Uber Technologies Inc (NYSE: UBER) and Lyft Inc (NASDAQ: LYFT) both stand to experience headwinds from a negative California ruling that they must classify drivers as employees.
But among the two ride-hailing companies, Uber is better positioned to weather the storm, according to two analysts.
Lyft Is A Single Product Company: Lyft stands to emerge the bigger loser between the two as it is a single product company, MKM Partners analyst Rohit Kulkarni said on CNBC. Also, 16% of all of Lyft’s rides are based in California versus Uber at 11.5%.
Lyft’s stock has lost around 30% since the start of 2020 while Uber’s stock is up nearly 4%. At these levels, the regulatory risk of similar legal decisions in other states is “almost priced in.”
The downside risk to both stocks are limited as the regulatory issues will ultimately be resolved, Kulkarni said. At that point, Uber and Lyft will be the “only two games in town.”
Delivery As A Hedge: Prior to the COVID-19 pandemic, Lyft represented a better investment theme on the ride-hailing space, CFRA Research analyst Angelo Zino also said on CNBC. But the pandemic emphasized the value Uber’s delivery business brings and it represents a “really great hedge” if the Rides business takes a long time to recover.
Meanwhile, Lyft is looking at expanding into Uber Eats’ territory but it faces a high-cost initiative, Zino said. Most notably, Uber had to undergo years of heavy losses to build up the delivery business before only now seeing benefits of scale.
Uber’s early investments put it in a better position to evolve over the next 10 years into a “full transportation as a service company,” he said. By comparison, Lyft is too far behind to show any similar benefits over the next decade.
“That’s why we do like Uber a lot more than we do like Lyft,” the analyst said.
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