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Lyft, Uber face slow, bumpy recovery of ride-hailing demand – experts

Uber Technologies Inc. and Lyft Inc. are likely through the worst of the massive drop in ridership caused by the COVID-19 pandemic, though recovery to pre-coronavirus demand levels will be a long, slow road, experts said.

Travel restrictions, stay-at-home orders and a major shift to working from home pummeled business for ride-hailing services. Uber and Lyft said demand bottomed out in April. Though recovery began in May, demand continues to lag pre-pandemic levels.

Uber Eats and its presence in international markets could aid its recovery, while Lyft's focus on North America could limit the speed of its return, experts said. Uber finalized a deal July 6 to buy smaller U.S. food-delivery company Postmates Inc. in an all-stock deal valued at about $2.65 billion. On July 7, Uber announced an expansion into grocery delivery in Canada and Latin America. The moves could help grow the reach of Uber's food-delivery services, which the company says remain in high demand.

Recent spikes in COVID-19 throughout the U.S. could also create setbacks for Uber and Lyft, even as the companies are recovering more quickly in regions such as Western Europe and Hong Kong, said Mark Shmulik, senior analyst at AB Bernstein.

"I think it's probably fair to expect some bumpiness on the road to recovery," Shmulik said in an interview, adding that even Hong Kong's recovery was up and down. "I think that accordion-style recovery curve is probably what we should expect globally as well."

Uber's global rides business recovered to a 60% year-over-year decline in the first week of July from an 80% drop in April, CEO Dara Khosrowshahi said during a July 6 call to discuss its acquisition of Postmates. Uber did not respond to a request for comment by Market Intelligence. Lyft, meanwhile, directed requests for comment to a June 2 regulatory filing, which pointed to a 66% decline year over year for the last week in May, better than the 75% drop the company reported in April.

Uber's food-delivery business, Uber Eats, saw strong growth throughout April, May and June, Khosrowshahi said on the call. The company said gross bookings for the business grew slightly over 100% year over year in the second quarter, based on preliminary results.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Uber and Lyft will likely report second-quarter earnings in August. Analysts expect continued losses from both companies even as they narrow those figures compared to the previous year. Consensus expectations compiled by Market Intelligence call for Uber to post a second-quarter net loss of $1.38 billion, from $5.24 billion in the year-ago period. Lyft's net loss is expected to be $454.2 million, compared to $644.2 million a year earlier, according to Market Intelligence. Uber's first-quarter net loss was $2.94 billion, while Lyft posted a net loss of $398.1 million.

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Uneven recovery

Uber and Lyft could see 30% fewer rides year over year in 2020, said Ali Mogharabi, senior equity analyst with Morningstar.

The companies will likely see faster recovery outside the U.S. because the pandemic hit those international markets earlier and countries enacted safety measures sooner, Mogharabi said. The U.S is also facing a resurgence of COVID-19 cases, which could put Uber in a better position than Lyft since Uber's operations are global and include food delivery, unlike its North American-focused rival, experts said.

"If you're a player that almost exclusively focuses on North America, but predominantly in the U.S., that's not a great position to be in," AB Bernstein's Shmulik said. That could change, however, if other regions like Europe face another wave of cases, Shmulik said.

Since hitting a low point, Uber's business in some countries has bounced back to growth, though the recovery varies by region, Khosrowshahi said during the July 6 call on the Postmates deal. Uber's Hong Kong business recovered to about 80% of pre-pandemic ridership levels as of June 3, while markets in Europe also showed improvement as restrictions began to ease, according to the company.

The global nature of Uber's business, however, could also complicate its recovery as it has more regions to account for and those areas are all recovering from the pandemic's effects at different rates, Wedbush analyst Ygal Arounian said.

"Europe is recovering well, but Latin America is seeing a challenging pandemic environment right now," Arounian said.

Uber Eats, which previously weighed the ride-hailing company down, is now profitable on an adjusted EBITDA basis in two of the top five countries, Khosrowshahi said. Consumers have turned to food delivery during the pandemic as restaurant closures and safety concerns impact decisions to dine out.

Arounian said the Postmates deal will slightly boost Uber's business at first, but it is a long-term play to position Uber Eats as a stronger company and competitor.

The delivery angle is clearly in focus now for Uber, which makes it a more attractive stock than Lyft because of the diversification, according to AB Bernstein's Shmulik. Shares of Uber have risen 6.7% year-to-date, closing at $31.72 on July 13, while Lyft's shares closed at $28.81, down 33% since Dec. 31, 2019, according to Market Intelligence data.

Lyft, meanwhile, saw recovery in U.S. cities where restrictions were eased, including Austin, Texas; Nashville, Tenn.; and Miami, the company said in a June 2 regulatory filing. Riders are using Lyft more during the week than on weekends, including commuting trips by essential workers and trips to stores selling essential items.

The company said it expects that adjusted EBITDA loss for the second quarter will not exceed $325 million if the average daily ride volume in June is unchanged compared with May, according to the filing.

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Lyft and Uber could detail their paths to profitability during second-quarter earnings to appease investors during the pandemic.

Photo credit: Lyft

In Asia, Singapore-based ride-hailing company Grab Holdings Inc. is seeing a slow recovery across the region. The private company operates in more than 500 cities and towns in Southeast Asia.

Grab, which bought Uber's Southeast Asia operations in 2018, said the rate of recovery will depend on when government lockdowns end and how the pandemic develops in each country. Grab is seeing transport volumes grow to 75% of pre-lockdown levels in Vietnam, which has lifted lockdowns, a company spokesperson said in an email to Market Intelligence. Similar to Uber, Grab has also seen growth in its food-delivery services.

Profit targets could change again

Uber and Lyft could announce accelerated progress toward profitability during their second-quarter earnings reports. Uber said in May that it was pushing back its profitability target to 2021 instead of the fourth quarter of 2020, but Lyft's goal has remained the fourth quarter of 2021.

Anything the companies can do to show progress on the path to profitability will go a long way with investors, AB Bernstein's Shmulik said.

"Everyone knows ride-sharing is going to be soft, and everyone knows food delivery is going to be pretty good," Shmulik said.

With good visibility on second-quarter demand trends, investors will likely look for ridership trends in July and how the companies are "handling the pressure on the top line as it translates to profitability," Wedbush's Arounian said.

A return to normal

As the pandemic changes consumers' habits with traveling, commuting and socializing, it is unclear whether ride-hailing will return to previous levels, Shmulik said. The changes include people potentially gravitating toward living in more suburban areas instead of major cities and preferring personal vehicle ownership instead of sharing transportation. A significant share of ride-hailing bookings also involves the airport, but that could change if corporate travel declines, Shmulik said.

"[The ridership levels] might get close, but might not actually fully get there with some of those macrotrends we're seeing," Shmulik said.

If ridership does return to pre-pandemic levels, the timeline for that is unclear and it could take years or longer, experts said.

"We'll be in a new environment that will look much different than pre-[pandemic], but there was already a secular shift to transportation as a service and we see that continuing," Wedbush's Arounian said.