Investor sentiment regarding ride-sharing companies remains staunchly negative.
Both Uber (UBER) and Lyft (LYFT) are hitting new lows today as the broader market deals with an escalation in the trade war with China.
Still, weakness in ride-sharing stocks is hardly just the result of broader market weakness.
Lyft is down more than 30% from its IPO price, having traded down seven of its eight weeks as a publicly traded company. Last Tuesday, Lyft beat first quarter estimates and guided to a smaller than expected EBITDA loss on higher than expected revenue for the second quarter and fiscal 2019. Lyft said losses would peak this year and even announced it is participating in Waymo's (GOOG/L) autonomous driving pilot program in Phoenix (a key potential strategic partner).
Lyft management said the competitive environment has improved, but the biggest turn off for investors may have been that it didn't disclose bookings or rides. Otherwise, the report was somewhat positive with some encouraging margin expansion (or negative margin compression), but the stock fell anyway as investors focused on the large net loss ahead of its larger rival's IPO.
On Friday, Uber raised $8 bln. That's good news for the company, but the IPO was disappointing on nearly every other front. The world's largest ride-sharing company priced its IPO at $45, the low end of the $44-50 expected range, opened at $42 and closed nearly 8% lower. That is quite rare for a high-profile technology IPO, but is not much of a surprise given Lyft's performance. Uber's more mature ridesharing business is growing slower than Lyft's, but the company is also operating globally and investing in food delivery, logistics and autonomous driving.
Clearly, the market is not a fan of these ride-sharing companies that are burning cash without a clear path to profitability.
On the other hand, most other technology IPOs have done well on the open market so far this year.
Growth valuations in the stock market have gotten aggressive to say the least. Recent IPOs, Zoom Video Communications (ZM) trades at over 30x forward sales. PagerDuty (PD) and Beyond Meat (BYND) trade at ~20x forward sales, while Pinterest trades with a mid-teens forward sales multiple.
As a result, investor discipline with respect to Uber and Lyft seems like a good sign for investors concerned about exuberance for growth stocks.
Many of the hottest technology stocks, which are leaders in their respective markets, like Shopify (SHOP), Twilio (TWLO), and Roku (ROKU) are operating at roughly breakeven while investing in growth. Investors don't necessarily demand profits if a company is posting strong top-line growth with a strong market position.
Uber and Lyft employ millions of contract workers that are advocating for higher wages, which isn't helping the company's case for margin expansion with investors.
Enterprise software companies or even consumer-facing advertising business models like Pinterest have better margins and a much cleaner path to profits.
All of this bodes well for Slack's (SK) impending direct listing and perhaps poorly for a potential Postmates IPO.
While collaborative messaging enterprise software company Slack is still reporting sizeable losses, revenue grew 82% to $400 mln last year and demand for enterprise software stocks remains strong.
Like Uber and Lyft, Postmates relies on contract workers in the ‘gig economy'. Food delivery has grown increasingly competitive with UberEats, DoorDash, and market leader, Grubhub (GRUB) all vying for market share.
While the extreme bearish sentiment on Uber and Lyft seems somewhat overdone, there is no clear catalyst to reverse it. More than half of Lyft's float is sold short, but the float will eventually increase as early investors are able to sell.
For now, the long-term opportunity in the very large transportation market is not enticing investors-- both stocks trade at ~5x this year's sales estimates.