The end of the Covid-19 pandemic won’t solve Uber’s (NYSE:UBER) and Lyft’s (NYSE:LYFT) big problem of failing to capture value for their stockholders.
Ride-hailing companies Uber and Lyft create a great deal of value for consumers. Their apps and network of drivers make riding around cities and suburbs easy, convenient and efficient.
However, the two companies don’t capture value for their stockholders, because they are mired to losses that destroy stockholder value.
Last week, Uber reported a net losses of $6.77 billion in 2020, down from a staggering $8.51 billion loss in 2019. Lyft reported a net loss of $458.2 million for the quarter, up from a net loss of $356 million in the fourth quarter of 2019.
The apparent reasons for the significant losses of the ride-hailing companies are the Covid-19 pandemic lockdowns that have reduced ride-sharing bookings, partially offset by food delivery bookings.
The significant losses persisted well before the Covid-19 outbreak. Uber’s 3-year EBITDA stands at -0.9%, while Lyft’s EBITDA stands at -20.20%.
| Company |
Uber |
Lyft |
| 3-year Revenue Growth (%) |
-4.4 |
19.4 |
| 3-year EBITDA Growth (%) |
-0.9 |
-20.2 |
| Current Operating Income (%) |
-40.26 |
-76.47 |
Meanwhile, both companies have a sizable negative economic profit. This means that they destroy rather than create value as they grow. It also means that they have no sustainable competitive advantage.
| Company |
ROIC |
WACC |
ROIC-WACC |
| Uber |
-21.22% |
7.07% |
-28.29% |
| Lyft |
-49.26% |
7.10% |
-56.33% |
It seems like there is something fundamentally wrong with the business model of these two companies. Their lack of service differentiation creates zero loyalty among their customers and customers frequently switch between the two based up on service times.
Any car you get is likely to have both a Lyft and an Uber sticker in the window, which highlights the lack of differentiation between their services.
Meanwhile, lack of differentiation limits the pricing power of the two companies and their ability to raise ride-sharing prices.
In short, Uber and Lyft are good companies, but not sound investments. They create a great deal of value for customers, but they don’t generate any value for stockholders.
While the end of the Covid-19 pandemic will bring back the demand for ridership, it won’t fix the business model of the two companies.
Future strategies will have to include all kinds of other on-demand services or some as yet undefined strategic direction. Or perhaps something different will happen.
Meanwhile, investors could search elsewhere for better opportunities.
*By Panos Mourdoukoutas, GuruFocus.com, Yahoo News*
