Rideshare companies like Uber and Lyft have become ubiquitous in cities worldwide. As on-demand transportation services boomed over the last decade, investors have been keen to buy stock in these popular apps. But is investing in rideshare companies like Uber or Lyft stock a savvy move for your portfolio? Here’s what you need to know before you buy.
An Introduction to Rideshare Stocks
Rideshare companies provide app-based, on-demand rides. Uber and Lyft are the two most prominent names in the space.
Both companies had highly anticipated IPOs (initial public offerings) in 2019, allowing public trading of their stocks. This significant milestone lets ordinary investors buy a piece of the rideshare pie.
But how have Uber and Lyft stocks performed since going public? And is now a good time to invest in these companies?
The Bull Case for Rideshare Stocks
Here are some reasons why rideshare stocks like Uber and Lyft could make intelligent long-term investments:
Massive Growth Potential
Rideshare apps are rapidly disrupting the huge global transportation market.
Uber and Lyft have already seen tremendous growth. But with rideshare penetration still relatively low worldwide, these companies have ample room for expansion in coming years.
Network Effects
The more riders use a rideshare app, the more drivers it attracts. And the more drivers on the network, the shorter wait times for riders.
This self-reinforcing cycle helps companies like Uber and Lyft cement their dominance.
High Switching Costs
Once riders are accustomed to using a particular app, they rarely switch. This gives incumbent rideshare platforms an advantage over smaller upstart rivals.
Tech Know-How
Uber and Lyft have invested heavily in artificial intelligence, mapping, routing algorithms, and other technical expertise to strengthen their platforms. This makes it challenging for new entrants to compete.
Diversification
Rideshare companies are expanding into food delivery, micro-mobility, and autonomous vehicles to keep growing. This diversification hedges risks and creates new revenue streams.
The Bear Case Against Rideshare Stocks
However, there are also good reasons to be cautious about buying Uber and Lyft stock:
Persistent Unprofitability
Despite massive revenues, Uber and Lyft still need to gain money. The aggressive expansion has left both companies unprofitable, with no timeline for profitability.
Intense Competition
The rideshare market has gotten crowded, with companies like Grab, Ola, Didi, and Bolt chipping away at Uber and Lyft’s dominance in different regions. This competition puts pressure on prices and margins.
Regulatory Risks
As rideshare disrupts traditional transportation, it faces pushback from regulators concerned about traffic congestion and driver wages. New regulations could impact future growth.
Safety Issues
High-profile incidents have highlighted safety issues around rideshare, sparking PR crises. This could slow mainstream adoption among new demographics like women and older people.
Driver Churn
Finding and retaining enough drivers is a perennial challenge. Low pay and lack of benefits contribute to high turnover. Driver shortages in a region degrade service quality.
Uber vs. Lyft: How Do the Stocks Compare?
Uber is the larger company, with a market cap around five times greater than Lyft’s.
Uber also has a more global footprint, while Lyft is heavily concentrated in the US market.
However, some feel Lyft has better corporate governance and is more driver-friendly.
Lyft is also less diversified into other areas like food delivery, making it a “purer play” on US rideshare.
Both stocks remain moderately correlated, though, driven by sentiment around the sector.
Should You Buy Uber or Lyft Stock?
Here are a few key points to consider when deciding if rideshare stocks fit your investment strategy:
- These are high-risk, growth stocks unsuitable for conservative investors
- The extended runway for expansion provides upside potential
- But expect continued losses and volatility in the near term
- Regulation, competition, and other threats add uncertainty
- Focus on your time horizon and risk tolerance
- Consider buying exposure via a diversified tech ETF instead of picking single stocks
While rideshare stocks offer intriguing upside for aggressive investors, caution is warranted given the sector’s young age and myriad challenges. Maintaining a balanced perspective is critical.
Conclusion
Uber and Lyft have permanently changed urban transportation, unlocking tremendous possibilities. But significant question marks remain around the investment merits of these rideshare platforms today.
Careful analysis of competitive dynamics in the space, along with each company’s unique strengths and weaknesses, is essential before buying shares. Concentrating too heavily on rideshare could leave you on a bumpy road.
Weighing all factors with discipline and rationality will let you make the most intelligent investment decision on these stocks. Just don’t let the hype drive your portfolio!
FAQs
Q: Is Uber or Lyft stock a good buy today?
A: Opinions are mixed – bulls see untapped colossal growth potential, while bears point to competitive and regulatory risks. As high-risk growth stocks, caution is warranted.
Q: Have Uber and Lyft stocks been suitable investments since their IPOs?
A: No, both companies are still trading below their IPO prices. Massive losses amidst the pandemic have hampered stock performance so far.
Q: What stock price targets do analysts have for Uber and Lyft?
A: Targets range widely based on different growth assumptions. But 12-month median targets cluster around $46 for Uber and $29 for Lyft.
Q: Should I buy Uber or Lyft stock directly or a rideshare ETF?
A: Buying a dedicated rideshare ETF provides diversified exposure and may be less risky than picking single stocks.
Q: Will Uber and Lyft stocks rebound in 2023?
A: Sentiment could improve IF inflation cools, consumers hold up, and rideshare platforms demonstrate progress toward profitability. But macro uncertainty persists.
