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MARKETS LIVE BLOG:

STOCKS END MIXED EVEN AS POWELL SOOTHES RATE NERVES

Fed chair: "It is unlikely the next policy move will be a hike"

Solid Lyft-Uber Q1 Earnings Drive ETFs: Is it Safe to Play?

Sanghamitra Saha
·4 min read

It’s around a year since Lyft LYFT and Uber UBER hit the financial markets. Lyft went public at the end of last March, while Uber hit the markets in May. Notably, both were loss-making companies at the start of their Wall Street journey. In fact, initially the IPOs were not that successful. The duo had a terrible 2019 with Lyft and Uber shares losing about 48% and 38% past year (as of May 7, 2020), respectively.

This puts the spotlight on the earnings releases of these ridesharing giants as only that can decide the future course of their stocks, especially with coronavirus outbreak strengthening the need for social distancing and wreaking havoc on the ridesharing business model. However, the duo passed their first coronavirus-infected earnings test as shares gained post release.

Lyft Q1 Earnings

On May 6 after market close, Lyft reported loss per share of 32 cents in Q1, narrower than the Zacks Consensus Estimate of loss of 56 cents.  Reported loss was considerably narrower than the year-ago quarter’s loss of $9.02 per share. Revenues of $955.7 million for Q1 (up 15.8% year over year) also beat estimates of $864 million. Shares surged about 22% in the key trading session on May 7.

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Due to Covid-19 impacts on its business, Lyft recently laid off about 17% of its workforce, and slashed pay for the remaining employees by 10% to 30%. The ride-hailing company’s business was down by as much as 75% in April due to lockdowns.

As its ridesharing business was massively hurt, Lyft diversified from March to delivering medical supplies and test kits to vulnerable populations, a meal delivery program and a partnership with Amazon AMZN to provide it with delivery drivers.

Uber Q1 Earnings

On May 7 after market close, Uber Technologies reported Q1 loss of 64 cents a share, which was narrower than the loss of 79 cents and the year-ago quarter’s loss of $2.26. The company took a $2.1 billion impairment write-down, primarily due to its investment in Didi and the credit loss allowance recorded on its investment in Grab.

Revenues jumped 14% to $3.54 billion from $3.1 billion in the year-ago quarter and surpassed the Zacks Consensus Estimate of $3.38 billion. Shares added 6.1% after hours.

While the coronavirus pandemic led to an 80% decline in ride bookings in April, increases in recent bookings in San Francisco, Los Angeles, Chicago and elsewhere, have been a positive factor. Uber is also cutting its workforce by 14%. Demand for Easts seems strong.

There was 9% trip growth last week, and a solid pickup in Eats demand, with bookings soaring 89%, excluding India, in April. Shares were initially down but then started to trend higher.

ETFs versus Stocks: Which Should You Pick?

Some investors may be cautious about the future of ridesharing business even in the post-lockdown world but Uber and Lyft’s share gains indicate that investors still have hopes of a rebound in ridesharing.

Lyft and Uber have significant exposure to ETFMG Travel Tech ETF AWAY. Uber takes the top position with about 12.24% while Lyft has a 7.07% weight in the fund. The fund was up 4.8% on May 7 but is down about 30% this year. The fund gives exposure to the entire travel tech industry — one of victims to coronavirus. It is advisable not to bet on this fund right now as all the holding companies of AWAY may not experience a business recovery in the near term. A stock-specific approach is better here.

However, Uber and Lyft also have exposure to Renaissance IPO ETF IPO and First Trust US Equity Opportunities ETF FPX. These are better basket-form bets. IPO is up 4% this year, better than 10.8% losses seen in the S&P 500. IPO was up 4.2% on May 7. FPX, which is down about 7% this year, has added about 2.3% on May 7.

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Amazoncom Inc (AMZN) : Free Stock Analysis Report
 
ETFMG Travel Tech ETF (AWAY): ETF Research Reports
 
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
 
Renaissance IPO ETF (IPO): ETF Research Reports
 
Uber Technologies Inc (UBER) : Free Stock Analysis Report
 
Lyft Inc (LYFT) : Free Stock Analysis Report
 
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Zacks Investment Research
 
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