Blogs -Uber and Lyft: Unprofitable Powerhouses

Uber and Lyft: Unprofitable Powerhouses


August 09, 2019

author

Beth Kindig

Lead Tech Analyst

Ride-share earnings this week proved that if you lower the bar to the ground, any earnings performance can leap over it. Both companies reported staggering losses that were delivered with positive PR spins. 

Lyft reported “record second quarter results” while losing roughly the same amount of money as previous years. Uber had an epic $5 billion loss that is closer to $1.3 billion adjusted. The second number only looks acceptable in the parallel universe where a $65 billion market cap company can report any losses at all, let alone $4 billion per year. 

Likewise, Lyft looks digestible compared to its counterpart at $850M in losses, until you realize these numbers haven’t improved since 2016 when the company reported negative net losses of $692M and net losses of $708M in 2017. There is an improvement from 2018, but again, this depends on how you spin it. To me, it’s cut and dry – Investable companies should have fewer losses as they grow revenue. There may be quarters where a company moves backwards, maybe due to capex or another legitimate reason, but the revenue growth in ridesharing creates losses due to subsidizing, and this is a holistic problem that is not going away. 

The market found it encouraging that Lyft was expected to lose $1.1B but has revised this to $850M for 2019. Profit margins are negative 23%versus negative 37.7%. The price was adjusted for the $200M improvement, which during after-hours resulted in a 11% spike. The spike soon settled when Lyft announced they are moving up the lock-up period from late September to August 19th. 

We see evidence of the holistic problem where Lyft’s losses will marginally improve this year compared to last year. There is no evidence, however, that this is sustainable. If Lyft needs to support R&D on autonomous driving, for instance, then the margins will be deep in the red once again. An important metric to watch is the EBIT margin of -77% compared to -61% a year ago.

Uber’s Q2 resultsare more straight forward to analyze. Adjusted EBITDA was negative 292M in the year-ago period compared to negative 656M in the current period for an increase of 125%. Keep in mind, Uber Eats and Uber Freight help offset the losses. 

As I stated in MarketWatch, I’m not a fan of the price war narrative. Increases in revenue per users is irrelevant if the losses are also accelerating or stagnant. This means the subsidization of rides continues to drive demand, and if both companies raise prices, they will also have more losses. The end of a price war sounds like a PR spin to me and we see no evidence in the financials that this will do anything for profitability.

There are also many other unknowns in how demand will react to higher priced supply. Gross bookings may decrease as people decide to drive to a destination, park at the airport for $8 per day, or hire a regular taxi who is already waiting outside many venues. Also, Uber may pull ahead of Lyft if prices go up as the service has more drivers readily available and is a larger brand. 

I’ve written extensively about these companies and expressed why my readers should steer clear ahead of the IPOs during the exuberant market of April 2019. I highly recommend anyone who wants to invest in the ride-sharing story to consider the liquidity the lock-up expirations will create with more shares flooding the market.  

I won’t repeat everything here, but below are a few bullet points from my previous analysis published March 14th, 2019 – one month before Lyft went public. I’ve also included links to my previous analysis on Uber – both before and after the company went public.

  • Lyft and Uber pay incentives to acquire and retain users. In gaming, a company might spend $8 to acquire a user with a lifetime value of $15 per user for a profit of $7. The problem with ride-sharing apps is that the incentives offered do not cover the costs of the ride, and that is one reason we see strong sales growth mired by substantial net losses.
  • Reuters has some historic information on this dated back to 2015, when Uber passengers paid only 41 percent of the actual cost of their trips. At the time, Reuters reported that this creates an “artificial signal about the size of the market” with Uber releasing limited financial data that showed losses of $708 million per quarter.
  • Lyft and Uber are mobile applications, but the business model is more of a large-cap human resources department with many variables around wages, and potentially regulations due to independent contractor classifications. (There was a recent $20 million settlement due to the misclassification of drivers in California).
  • A paramount risk to both Uber and Lyft is total addressable market. Room for geographic expansion is limited beyond the United States, other than a few outlier countries like Saudi Arabia. Of course, the underlying issue with TAM is a lack of intellectual property with an easy-to-duplicate mobile application that leverages common app features such as GPS location and SMS/voice. For a list of competitors, reference “Lyft: Risky Valuation and No Intellectual Property

My premium subscribers received a 12-page report on Roku And TTD prior to earnings, Snap prior to earnings and tech trade war plays to hedge their portfolios. Premium research members receive updated recommendations and entry/exit scenarios on tech stocks. Learn more here

For additional information on Uber: 

Uber IPO: Record-Breaking for All the Wrong ReasonsUber Stock Had Disappointing Q1 Earnings: So Why Did the Price Go Up?

head bg

Get a bonus for subscription!

