The Long-Term Argument for Buying Uber and Lyft Can be Summed Up in One Word

The long-term potential of Uber (UBER) – Get Report and Lyft (LYFT) – Get Report — and one main reason to buy their stocks — can be encapsulated in just one word.

“It is all about liquidity for Uber and Lyft,” analyst Pierre Ferragu told TheStreet. Ferragu follows Uber for New Street Research and rates its shares a Buy with a $50 price target; he does not formally cover Lyft. Both stocks are currently in the doldrums since they first went public this past spring, with Uber shares down 31% at a recent price of $28.65, and Lyft is down 43% at $44.87.

But Ferragu sees Uber reaching profitability in a couple of years’ time, while continuing to grow revenue at double-digit rates, as it settles into a comfortable duopoly with Lyft that proves difficult for other companies to break into.

Uber’s ability to efficiently make more rides available in the markets it enters is a “game changer,” according to Ferragu. The crux of his argument is the difference between fixed capacity and flexibility capacity in a market.

In 2012, the year Uber started operating, there were 1.5 billion rides annually in the U.S. by taxi services, Ferragu noted. That total had only risen about 3% each year over a decade. The reason there wasn’t much growth in taxi rides was because of fixed capacity. As a city added more cabbies to serve more customers, fares for rides had to rise in order to make sure each cabbie still earned enough, since each cabbie was now splitting the market with more competitors.

Rising fares discouraged passengers, so the system reached a kind of equilibrium at some point, with little growth in ridership.

Rather than managing a fixed number of drivers, however, Uber and Lyft can automatically adjust the number of drivers based on demand – i.e., they can manage liquidity. “Liquidity means that at any point in time, at any place in the city, they can influence the number of cars available and riders available,” Ferragu said. By optimizing supply in that way, Uber and Lyft can keep fares competitive and thereby encourage more and more ridership.

The number of paid rides has now risen to 5 billion annually in the U.S, with ride sharing taking over 85% of the market, according to Ferragu. “When you have a new technology that increases the market three-fold in six years, that is technology that is creating a lot of value,” Ferragu said.

That value will endure, Ferragu believes, because new entrants will find it difficult to compete with the Uber-Lyft duopoly. “If you arrive after the number one and number two are established in a market, you cannot achieve the same liquidity as them,” said Ferragu. In other words, the economics of Uber and Lyft become so efficient, given their scale, that any new entrant is at a disadvantage, and so they won’t get startup capital to compete.

The remaining question, however, is whether Uber can make a profit. It is projected to lose $2.85 billion this year on an Ebitda basis (earnings before interest, taxes, depreciation and amortization), on revenue of $14 billion. The company has told Wall Street that it will be profitable for the full year 2021.

“We just still struggle to get comfortable with visibility of the financials,” Tom White of D.A. Davidson, who has a Neutral rating on Uber stock, told TheStreet. The average estimate for Ebitda in 2021 is still negative, he noted, evidence that “the market doesn’t entirely believe” the company’s promise to become profitable at that time.

As for valuation, Uber trades at a multiple of just three times its sales, based on its enterprise value, notes White. “A lot of people would look at that and say, that’s pretty compelling already,” he said. “The only thing that’s different is, the magnitude of the losses they are incurring is so large, in absolute dollar terms, that [it] gives pause.”

Another concern is that to reach profit more quickly, Uber will have to spend less money on investments in its “Uber Eats” initiative for meal delivery, as well as on its development of autonomous vehicle technology and expansion into new global markets.

“To get profitable faster they are going to invest in fewer markets,” said Ferragu. “They are going to exit the markets where they are the less-well-positioned.”

And no one knows exactly what that trade-off of growth for profit will look like. “That accelerated time frame [to get to profitability] raises questions,” White said. “What does it mean for the size of the core business, or the likelihood that some of their longer term bets, like autonomous freight, and such might be starved of capital they could otherwise have used?”

Uber trades at about 0.4 times its projected “bookings” this year of $65 billion, which is the total dollar value of rides it enables. With improving profitability, the stock can see that multiple expand much the way Amazon’s multiple expanded in the 2000s as it became profitable, Ferragu argued.

“If [Uber is] growing revenue, say, 20% per year, and they are becoming profitable, you could see that multiple expand to 0.9,” said Ferragu. “That could double the stock.”

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Source: The Long-Term Argument for Buying Uber and Lyft Can be Summed Up in One Word

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Uber’s Nightmare Has Just Begun

“Never get in cars with strangers…”

Did your parents tell you that when you were a kid?

