Uber and Lyft are 'proxies for the reopening' as investors look to rideshare to predict the pandemic recovery

Spencer Platt/Getty ImagesUber CEO Dara Khosrowshahi at the NYSE in May 2019.
  • Investors are looking at Uber and Lyft as early signs of how the economic recovery may take shape.
  • Analysts told Insider the companies’ fates are closely tied to post-pandemic travel and consumer trends.
  • They said Uber and Lyft became much more nimble during the pandemic, but uncertainty remains.
  • Visit the Business section of Insider for more stories.

When the pandemic hit last year, Uber and Lyft were some of the first stocks to plummet.

Both companies lost around half their value in a matter of weeks, dropping to just above $US20 per share each — Uber down from more than $US40 and Lyft down from nearly $US50.

But after the companies’ Q4 2020 earnings reports this week, investors had come full-circle, and are even looking toward Uber and Lyft as early indicators that the economy may be turning a corner.

Uber closed on Friday at more than $US60 per share, while Lyft closed above $US57.

“These become proxies for the reopening,” Eric Schiffer, CEO of private equity firm Patriarch, told Insider, comparing that to both companies being viewed by investors “in a pariah sense” pre-pandemic.

Just as notable is why investors are so optimistic.

Uber and Lyft entered the pandemic with many investors seriously doubting whether they could every become profitable — now, Wall Street seems increasingly convinced that both have streamlined their businesses enough to not only break even, but ultimately exit the pandemic in better positions.

“The street continues to be focused on the other side of the dark valley as we go into the second half of the year,” Wedbush analyst Dan Ives told Insider. “[Uber and Lyft] ultimately have made these business models stronger and a lot more profitable on the other side of this.”

While Uber had more mixed Q4 results, its stock returned to pre-pandemic levels shortly after its Q3 earnings, and analysts told Insider that they believe the market’s slightly negative reaction to its latest quarter is just a short-term road bump.

Ives said he believes Uber’s stock could push past $US70 per share in the coming months, and that although Uber faces more variables because it has both rideshare and delivery businesses to grow, the company has some major tailwinds — the accelerated growth of its delivery business, a regulatory victory with Proposition 22’s passage, and commuters being reluctant to take public transit.

Lyft beat Wall Street’s Q4 expectations, and investors sent its stock soaring as much as 10%, focusing heavily on the cost-cutting the company was able to pull off, as well as Lyft’s own foray into delivery.

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“They have cut 30, 40% of the cost out permanently,” Ives said, adding that while some costs may ramp up again as demand returns, “the red ink, from an EBITDA perspective, will be in the rearview mirror” for both Uber and Lyft.

Lyft said that it expects to be profitable on an adjusted EBITDA basis by Q4 2020, or potentially even Q3, and Uber said it’s “well on track” to reach its profitability goals in 2021.

But investors aren’t just optimistic about the companies’ business prospects, they’re looking to both as a bellwether for the broader economic recovery.

Both Schiffer and Ives mentioned “pent up demand” among consumers eager to move around again, saying that, as more people get vaccinated and begin to return to pre-pandemic life, one of the first places that demand will be unleashed is via rideshares.

While Uber said Q4 trips were still down 24% year-on-year and Lyft’s active riders were down 45% year-on-year, Schiffer said he expects ridesharing to “really improve” by the end of Q3 and into Q4.

He also said business travel is unlikely to fully bounce back for “a couple years” and won’t be a reliable income stream for Uber and Lyft — a prediction common among travel industry executives and observers, reflecting how the broader travel industry is thinking about reopening plays.

And like most businesses and investors trying to predict when and how the economy will recover, Schiffer said, Uber and and Lyft’s “biggest roadblock for right now continues to be: what unknowns may still exist within this whole pandemic arena?”

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