Lyft's Quarter Shows Ride-Sharing Market Strength, May Be Good Sign For Uber

Lyft Inc.'s LYFT strong quarter and acceleration toward profitability shows the overall ride-sharing market is rolling along nicely in the United States, which may bode well for Uber Technologies Inc UBER, sell-side analysts said.

Lyft’s results in just its second earnings report since going public surprised the Street as the ride-share company beat estimates of active riders and revenue per active rider and appeared to be paving a faster road to profitability. Lyft’s $867 million revenue figure also easily topped analysts’ estimates and the company raised its full-year revenue guidance and lowered its earnings loss expectations even further.

Uber, which also went public earlier this year, is set to report second-quarter earnings Thursday after the market close.

The Analysts

Credit Suisse analyst Stephen Ju kept an Outperform rating on Lyft but edged the target price higher from $95 to $96.

UBS analyst Eric Sheridan reiterated a Buy rating on Lyft while raising the price target from $82 to $85.

DA Davidson’s Tom White affirmed a Buy rating on Lyft, raised the target price from $72 to $74 and raised his 2020 revenue estimate on the company by 4%.

Wedbush analyst Daniel Ives upgraded Lyft from Neutral to Outperform and raised the price target from $67 to $75.

Bank of America analyst Justin Post maintained a Buy rating on Uber with a $53 price target.

Ives said in upgrading Lyft’s stock that the most impressive thing about Lyft’s better rider numbers was that they came despite a cut back on promotions and discounts. Ives also said it looks like 2018 – rather than 2019 as previously expected – could now be the peak loss year for Lyft.

Positive Indicator For Uber

And that's a sign of a maturing market. Companies, it appears, are moving past the deep price slashing to bring in new customers, which is good for Uber as well as Lyft’s bottom line.

Post also noted Lyft’s management on its earnings call several times cited strong market conditions and also sees good news for Uber in Lyft’s increasing effort to compete without price cuts. Lyft even boosted prices in June, which Post said appears to be an industry trend.  Post thinks Uber could see multiple expansion if margin improvements beat expectations.

Sheridan said Lyft’s success adds to confidence in a “long-term thesis that shared transportation is a market with a long runway for secular growth (and) potentially more rational industry competitive dynamics as maturity approaches.”

Lyft’s top-line strength was mostly driven by that overall ride-sharing market strength, DA Davidson’s White said, noting it could be a positive readthrough for Uber’s second-quarter print.

Ju noted it’s still early in the industry’s trajectory, which is part of why he remains bullish on Lyft, citing a large and under-reached addressable market of $745 billion.

Early Lockup

A couple of analysts did note one potential headwind: Lyft announced it's moving up its lockup expiration date.

Angelo Zino of CFRA Research said on CNBC’s "Squawk Box" said it would be a headwind on the stock, but downplayed its significance given the results.

“It’s something that investors need to monitor,” Zino said. “But the results that we got last night from Lyft is exactly what you wanted if you’re an investor.”

Price Action

Lyft shares traded higher by 5.6% to $63.69 at time of publicaiton. Uber was also soaring ahead of its print, up 6.4% at $42.26.

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Photo courtesy of Lyft.