These days, people get in cars with strangers all the time… only they use a smartphone “app” to match them with a specific stranger to drive them around.

As you may have guessed, I’m referring to Uber, the world’s biggest ride-sharing company.

It’s like a taxi company except it doesn’t own any cars. It doesn’t employ any drivers either. Instead, it runs an app that connects drivers with people who need a ride.

Since 2009, Uber has grown into a hundred-billion-dollar company. It’s become so big and popular that it’s hard to imagine the world without it.

Hardly anyone “takes a taxi” anymore. Everyone “Ubers”…

The most-hyped IPO since Facebook…

Today In: Money

After years of extraordinary growth, Uber launched an IPO on May 10.

An IPO, as you may know, is when a company first sells shares in the public markets. It marks the first time individual investors can buy the stock.

Uber’s debut on the stock market was one of the most hyped financial events since Facebook went public in 2012.

It was on every financial TV. The headlines screamed “this is the next Facebook.”

Everyone was talking about it… I even heard stories of people putting half of their savings in this single stock.

I understand, Uber is a colossal technology company that has become part of everyone’s lives.

It has changed the way we commute. It even disrupted culture.

Who would have thought we would take rides from strangers in their personal cars on a regular basis?

But while Uber is a disruptive company, it’s a terrible business… and its stock is a horrendous investment.

You don’t need a master’s degree in business to understand this…

Every business has to eventually make more money than it spends. Period.

Yes, you can sacrifice profit to win customers at the beginning… but eventually you have to make money to cover your expenses and reward investors.

The thing is, after 10 years, Uber is still highly unprofitable. Worse, its losses are growing at astronomical levels.

Last year, it lost $1.8 billion… while last quarter, it lost a whopping $5 billion.

To put this in perspective…

In its IPO, Uber raised $9 billion…

… five of which it has already burned. IN A SINGLE QUARTER.

As I wrote in May, Uber loses 25 cents on every dollar it brings in and an average of $1.20 on every ride.

It’s burning money so fast that it lost more in the nine months leading up to the IPO than Amazon did in its first seven years!

Now, here’s simple math.

If you are losing money as a business, you have two options: cut your expenses or raise prices.

Uber’s biggest expense is driver pay. It pays back to drivers about 80% of all the money it generates.

That means to turn profit, Uber has to cut driver pay… or raise its fares.

And as I’ll explain, neither is possible.

Days before Uber’s IPO, Uber drivers boycotted the company and turned off the app…

They marched the streets in protests demanding higher pay and better working conditions.

Uber drivers now earn an average of $10 to $12 an hour in the US after expenses, according to researchers.

No surprise they are unhappy. The current pay is almost on par with the federal minimum wage.

Uber has no room to cut driver pay. Its drivers would just quit or migrate to Uber’s competitors.

Now, if you are losing money and can’t cut your expenses, your only option is to raise prices.

The problem is Uber is in a stalemate position where it can’t hike its fares.

A never-ending price war with Lyft…

The US is Uber’s biggest and most profitable market. But here, it has one big challenge.

You’ve probably heard about Lyft, Uber’s biggest competitor in the US.

These two companies have battled each other in price wars for years to undercut taxi fares and steal customers from each other.

It’s estimated that they’ve lost a combined $13 billion… and both still have no roadmap to profitability.

In other words, Uber is locked in a price war with Lyft.

As I’ll explain later, the moment Uber raises fares, its customers will switch to Lyft or another competitor.

But Uber’s problems with the competition don’t end here…

Uber can’t keep up with cutthroat competition overseas…

Another way Uber could raise its profits would be to grow globally.

But here, Uber’s prospects look even grimmer.

Bolt, an Estonia-based ride-sharing company, is quickly taking over Europe. In a lot of European cities, it’s a #1 ride-hailing app already.

It’s a heavy blow to Uber’s growth potential in Europe.

For example, London has been one of the biggest, most profitable markets for Uber. For years, Uber enjoyed zero serious competition in this city. Now it has Bolt.

Elsewhere Uber has already lost the battle with local competitors:

It has exited Russia after losing the battle with Yandex.Taxi…

It has exited China after losing the battle with DiDi…

And it has exited Southeast Asia after losing the battle with Grab and Go-Jek.

Southeast Asia accounts for more than 70% of the global ride-sharing market.

