National Post (National Edition)
Uber, Lyft analysts look other way as value dips
Price targets, expectations stay right on course
Ride-hailing companies Uber Technologies Inc. and Lyft Inc. have collectively shed US$28 billion in market value since their trading debuts earlier this year.
Wall Street analysts, however, aren’t ready to quit.
An overwhelming majority — many of whom work for banks that underwrote the initial public offerings — have buy ratings on both Uber and Lyft and their price targets have changed little over the past few months.
Shares of the companies, meanwhile, have continued to plumb new lows. Lyft has fallen 46 per cent since its March IPO, while Uber, which debuted in May, has dropped 34 per cent. Both stocks touched a record low on Wednesday in another sign that investors aren’t buying the hype that has surrounded the private values placed on unprofitable socalled unicorns. The parent of office-sharing company WeWork pulled its planned IPO on Monday after potential investors balked at the high valuation.
Analysts say they have nothing to apologize for, suggesting Uber and Lyft investors ought to exercise patience and think about the companies in terms of years, not months.
“If you look at the likes of Amazon or Netflix, if you had waited for profitability, you would have left a lot of money on the table.” said Benjamin Black, an analyst for Evercore ISI, which was an underwriter on both IPOs. He estimates Uber and Lyft will start turning profits in 2022.
That’s slightly rosier than overall Street forecasts. Analysts on average expect Lyft’s annual losses to narrow to US$236 million on an adjusted basis in 2022 from US$927 million this year, and then swing to a profit in 2023, according to Bloomberg data. Uber isn’t expected to be profitable until 2025.
Goldman Sachs analyst Heath Terry, who has a buy rating on Uber, said in a note in August that despite “considerable risks” in the ride-sharing sector, the “risk-reward balance” in owning the industry was favourable. He has a US$56 price target on the stock.
Public investors, however, are having trouble seeing a path to profitability for the two companies, analysts acknowledge, especially as a regulatory cloud over the ride-sharing industry has darkened recently.
California last month approved a bill that could upset their business models by effectively designating drivers as employees, rather than as contractors without guaranteed employment protections. Uber has said it is a technology platform, not a transportation company, in response.
The companies have also faced regulatory challenges in New York, where rules regarding minimum wage, traffic congestion and new driver licenses have led to higher prices.
Analyst Doug Anmuth at JPMorgan Chase & Co., a lead underwriter for Lyft, discounts the hurdles, writing in August that the “regulatory environment is manageable.” Any incremental costs arising from the California law would mostly be passed on to consumers as a surcharge, he wrote. Anmuth has a US$90 price target on Lyft.
D.A. Davidson & Co. analyst Thomas White said he doesn’t see any big fundamental development that is changing how investors feel.
It’s just that investors “don’t want to own risky names,” White said.