The growing popularity of cloud-based software and rising concern about automating business processes are continuously increasing the demand for IT services worldwide. It is expected that by 2025, 72% of enterprise software will be fully cloud-based. The global IT services market is expected to reach $1.85 trillion by 2031, growing at a CAGR of 9.5% during 2024-2031.
According to the latest forecast by Gartner, Inc., worldwide IT spending is expected to total $5 trillion in 2024, an increase of 6.8% year-over-year. Spending on IT services is expected to grow 8.7% in 2024, reaching $1.5 trillion, becoming the largest segment of IT spending for the first time.
Moreover, the tech tailwinds have given wings to ride-hailing and ridesharing services. The ride-hailing market is steadily growing on a global scale. Revenue in the market is projected to reach $165.60 billion by this year and exhibit a CAGR of 6.8% to result in a market volume of $215.70 billion by 2028.
Against this backdrop, let’s compare two tech-based ride-hailing stocks, Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT), to compare growth prospects.
The Case for Uber Technologies, Inc. Stock
Valued at $133.29 billion by market cap, Uber Technologies, Inc. (UBER) develops and operates proprietary technology applications, offering ridesharing, and transportation and logistics services. It operates through three segments, Mobility; Delivery; and Freight.
UBER’s stock has gained 60.6% over the past year to close the last trading session at $63.79. Over the past nine months, the stock has surged 35.6%.
On May 14, 2024, UBER and Delivery Hero SE (DHER) reached an agreement for UBER to acquire Delivery Hero’s foodpanda delivery business in Taiwan for $950 million in cash.
The acquisition is subject to regulatory approval and other customary closing conditions and is targeted to close in the first half of 2025. Separately, the companies had also entered into an agreement for Uber to purchase $300 million in newly issued ordinary shares of Delivery Hero.
On May 7, 2024, UBER and Instacart (CART) announced a strategic partnership to bring Uber Eats restaurant delivery to Instacart customers. Instacart customers nationwide will be able to use the Instacart app to order from hundreds of thousands of restaurants, powered by Uber Eats.
UBER’s trailing-12-month gross profit margin of 32.4% is 4.2% higher than the industry average of 31.07%. Likewise, its trailing-12-month levered FCF margin of 8.28% is 28.8% higher than the industry average of 6.43%. However, the stock’s trailing-12-month EBIT margin of 4% is 61% lower than the industry average of 10.27%.
During the first quarter, which ended March 31, 2024, UBER’s revenue increased 14.9% year-over-year to $10.13 billion. Its adjusted EBITDA came in at $1.38 billion, up 81.6% from the prior year’s quarter. However, the company’s net loss increased 316.6% year-over-year to $654 million, and net loss per share grew 300% year-over-year to $0.32.
Over the past three years, UBER’s revenue has grown at a 52.9% CAGR, while its total assets grew at a 4.6% CAGR.
Street expects UBER’s revenue for the second quarter (ending June 2024) to increase 14.3% year-over-year to $10.55 billion. The company’s EPS is estimated to grow 69.1% year-over-year to $0.30 for the same quarter.
UBER’s POWR Ratings reflect a mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
UBER has a C grade for Momentum, Growth, Stability, and Sentiment. It is ranked #52 among 79 stocks in the Technology - Services industry.
Click here for the additional POWR Ratings for UBER (Value and Quality).
The Case for Lyft, Inc. Stock
With a $6.38 billion market cap, Lyft, Inc. (LYFT) operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It operates multimodal transportation networks that offer access to various transportation options through the Lyft platform and mobile-based applications.
LYFT’s stock has declined 8.1% over the past month but gained 20.2% over the past six months to close the last trading session at $15.80.
LYFT’s trailing-12-month gross profit margin of 32.58% is 5.1% higher than the industry average of 31.01%. However, the stock’s trailing-12-month CAPEX/Sales of 2.82% is 2.7% lower than the industry average of 2.90%.
During the first quarter, which ended March 31, 2024, LYFT’s revenue increased 27.7% year-over-year to $1.28 billion. Its adjusted EBITDA rose 161.7% from the year-ago value to $59.40 million. Moreover, the company’s adjusted net income grew 116.6% year-over-year to $60 million.
However, as of March 31, 2024, the company’s cash and cash equivalents stood at $507.92 million, compared to $558.64 million as of December 31, 2023.
Over the past three years, NVDA’s revenue has grown at a 32.4% CAGR, while its total assets grew at a 1.6% CAGR.
Analysts expect LYFT’s revenue for the second quarter (ending June 2024) to increase 35.3% year-over-year to $1.38 billion. Likewise, its EPS for the same quarter is projected to grow 25.3% year-over-year to $0.20. Moreover, the company surpassed EPS estimates in each of the trailing four quarters.
LYFT’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Quality, Value, Momentum, and Sentiment. LYFT is ranked #53 out of 79 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see LYFT’s ratings for Growth and Stability, here.
Comparing 2024 Yield and Growth in Uber (UBER) vs. Lyft (LYFT)
Companies are implementing IT services all over the world as a result of the advent of automation, which eliminates tedious tasks, and massive changes in client demand. Moreover, ride-hailing services are becoming increasingly popular, with user count projected to reach 1.97 billion users by 2028.
Both UBER and LYFT stand to benefit from the industry’s tailwinds. However, given their mixed fundamentals, waiting for better entry points in these stocks could be wise now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Services industry here.
What To Do Next?
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UBER shares were trading at $63.76 per share on Tuesday afternoon, down $0.03 (-0.05%). Year-to-date, UBER has gained 3.56%, versus a 11.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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