Subscribe to our free weekly stock
analysis and receive the "AI Stock: 5
Things Nobody is Telling you" brochure
for free.

More To Explore

Newsletter

Stock market showing S&P 500 trends and potential correction signals, highlighting key uncertainties in economy, bonds and dollar

Historic Market Uncertainty Meets $7 Trillion Debt Wall: What Comes Next for the S&P 500

We are seeing mounting evidence that this bounce may be the start of a new push to all-time highs, such as improved breadth, better than expected earnings plus the size of this bounce. However, one ca

May 27, 2025
a baseball stadium with Nvidia billboard

Nvidia Stock Faces a Choppy Q2, But Tailwinds Build for H2 Acceleration

Nvidia’s streak of blockbuster earnings has turned investor expectations into a high-stakes game— anything short of perfection risks disappointment. As the company gears up to report fiscal Q1 results

May 23, 2025
Microsoft stock up as Azure tops AWS, Google Cloud in Q3 2025

Microsoft Stock Surges After Q3 2025 Earnings: What Separates Azure from AWS, Google Cloud

Microsoft stock jumped after Q3 2025 earnings as Azure emerged as the only major cloud platform to accelerate growth this quarter — a rare feat amid macro pressures. Azure’s 35% constant currency grow

May 16, 2025
Bitcoin price chart signaling potential top despite favorable crypto news

Why Bitcoin’s Bull Run May Be Nearing a Top Despite Pro-Crypto Tailwinds

Since calling the Bitcoin bottom near $16,000 in late 2022, the I/O Fund has maintained a disciplined, contrarian approach — issuing 13 buy alerts before Bitcoin surged above $100,000. Now, signs sugg

May 09, 2025
S&P 500 hits key 2025 target as bond market and consumer trends signal rising volatility and shifting stock-bond correlation.

2025 Market Outlook: Why Stocks and Bonds Are Signaling More Volatility

As the S&P 500 reaches a key bounce target, troubling signs in bonds and consumer behavior suggest this market rally may be on thin ice. I/O Fund’s Knox Ridley explains why volatility may intensify an

May 02, 2025
Illustration of an investor holding an umbrella, shielding from stock market volatility.

The Impact of Tariffs on the Stock Market: Q1 Preview

Rising tariffs are injecting significant uncertainty into the stock market, triggering daily volatility and forcing analysts to revise earnings estimates. Our Q1 preview dives into the potential impac

April 25, 2025
Aerial view of Tesla's new Model Y Juniper parked in lines. Courtesy of Tesla, Inc.

Tesla Stock Faces Recalibration of Growth Expectations

Tesla’s stock is now facing a recalibration of expectations after Q1’s delivery report missed by a wide margin. Q1’s analyst consensus has gone from $25.98B at the start of the year to $23.97B in earl

April 17, 2025
an illustration of a government building, constrained by heavy chains, with a volatile stock chart displayed above.

The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025

In early 2025, as markets rallied to new highs, we warned that divergence across key sectors signaled a looming correction. Now, with all major indexes in a technical bear market and bond market dysfu

April 11, 2025
Silhouette illustration of Larry Ellison, Oracle's CTO and executive chairman.

Oracle Stock Outlook: Revenue Could Double by FY2029, yet Targets Seem Lofty

Late in 2024, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, hinging on long-term growth in enterprise AI and cloud spending. Oracle sets itself apart from its hypersca

April 04, 2025
Graphic showing I/O Fund's "210% Cumulative Returns" with financial charts and a world map in the background.

I/O Fund Reports 210% Cumulative Return -- Ranking Above Wall Street's Best

In 2024, I/O Fund posted a 35% return, significantly outperforming popular tech ETFs, which recorded an 8% return over the same period. On a cumulative basis, the results translate to a remarkable 219

March 31, 2025
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2025