In the battle for rideshare supremacy, Lyft has been the quintessential second-mover to its rival Uber.
Lyft which is hosting its IPO roadshow this week, appears likely to beat Uber to the public market in a massive $23-billion IPO, but an analyst tells Benzinga that until both companies can prove a path to profitability, he's detouring around the highly anticipated IPOs.
“Uber and Lyft are in a duopoly situation that poses a problem for both companies. Neither company has reached a breakeven point in cost per rider; they are still losing money for each ride, and as long as they want to undercut each other in that way, it will prevent them from gaining profitability,” said Ted Bauman, economist and senior research analyst at Banyan Hill Publishing.
Uber: Bigger Market Share, Bigger Loses
Of the two companies, Bauman said he prefers Lyft: Uber's approximately 60-percent market share “means they lose more money," he told Benzinga.
“The critical question is: where does that breakeven point come from? The way to reduce breakeven is to reduce cost, and Lyft has an advantage because they haven't pursued the enormous international outreach that Uber has,” Bauman said. “Lyft has more scope to reduce cost because they haven't taken that international approach.”
The analyst said it's more likely Lyft will reach profitability than Uber.
“Because Lyft has decided to focus on the U.S. market and perfect a business model here, it is much more likely to reach profitability than Uber because it hasn't saddled itself with the additional burden with trying to figure out these international markets. Lyft, by choosing not to do that, is more likely to reach profitability first.”
Lyft has doubled its market share in the past two years by increasing awareness and avoiding the PR mishaps that have embroiled Uber, Bauman said.
When asked if the move to the public market means these companies have tapped out their venture capital funding, Bauman said: “most companies reach a point where they want to show their VC partners they are aggressively courting retail level investors.”
It's a natural process at this stage of development, the economist said.
"Whether they will get to a point where they will reach profitability to a point where people will keep buying its shares, that's where I have doubt. I don't think the companies will go bankrupt, but they will have a hard time convincing investors to buy the stock."
'Steer Clear Of Both IPOs'
Bauman said he would wait and see until both companies post a few quarterly reports to make a more educated buying decision.
“I don’t recommend people to buy this IPO because I don’t see a short-term path to profitability. It remains to be seen whether it would be worth buying when the dip occurs after the IPO.”
Lyft could go public as soon as next week. Uber's IPO roadshow is scheduled for April.
Photo courtesy of Uber.
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.