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Bear Of The Day: Lyft (LYFT)

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Since November began, the ridesharing duopoly has been on a sugar rush with 2 momentum driving events trigging a massive rally in the space. Lyft (LYFT - Free Report) and Uber (UBER - Free Report) have been met with enthusiastic traders & investors soaring 62% and 37% since last Monday, respectively.

It started with a big election win, as California's Prop 22 passes with ease. Then Pfizer announced a 'successful' COVID-19 trial, which put a light at the end of the tunnel for this devastating pandemic. 

There is no question that ridesharing stocks are an excellent recovery play, but which enterprise do you want in your long-term portfolio?  

I am choosing UBER over LYFT for a long-term investment all day. Uber's Eats business has kept the brand name relevant in consumers' minds throughout the pandemic, while Lyft stayed in the shadows amid the lockdowns. Analysts have been increasingly pessimistic about Lyft's future earnings, pushing this stock into a Zacks Rank #5 (Strong Sell).

Let me be clear, I wouldn't short LYFT, and honestly, I think this stock could have some more room to run once a vaccine is deployable. Still, I am choosing Uber over Lyft in the ridesharing spread.


My pick is UBER because of its leading positioning in ridesharing and a firm #2 spot in the accelerating delivery space. The business has been able to turn and maintain an operational profit in its rides segment. It also has a seemingly endless stream of capital to continue investing heavily in autonomous vehicles, the future of ridesharing.

'Uber's little brother', Lyft, has not faired nearly as well as its more diversified competitor. Without a food delivery segment to hedge the business, it has hemorrhaged $100s of millions in 2020 with no market share gains to show. LYFT remains down 16% for the year, while its cohort UBER is up 50%.

Before the pandemic, I thought Lyft's pure-play ridesharing strategy was its advantage, as it would be hitting profitability before the diverse Uber enterprise, but it has been the company's downfall this year.

Lyft's management came out in its earnings report this week and said that they expect to reach a positive EBITDA by the 4th quarter of 2021, and analysts are pricing in full-year profitability by 2022.

My concern with this business's future is its lack of use during the pandemic that may cause its pre-COVID customers to choose Uber in the post-pandemic world. The Uber app has stayed at the forefront of consumers' minds during the lockdowns because of its Eats segment. I believe that this could have a psychological impact on consumers' subconscious ridesharing decisions moving forward, giving Uber a leg up in market share in the 'new normal.'

LYFT shares are hot right now, but they have a tough road ahead. Its pure-play approach appears to be one of its downfalls. Lyft's management discussed the possibility of entering the food delivery segment, but I think they are a little late to the already overcrowded party.

Final Thoughts

As I said, I am not advocating any action on LYFT shares as I think they may have some short-term potential as vaccine news continues to flow, but as a long-term ridesharing play, I would prefer to hold Uber, the pioneer, and leader of the space.

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