And these competitors are not just a local problem. Just like Uber, they have set their sights on the global market.

Take Brazil, where Uber boasts an 80% market share. It could be a money-making machine for Uber. And yet, the company bleeds money in Brazil because it’s fighting a price-war with China’s ride-sharing giant DiDi.

It’s a race to the bottom, which forces Uber to keep prices low and marketing expenses high.

Uber customers don’t care about Uber…

Would you take a ride with Uber if it cost twice as much as Lyft? That’s how much Uber needs to raise its fares to start earning money.

Probably not…

That’s because Uber’s app is no different from its competitors. It has no customer loyalty whatsoever.

In fact, more than 34% of people in the US who use ride-hailing services use both apps, Lyft and Uber. That’s up 50%+ from two years ago, according to Vox.


Many people switch back and forth between Uber and Lyft, choosing whichever one offers a better price at the moment.

And with its fierce competitors charging about the same or lower fares, this makes it impossible for Uber to raise prices.

Meanwhile, Uber is losing its market share not only globally but also in the US, as you can see in the above chart.

Let me say this one more time: It’s a race to the bottom.

Uber is worth no more than $20/share

Uber is currently trading for 4X sales. In short, this means Uber’s value is 4X greater than its annual sales.

For perspective, that’s more expensive than Amazon or Apple.

My research shows 3X sales is a fair price, if we are really generous.

The problem is, at 3X sales, Uber is worth no more than $20 to $22/share. And that’s currently 30% below its price.

That’s where I see the stock going in the coming years.

Get my report “The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money”. These stocks will hand you 100% gains as they disrupt whole industries. Get your free copy here.

Follow me on Twitter. Check out my website.

I’m a professional investor and the chief analyst at RiskHedge, a disruption research firm. My team and I hunt for under-the-radar “disruptive” companies that are changing the world and making investors rich in the process. Get my latest analysis at

Source: Uber’s Nightmare Has Just Begun

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Uber To Give Drivers & Couriers Sickness & Maternity Cover

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Uber is to provide additional protection for its drivers and couriers across Europe, including 70,000 in the UK, with limited insurance against sickness and injury as well as small maternity and paternity payments.The ride-hailing service said a new insurance policy, to be provided free to its drivers, would give them “peace of mind while preserving the flexibility they value”.

The cover starts in June for drivers who have completed 150 trips in the past two months, or Uber Eats couriers who have completed at least 30 deliveries. Payouts for a baby are £1,000; sick pay for injured drivers after a week is capped at £1,125.

But James Farrar, the chair of the united private hire drivers branch of the gig economy union IWGB, said the deal was just “tinkering around the edges” instead of guaranteeing drivers’ employment rights.“It’s good to see Uber is reacting to the pressure piled on by the IWGB’s campaigns and legal action,” he said.

“Sadly, this is once again a case of tinkering around the edges for a quick PR win, rather than dealing with the issue at hand. If Uber really cares about the workers on which the business relies, it should stop fighting us in court and give the drivers the rights they are entitled to under the law.” The GMB union said Uber was starting to listen to its members’ complaints about employment rights.

Mick Rix, the national officer, said: “This is a major step in the right direction, but our successful court victories, winning workers’ rights for Uber drivers, could have all been avoided if they had sat down and talked with GMB from the start.Uber has fought claims from drivers who argue that the technology firm is their employer and should provide benefits such as paid time off, and is continuing its legal appeal after British tribunals ruled against them.

While Uber insists that most drivers prefer to be self-employed, the latest move is another step in its efforts to show itself as a “better partner”, after a string of controversies and the decision by local authorities in London and other UK cities to refuse its application for a renewed licence.Announcing the move in Paris at President Emmanuel Macron’s Tech for Good summit, Uber’s chief executive, Dara Khosrowshahi, said drivers were “at the heart of the Uber experience”.

He said: “We’re committed to being better a partner, and that starts by being a better listener. That’s why I’m thrilled to provide this groundbreaking protection alongside a trusted insurer like AXA, giving our drivers and couriers the peace of mind they tell us they want while preserving the flexibility they value.”In a blogpost confirming the details, Uber said: “We called drivers ‘partners’ but didn’t always act like it.”

The insurance will give some protection against major costs or lost income resulting from accidents or injuries while working, as well as an element of sick or parental leave through one-off payments.A similar scheme was announced this month by Deliveroo, who gave its riders accident insurance towards medical expenses and loss of earnings.

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