-0.9 C
Friday, December 4, 2020
Home Markets Lyft and Uber Investors Head for Speed Trap

Lyft and Uber Investors Head for Speed Trap


Uber and Lyft drivers protested against California’s Proposition 22 in Los Angeles on Oct. 14.

Uber and Lyft drivers protested against California’s Proposition 22 in Los Angeles on Oct. 14.

Photo: lucy nicholson/Reuters

Investors are valuing ride-hailing stocks like shiny new cars. Both companies have been in a nasty accident, though.

Shares of
Uber Technologies
are up 217% and 125%, respectively, from their 2020 lows. Those gains accelerated following Proposition 22’s passage in California last week and this week’s promising vaccine news, but investors are paying up ahead of time for a recovery that could be maddeningly slow.

On Tuesday, Lyft said its revenue fell 48% from a year ago with ride-share rides still down more than 47% year on year in October. That report followed a somewhat sobering update from Uber last week, which included a 44% drop in mobility bookings in October compared with last year.

In the near term, recovery could stall during a brutal Covid-19 winter. Uber noted a modest contraction in mobility bookings in some areas due to renewed shutdowns. It also said it is seeing greater price sensitivity in early riders coming back to its platform compared with before the pandemic. That could present a challenge, particularly as Uber has said it plans to pass on to riders “much of” the new driver expenses it will incur as a result of Proposition 22. Meanwhile, the airport business won’t fully recover until a vaccine is widely available.

Even longer term, investors are too sanguine about a return to normal. At least some percentage of the commute-use case might have vanished for the foreseeable future, for example, as city-dwellers have relocated to suburbia and purchased cars or made plans to work from home indefinitely.

Even for Uber, whose shares have been further buoyed by its booming food-delivery business, optimism could be overblown. Uber believes it can reach profitability on an adjusted basis before interest, taxes, depreciation and amortization next year for its delivery business amid continued high growth in the category. But if delivery was unable to turn a profit in a pandemic scenario, how easy will it be to do so when more diners begin venturing back out?

There is no doubt that prospects for ride-hailers’ recovery look brighter today than they did last month. Investors still should brace for a few speed bumps along the way.

Write to Laura Forman at laura.forman@wsj.com

A Global Asset Management Seoul Korea Magazine

This post was originally published on this site