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Uber and Lyft investors predict bumpy roads ahead for the ride-hailing giants

  • Uber and Lyft reported strong results in their most recent earnings, but their stocks continue to slide.
  • Investors say they’re worried about driver shortages and potential regulation, among other issues.
  • Analysts say it will take some time for the companies to overcome headwinds. 
  • See more stories on Insider’s business page.

Uber and Lyft both made strong cases to the market last week that their businesses, battered by the pandemic last year, have turned a corner in 2021. 

The companies saw ridership plummet early in the pandemic amid worldwide lockdowns, but are now avatars of the recovering US economy. Lyft’s revenue was up 7% from the previous quarter; Uber’s gross bookings in the first quarter was the best in the company’s history. And losses for both are down dramatically.

But despite earnings that confirmed the positive financial outlooks, investors haven’t responded the way you’d expect. Both Uber and Lyft saw their stocks decline after their reports came out to continue a downward slide. The stocks have lost 20% of their value in the last month, suggesting that recovery for Uber and Lyft is going to be much bumpier than it seems.

There are a few reasons for the sagging stock prices, analysts tell Insider. Monthly ridership is uneven, suggesting some riders are still wary of getting back on the apps. Drivers, too, haven’t returned to the apps. Uber and Lyft are also dealing with some regulatory worries, including recent comments by Biden administration officials that could signal another fight over worker classification.

It makes for a tricky time for the ride-hailing companies. Analysts remain bullish about their businesses overall — some even argue that we could see the share price for Uber double in value over the next 12 months. Yet the concerns that have weighed on the stocks could also persist, and their underlying causes may not go away soon.

“Ridesharing is recovering, but it’s at a relatively slow pace,” Mark Mahaney, an analyst at Evercore ISI, told Insider. “I still think the risk-reward is positively skewed here for these companies.”

The choppy nature of the recovery has clouded what is otherwise a bright picture. In one sense, both companies showed impressive turnarounds in the first quarter, and showed the clearest signs yet that Uber and Lyft may have weathered the worst economic effects of the pandemic. In the US and Canada, Uber did $1.9 billion in revenue, which isn’t too far below the revenue during the period last year of $2.1 billion.

But Uber’s successful quarter is not necessarily a strong sign for its core ride-hailing app. Its business has flipped heavily toward

Uber Eats
, with almost two-thirds of its revenue during the first quarter of 2021 coming from delivery, compared to 16% in the same period last year.

Improvements in their ride-hailing businesses will also not be a straight shot upward. For example, Lyft CEO Logan Green noted during the company’s call with analysts that the number of rides people took in April was actually down compared to March. Green chalked it up to typical seasonality, but Mahaney and other analysts noted it was a bit unexpected to see typical seasonality affecting a business that should be broadly improving amid a reopening of the economy and widely deployed vaccines. Lyft executives did note that they expected more drivers to come back in the coming weeks, which would result in ridership increasing in May and June.

Another issue is the specter of labor regulations. Late last month, US Labor Secretary Marty Walsh commented in an interview with Reuters that he believed gig workers should be classified as employees in “a lot of cases.” While the secretary didn’t comment specifically on any ride-hailing or delivery companies, shares of Uber, Lyft and DoorDash plummeted after his comments, some around 10% or more. 

The worry was enough for Uber to take the unusual step of bringing its chief legal council, Tony West, onto the earnings call last week to try and assuage investors. It may have had the opposite effect; analysts peppered West with questions about Uber’s ability to fend off regulation. Despite the solid quarter, Uber’s stock was down 5% in after-hours trading. It has continued to slide along with the rest of the market.

Analysts noted that Uber and Lyft’s stocks also reflect a larger

bear market
for the tech index, caused by worries about inflation, rising interest rates, chip shortages, and a weak jobs report in April. That last point is particularly acute for the Uber and Lyft, which have struggled to lure enough drivers back to their platforms to meet demand. Both Uber and Lyft executives spoke at length about the high demand from riders causing fares to spike, and in turn giving drivers big payouts.

Executives hoped that the lure of these big fares will be enough to fix that supply problem. 

Green, the Lyft CEO, also said on last week’s earnings call that pandemic assistance programs, like expanded unemployment benefits, had caused headwinds for the company. He suggested that the end of those programs in the fall would likely alleviate some of the company’s problems.

The companies’ financial futures will be much clearer later this year. Both Uber and Lyft spent the pandemic offloading high cost businesses like self-driving technology units. That has cut down on their cash burn considerably. Lyft’s cash burn was down 60% in the quarter compared to last year.

Both companies say that later this year they should be posting profitable quarters. And analysts are expecting that once they cross that threshold they won’t be returning to their money losing days. Hitting that mark will go a long way to justifying the bullishness from analysts that these businesses are as strong as they seem.

If not, Uber, Lyft and the rest could be in for a bumpy ride.

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