Earlier this month, Benchmark started coverage of Lyft with a Sell rating on declining revenue growth and rising insurance cost
Reiterating an Outperform rating on Uber (UBER) and Lyft (LYFT), Raymond James analyst Justin Patterson said he believes ride-sharing sentiment in "improving notably," with the shift to "bullishness" reflecting 2019’s divergence between stock performance and revision trajectory and a change from negative to positive catalysts. Last week, his peer at Bernstein initiated coverage of Uber at Outperform, but started Lyft with a Market Perform rating as he sees a natural limit to the latter's market potential due to constraining itself to the North American market and exclusively offering only ride-sharing and micro-mobility services.
SENTIMENT SHIFT: In a research note to investors this morning, Raymond James' Patterson said that ride-sharing sentiment is "improving notably." After spending most of 2019 dealing with investor skepticism around Uber and Lyft, the analyst noted that the first two weeks of 2020 have marked a reversal, with investors now warming up to ride-sharing. Patterson believes the shift reflects 2019's divergence between stock performance and revision trajectory and a change from negative to positive catalysts. Importantly, the analyst noted that both Uber and Lyft have addressed investor concerns by enhancing disclosures, implementing expense discipline, and expressing profitability timelines. The combination of "strong fundamentals" and end-market rationalization will ultimately drive positive revisions and multiple expansion, he contended. Patterson reiterated Outperform ratings on both Uber and Lyft.
BERNSTEIN MORE CAUTIOUS ON LYFT: Last week, Bernstein analyst Mark Shmulik initiated coverage of Uber and Lyft with Outperform and Market Perform ratings, respectively, as part of a broader initiation of the U.S. Internet sector with a generally positive outlook.
Seeing TAM penetration of ride-sharing as early-to-mid cycle, with global year over year growth currently in the low-30s though expected to taper off to mid-20s through 2021, the analyst argued that Uber should be able to participate in this growth. While Eats is a high cash burn business today, Shmulik expects market rationalization and management's efforts to cut unprofitable markets can turn food delivery economics positive.
Not as bullish on Lyft, the analyst said he sees a natural limit to the company’s market potential due to constraining itself to the North American market and exclusively offering only ride-sharing and micro-mobility services. The good news, Shmulik noted, is that Lyft operates in a market that appears to be rationalizing, which helps drive bottom-line margin improvement. Nonetheless, he forecasts Lyft's U.S. rider penetration growth to slow to 11% year over year through 2022 versus 14% for consensus. The analyst added that there are a limited number of levers to pull if new rider growth slows and, coupled with pricing power questions, regulatory overhang, and limited optionality, there is equal upside and downside risk to this name.
BENCHMARK SAYS SELL LYFT: Initiating coverage of Lyft with a Sell rating and a $35 price target last week, Benchmark analyst Michael Ward noted that the company's revenue growth rate has been declining steadily since 2016 and added that he expects the trend to continue for "the foreseeable future." Meanwhile, payouts for insurance claims rose 134% to $350M in the first nine months of 2019 and he believes the combination of slowing growth and increased insurance payouts growth will further compress the stock's multiple.
LYFT'S RIDE VOLUME COULD SLOW: Reiterating a Sector Weight on Lyft shares, KeyBanc analyst Andy Hargreaves said in a research note last month that his data suggests cohort level spend does not grow materially over time and new customer growth is decelerating. This suggests ride volume and overall spending growth could "slow materially" unless Lyft can broaden its use cases, which he believes will be difficult.
PRICE ACTION: In late morning trading, shares of Uber have dropped almost 2% to $34.46, while Lyft's stock has slipped over 1% to $46.47.