Why Lyft is eating Uber’s dust

Lyft has long embraced quirkiness—recall the oversize fuzzy pink mustache that was once affixed to many a Lyft driver’s grille. To Lyft, the “carstache" represented fun, friendliness and safety—an endearing attempt to distinguish itself whimsically from the more button-down Uber. But it wasn’t for everyone: As Lyft President and co-founder John Zimmer once told Wired, “If you were going to an important business meeting, it might not be the best way to roll up."

Lyft has since ditched the facial hair, but it hasn’t matured much geographically. It remains a North American business predominantly focused on the U.S. market. And while Uber has enjoyed the Covid-precipitated boom in food delivery over the past few years, Lyft remains largely a rideshare company.

Analysts once saw Lyft’s niche as a good thing. In his 2019 initiation report, “‘Stash This Ride," Jefferies’s Brent Thill praised Lyft’s “highly focused approach," which he said could contribute to tighter execution and a shorter path to profits. JPMorgan’s Doug Anmuth argued that Lyft’s “singular focus" on consumer transportation would insulate the company from distractions in other business lines.

Lyft certainly has had its moments. There was the early-2017 #DeleteUber movement that helped to nearly double Lyft’s U.S. market share over the next two years. And, as some analysts predicted, Lyft did manage to reach the holy grail of profitability before Uber, reporting its first period of positive adjusted earnings before interest, taxes, depreciation and amortization in the second quarter of last year.

But Lyft’s total revenue is forecast by analysts to remain less than a third of Uber’s global ride-hailing business alone this year. And with both companies now having strung together several consecutive profitable quarters on that basis, investors seem to be rethinking what exactly sets Lyft apart. Worth nearly $22 billion at one point last year, Lyft’s market value has skidded down to well below $5 billion.

High up in a lengthy section on “why Lyft wins" in its public offering filing in 2019, Lyft identified the importance of being “driver-centric." Despite this, many drivers today seem to prefer Uber. A July survey from UBS of more than 200 rideshare drivers found that, while drivers often use both apps, almost double the number of Lyft drivers use Uber as opposed to the inverse. Furthermore, the survey showed Lyft has a significantly higher percentage of dissatisfied drivers.

Lyft said on its second-quarter conference call that total active drivers were at their highest in two years, but data from Apptopia shows that the platform might still be coming up short relative to its larger competitor. On a prorated basis (Apptopia’s data runs through Sept. 25), Lyft’s U.S. driver downloads have declined this year versus 2019, while Uber’s have increased. An Uber spokesperson agreed with Apptopia’s data, but a Lyft representative claimed it isn’t accurate and that “driver app downloads are a poor indicator of business health and performance."

Looking at a less-global company that has long hyped its “singular focus on transportation," analysts polled by FactSet see Lyft increasing overall revenue by 27% this year compared with Uber’s more than 80%. Analysts are also projecting slightly weaker growth in adjusted Ebitda from Lyft on average over the next two years.

In a note downgrading his recommendation on the stock in late September, UBS analyst Lloyd Walmsley predicted that Lyft’s Covid recovery would be impaired by Uber’s multiplatform benefits—not only to drivers, but riders as well. Lyft has staked much on winning through its “authentic" brand, but it seems bigger is better in rideshare. One silver lining to Lyft’s latest haircut—the valuation kind—is that it might be starting to look attractive to a comparably sized or larger player in a different lane, such as food delivery.

The market opportunity in ride-hailing isn’t living up to once-lofty expectations. So-called transportation-as-a-service still isn’t seen as a viable alternative to car ownership for everyone and might never be. AB Bernstein estimates that only about the top 65% of earners can afford to take ride-share semiregularly today. And hybrid work has cut into rideshare’s commuting use.

Not surprisingly, Uber is racing to broaden its horizons, adding taxi and other travel bookings as well as alcohol and grocery delivery. For now, Lyft is still chugging along the same beaten path.