Bottom Line

Uber did not meet investor expectations this quarter missing on revenue, bookings, and riders, explaining why the shares are down 6% as we write this.

While Lyft is beating and raising revenue, Uber missed expectations by 6% for revenue, and 3% for users, yet Lyft is only outperforming Uber by 9% including after-hours price action tonight.

We think its likely these stocks are largely range-bound until one of them sends a strong signal to the market that profitability is on the horizon. Uber remains our preferred way to play the mobility revolution.

Both management teams talk about breaking even, but the path to get there remains unclear.

Neither company is giving investors much to get excited about so we think it helps to compare them side by side to see which company looks more attractive.

Lyft is far and away the faster-growing company with revenue increasing 3x faster than Uber.

However, rider growth for Lyft is only slightly faster than Uber and is forecast to slow below Uber through the rest of 2019 due to price hikes.

Lyft is growing faster than Uber, but will likely reach saturation before Uber due to a singular focus on the smaller North American market instead of the whole world.

So we call it a draw on growth, especially when you consider Lyft’s 10% multiple premium.

Looking at losses, Uber is losing more money than Lyft but for reasons we will explain below we think Uber is in a better financial position.

With similar years of cash left, it looks to us like the market is not differentiating these companies much at all.

UberLyft
Rider Growth30%41%
Revenue Growth22%71%
Operating Margin-36%-27%
2020 Price/Sales3.7x4.1x
Years of Cash Left3.73.0

We continue to prefer Uber for its superior unit economics.

Both companies are spending more and more to bring in a new user, reflecting a maturing market, but most importantly Uber is the only one seeing declining costs to service existing users.

This matters because it tells us Uber is scaling better than Lyft and can more easily reach profitability.

Lyft is in an untenable situation where it loses money on every ride and costs per user keep growing even as the user base explodes.

If per rider losses remain unchanged they won’t be able to break even no matter how many riders join the platform.

It is this reason why we are sticking with Uber even with its relatively higher losses.

User Acquisition Costs

Source: Grizzle, sec.gov

User Servicing Costs

Source: Grizzle, sec.gov

 

 

Operational Review

Looking through the small consensus misses, the company did have success growing the Uber eats business which looks to have a lot of potential.

Uber Eats is growing at 60% a year and the take rate, or amount Uber gets to keep of every meal ordered, increased to 10% from 8% which is a strong result. Uber Eats is now 11% of the company’s revenue.

Uber also looks to be having more success than Lyft branching out to service new industries such as emerging healthcare-related rides.

Uber said the medical business is growing at 400% while Lyft would only say they are making good progress.

Interestingly, Uber is also looking to improve the Uber Pool experience primarily with technology, which could jumpstart growth in a rider option that has essentially been left for dead.

With the ride business maturing in North America its important for these companies to find other avenues for growth.

Moving on to the financials, Uber lost $4.44/sh in the quarter which was worse than the $3.20 loss analysts were expecting.

There were big share expenses for both employees and drivers in the quarter which made earnings look especially bad.

Revenue of $3.166 billion was 6% below consensus but included $298 million of driver bonuses given during the IPO. If those bonuses are removed revenue actually beat expectations by 3%.

Last quarter management guided to a better take rate for Uber Eats, and we are seeing their expectations become reality.

We had been worried competition in the food delivery space would continue to drive down the take rate, so this was good news.

Cut of Each Food or Car Order Over Time

Source: Grizzle Estimates, SEC.GOV

When we compare Uber’s results to Lyft, it’s clear Uber is just a slower growing company.

Revenue increased 22% year over year compared to a 71% increase for Lyft and active riders were up 30% compared to 41% for Lyft.

Lyft’s growth rate is decreasing much faster than Uber though and they could be growing at similar rates in a year or so.

Uber’s post IPO performance continues to be slightly better than Lyft, but that is likely due to better IPO pricing than anything the company is doing lately.

Post IPO Performance for Uber and Lyft

Source: Yahoo Finance

Overall, the earnings release and conference call were big on conversation, but light on details around the road to profitability.

We think investors will have to wait until 2020 to really see if Uber can turn the corner to profitability. 2019 will largely be a year of more of the same, big losses and slow growth.

 

For All Things Uber Check out the Grizzle IPO Deep-Dive