What is a Better Investment Right Now After Q1 Earnings: Uber or Lyft?

With earnings season in full swing, which of these ride-sharing companies has come out better following a challenging few years?

It hasn’t been the best couple of years for ride-sharing companies such as Uber (NYSE: UBER) or Lyft (NASDAQ: LYFT). Rolling global lockdowns and a near standstill on worldwide travel have affected them massively. However, with much of the world now tentatively reopened, investors have been eagerly awaiting both companies’ first-quarter earnings reports to see exactly where they stand. 

Have they recovered to pre-pandemic levels? Or will they ever hit their former heights? Let’s take a look.

Uber: Bull vs Bear arguments

Uber beat estimates all-around in its Q1 earnings call this week. An adjusted loss per share of $0.18 outpaced estimates of a loss of $0.24, while revenue of $6.85 billion also beat an expected $6.13 billion from Wall Street analysts. This revenue figure marks a whopping 136% year-over-year increase. It should be noted, however, that the firm did in fact lose $5.9 billion across the quarter due to equity investments in Aurora, Grab, and Didi. CFO Nelson Chai remarked that the company has enough liquidity to hold these assets in anticipation of a better time to sell in the future.

A true pandemic recovery appears to be in full effect. Uber had relied heavily on its delivery service throughout the COVID lockdowns, but now its mobility segment is exceeding deliveries in revenue. Monthly active users jumped by 17% compared to the year-ago quarter to $115 million, showing a real demand for the firm’s services.

Uber is not without some headwinds, however. CEO Dara Khosrowshahi stated that,

“Our need to increase the number of drivers on the platform is nothing new nor is it a surprise … there’s a lot of work ahead of us.”

The supply and demand of drivers has been a significant issue since the beginning of the pandemic, and rising fuel costs will only serve to exacerbate those problems. This could lead to margins being significantly cut as companies scramble to attract drivers in what’s sure to be an extremely competitive market.

Lyft: Bull vs Bear arguments

Let’s take a look at the positives that came from Lyft’s earnings call first. Revenue came in at $875.6 million — up 44% year-over-year. Active riders grew by 31.9% to 17.8 million compared to the year-ago quarter also. Losses narrowed from $427.3 million to $196.9 million, and more people were using the company’s services more often — marked by a 9% rise in revenue per active rider.

Now to the bad news. Lyft missed massively on its Q2 guidance, forecasting for adjusted EBITDA of between $10 million and $20 million for the quarter — Wall Street had been expecting $83 million.  The company attributed this reevaluation to a new “focus on drivers, the overall marketplace, and some additional brand marketing” which will all require significant spending. This huge disparity prompted a firesale, with the company’s stock dropping by 30% in a day.

Lyft is also struggling to retain drivers amidst seemingly ever-increasing fuel prices. This has prompted the firm to offer large incentives to keep driving, while simultaneously launching a significant marketing campaign aimed at attracting new drivers. All of this will undoubtedly impact Lyft’s profitability going forward, with no guarantees that these measures will actually succeed.

So, which stock is a better buy right now?

Overall, it appears that Uber had a much more positive earnings call this quarter in comparison to Lyft. While Lyft’s weak guidance did have an initial impact on Uber’s share price, it took a much less significant hit and was able to calm the proverbial waters with its own impressive results the next day.

Both Uber and Lyft are down 36% and 50% respectively for the year to date, so to say all is rosy for either company would be disingenuous. However, Uber’s brand recognition could help it overcome the current driver shortage more easily than its competitor will. 

As the world continues to reopen and travel continues to uptick, both firms should see some form of recovery. However, right now, Lyft appears to be in a bigger hole than Uber is, and it may take it a little longer to climb back to prosperity.