Uber’s (UBER) - Get Report earnings report may show a slightly less rocky road to recovery from the Coronavirus pandemic than Lyft’s (LYFT) - Get Report will. But one caveat for Uber investors: the market is currently paying an Uber premium for several reasons.
Lyft and Uber report earnings on Wednesday and Thursday, respectively. Lyft shares are down 39.5% year-to-date, while Uber is down 9%.
Wall Street consensus estimates for Lyft’s first quarter see revenue growing to roughly $900 million and a loss of 61 cents a share, according to FactSet data.
Still, Lyft will not be able to keep its capital spending structure where it was last year, significantly weighing on its already negative free cash flow. Revenue will still grow because the first quarter encapsulates a strong January and February, when lockdowns hadn’t been implemented. March was a killer, as ride growth fell off a cliff.
For the second quarter, analysts are looking for revenue to decline 31% to $644 million and a loss of 81 cents a share, wider than the same period last year., Lyft likely won’t be able to maintain its operating cost structures, and most analysts agree than its already negative EBITDA margin will worsen over last year’s. With rides falling hard in the face of lockdowns, RBC Capital Markets analyst Mark Mahaney thinks revenue will fall more than 50% in both April and May, he wrote in a note.
As 2020 estimates have plummeted for Lyft, so has its valuation. The company, on an enterprise value-to-sales basis, is now valued at 1.6 times 2020 sales estimates. It’s reached 3 times sales estimates in the past and the company is generally perceived as a growth stock, many of which trade at 4 or 5 times EV-to-sales.
Expectations for Uber are a bit sturdier.
Away from numbers for a minute, "What will matter is any visibility UBER has into a potential Rides demand recovery and the extent to which the COVID Crisis may structurally boost demand for Uber Eats and possibly accelerate its path to profitability,” Mahaney wrote in another note.
Uber’s silver lining: its roaring Eats business, it’s diversification against Lyft’s “pure play” business model for ride-sharing investors.
First-quarter estimates for Uber see revenue growing to $3.55 billion and a narrower loss of 44 cents a share even with a tough March for rides.
Second-quarter estimates see a revenue decline of just 4% and a loss of 70 cents a share, an improvement (Uber’s cost structure has gotten much leaner with scale and size).
Ultimately, neither company is likely to guide for the second quarter, although analysts, also with limited visibility, will forecast. And it seems Uber’s Uber Eats business, in higher demand as restaurants and physical locations for eating are closed, will see the company’s results through.
Uber now trades at 2.85 times on an EV-to-sales basis, a premium to Lyft.
One of the biggest questions during the first two quarters for both companies is whether the current economic conditions will threaten their ability to reach profitability.
Fortunately, both companies are flush with cash and have net cash, meaning they have more cash than debt, so the market isn’t concerned about liquidity and the ability to invest in the near-term to spur profits soon.
Still, analysts have modeled an EBITDA-positive year out of their estimates. But whichever company reaches profitability first, on an EBITDA or free cash flow basis, investors are betting that Uber’s eats business will enable more growth — which Mahaney has modeled in — and that Uber’s scale will enable it to keep its cost structure and margins lean.
It doesn’t seem likely that the market will come away with much clarity on path to profits from the first quarter, but it is clear that the market is assigning a heftier premium to Uber.
For both stocks the long-term thesis on the growth of ride-sharing is merely interrupted in 2020, not damaged. For the near-term, Lyft may have more price upside after earnings, especially if management has anything positive to say about the future.
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