said mobility profitability will expand significantly as U.S. and Canadian driver investments fade, a trend it has witnessed in Australia and other markets.

Total costs and expenses in the second quarter jumped by over 57% to $5.12 billion years over year. Uber also took advantage of unrealized gains in its investments in Chinese ride-hail company Didi Global and self-driving company Aurora to post a second-quarter net profit of $1.1 billion.

In July, Uber announced the acquisition of logistics company Transplace for about $2.25 billion in a boon to its freight delivery unit, which is now expected to break even on an adjusted EBITDA basis by the end of 2022.

Should you buy Uber and Lyft stocks?

Uber and Lyft have yet to turn a net profit on the strength of their operations and haven’t projected when they might. One-time gains have lifted both companies’ fortunes; Uber posted a net profit in 2018 on the back of a roughly $5 billion gain from certain investments and divestitures.

Startups have long pointed to an adjusted metric to signal progress toward future profits. These adjustments entail stripping out expenses such as asset write-downs that executives and many investors consider to be outside a company’s fundamental operations.

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