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When it comes to ride-sharing services, Uber (UBER) and Lyft (LYFT) are both household names. However, Uber has a dominant market share, with a wider coverage area and global reach. Both companies have added exciting new features to attract customers. While Lyft's valuation is appealing, Uber's diverse business makes a compelling argument. Let's dig deeper into their second-quarter earnings to see the best buy-and-hold growth stock right now.
The Case For Uber
Uber Technologies (UBER), the world's leading ride-hailing company, has evolved into a multifaceted platform that now includes food delivery (Uber Eats), freight logistics (Uber Freight), business, health, and even autonomous vehicle research.
Valued at $150.3 billion, Uber’s stock has gained 18.1 % year-to-date, outperforming the S&P 500 Index's ($SPX) 16.2% gain.
Uber has operations in more than 10,000 cities across 70 countries. In the second quarter, gross bookings increased 19% year-over-year to $40 billion. Total trips in the quarter grew by 21% to 2.8 billion. This brought in a total revenue increase of 16% to $10.7 billion, surpassing the consensus estimate by $110.8 million. While freight revenue remained flat in the quarter, mobility and delivery revenue rose double-digits.
Uber reported 156 million monthly active platform consumers, a 14% increase year over year. In addition, the company's advertising revenue exceeded $1 billion. Uber reported a net profit of $1 billion for the quarter.
Uber had a hefty balance of $6.3 billion in unrestricted cash, cash equivalents, and short-term investments at the end of the quarter. Furthermore, the company's strong free cash flow (FCF) balance of $1.7 billion should allow it to continue investing in technology such as autonomous vehicles and artificial intelligence (AI). The company is also expanding its food delivery business with a strategic partnership with Instacart (CART), and by acquiring Delivery Hero SE’s foodpanda delivery business in Taiwan.
Analysts that cover UBER stock expect earnings to increase by 19.3% to $1.04 per share in 2024, with earnings further rising by 111.4% to $2.19 per share in 2025. Trading at 32x forward 2025 earnings, Uber seems slightly overvalued. However, its aggressive expansion strategies, strong market position in ride-hailing, and investments in areas such as autonomous vehicles and AI are setting it up for hyper-growth in the long run.
Overall, on Wall Street, UBER stock is a "strong buy.” Of the 41 analysts covering UBER, 35 have rated it a “strong buy,” three have a “moderate buy” recommendation, and three suggest a “hold.” Its mean price target of $86.47 implies the stock could rise as high as 18.9% from current levels. The Street-high estimate of $102 suggests the stock could rally as much as 40.2% over the next 12 months.
The Case For Lyft
Founded in 2012, Lyft (LYFT) is another prominent player in the ride-hailing industry. The company has focused primarily on the U.S. and Canadian markets, where it has established a strong brand presence. While this focus has enabled Lyft to better allocate resources, it has also limited its growth potential when compared to Uber.
Valued at $4.05 billion, Lyft’s stock has fallen 27.8% YTD, underperforming the broader market.
In the second quarter, gross bookings increased 17% year over year to $4 billion, resulting in a 41% increase in total revenue to $1.4 billion. Lyft had been struggling to reach profitability. However, this quarter turned out to be favorable. The company reported a GAAP (generally accepted accounting principles) profit of $5 million, up from a net loss of $114.3 million in the year-ago quarter.
The ridesharing firm generated FCF of $256.4 million in the quarter. The company expects to generate positive free cash flow for the full year 2024.
Looking ahead to its long-term goals, Lyft expects its gross bookings to grow at a compounded rate of 15% between 2024 and 2027. Furthermore, between 2025 and 2027, it expects to generate more than 90% of adjusted EBITDA as FCF per year.
Lyft has also invested in technology to enhance the rider experience while lowering costs. This includes initiatives related to self-driving cars, collaborations with electric vehicle (EV) manufacturers, and efforts to improve routing and dispatch systems. While these investments have long-term potential, they also require significant capital, putting pressure on the company's finances. Its debt-to-equity ratio is high, at 1.0. The company's cash, cash equivalents, and short-term investments totaled $1.8 billion at the end of the quarter.
Analysts that cover LYFT stock expect earnings to increase by 12.7% to $0.73 per share in 2024, with earnings further rising by 25.3% in 2025. Trading at 10.9x forward 2025 earnings, Lyft seems cheaper than Uber.
However, Lyft's position as a distant second to Uber in the ride-hailing market presents a significant challenge to the company. With Uber aggressively expanding, Lyft must adapt quickly to remain relevant in this rapidly changing industry.
Overall, on Wall Street, LYFT stock is a "hold.” Of the 35 analysts covering LYFT, six have rated it a “strong buy,” two have a “moderate buy” recommendation, 26 suggest a “hold,” and one a “strong sell.” Its mean price target of $15.53 implies the stock could go as high as 43.6% from current levels. Its Street-high estimate of $26 suggests the stock could rally as much as 140% over the next 12 months.
Which Stock is the Best Buy?
While both Uber and Lyft began as ride-hailing services, Uber is ambitious and a clear winner as a long-term investment. Uber has expanded globally and is a larger business than Lyft, which only operates in the U.S. and Canada. Furthermore, Uber's aggressive expansion strategies and diverse business model have allowed it to maintain consistent profitability.
Though Uber stock appears to be expensive at the moment, it is a better investment when considering its long-term growth potential. This is probably why Uber stock is a “strong buy” in the analyst community.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
