Lyft, Uber earnings on tap: Here's what to expect

BTIG Managing Director & Digital Services Analyst Jake Fuller joins Yahoo Finance Live to discuss the future of ride hailing ahead of Uber and Lyft’s earnings reports.

Video transcript

- Let's bring in Jake Fuller, BTIG managing director and digital services analyst. Jake, it's great to talk to you today. A rebound in demand that's been the positive story coming out of this space that they've talked a lot about the labor shortage and the costs piling up, too. What are you going to be listening for when they report after the bell today?

JAKE FULLER: Yeah. So there's really three things we're looking for here from Lyft and Uber as well, frankly-- upside to revenue; progress on the driver shortages; and importantly, a clear movement towards EBITDA profitability-- probably not 2Q, more likely 3Q or 4Q, but we're on the right track. All of that should be good news.

The bigger question, though, still remains around driver status and classification. Are they employees? Are they contractors?

I think we're going to have to see a clear path forward on that before you get the all-clear for rideshare stocks.

- And you wonder, too, I mean, kind of over the last few quarters, I guess, you could see the moves from not just Lyft, but Uber, kind of shedding off businesses or pieces of the business that weren't necessarily generating a lot of revenue there. I mean, how important is that? When we talk about profitability, that had always been the things investors cared about and how quickly they were going to reach that. How important is that now kind of where we sit in the growth cycle for these companies?

JAKE FULLER: Yeah. Look, it's always been a key debate around these stocks for the last number of years. We're finally at the end of that tunnel. Right. We're looking at these guys-- both companies-- being EBITDA breakeven before the end of the year, likely even turning a slight profit.

A lot of that's being driven by just structural cost cuts, dialing back some of the incentives they had to dole out historically to both drivers and riders. And importantly, they've moved out of, as you mentioned, some of these big investment areas. Self-driving cars was a big one.

In Lyft's case, they're moving that off the balance sheet. And that's going to take about $100 million out of your offsets. And that really helps pull forward that profit curve for them. So I think it would be a big milestone for the group.

But like I said, there's something bigger out there. We still have to get the all-clear on the regulatory front before those positives really start to be reflected in the stock.

- On the issue of wage inflation, I wonder how you're looking at that piece for not just Lyft, but Uber as well. You mentioned the incentives they've had to dole out. But you have to wonder if they've got to go a little more in to try and get the drivers back to meet the demand and whether, in fact, once you raise those prices, there's really no going back.

JAKE FULLER: Yeah.

- Or raise the wages.

JAKE FULLER: So a couple of things. Certainly, you know, certainly we're seeing elevated incentives being deployed to both drivers back in. But really, the more important question over time is, if you have to reclassify your drivers-- they're no longer contractors, they're employees-- then your cost structure goes up significantly.

What we're actually looking for here over the next year or so is the evolution of a hybrid type model. So Uber and Lyft will increase the benefits they pay out to drivers. They won't fully reclassify those as employees and will find this sort of middle ground.

The broader point here is, we're looking at costs likely going up 5% to 10% for Uber and Lyft as they move towards this sort of hybrid employment status. And hopefully from their vantage, they'll be able to offset that through higher fares. But I think the reality is, you have to be looking for higher fares on the back side of the pandemic.

Right now, fares are probably 30% to 40% above 2019 levels. That'll dial back a little bit as driver supply comes up and we find some balance between supply and demand. But ultimately, we're going to exit this pandemic with higher prices and higher costs on the driver side.

- Yeah. Jake, one thing, too, I mean, I guess, you know, for as much as maybe they haven't delivered on when it comes to the higher expectations of self-driving and having all this kind of operating, and you know, that's been pushed back and that's sold off. But when you think about the one thing that they have delivered on is, we haven't really seen competitors come up and start to take as much share as maybe that risk was that some people at the early days said, oh, what's so different about this? Anyone can enter this space. There's so much money floating around.

But we haven't necessarily seen that. I mean, at this point in the life cycle of these companies, how true is it that these are the ones that are going to be there around ride hailing? We're going to be talking with Revel later on in the show, who's doing an all-electric employee-based model, not gig workers. I mean, are you surprised to see kind of this string pulled up?

JAKE FULLER: Not at all. Right, so I think this was the whole promise in the US market, at least, that you'd have Uber and Lyft come into the public sphere. They'd find discipline. And indeed, that's what we've seen. Right.

So they've been very disciplined. That's allowed those margins to improve. And that's why we're getting towards this profitability breakeven point here.

I don't think we're going to see anyone really crack into the US market and make big headway. We do still have international markets where there is a more competitive backdrop. But look. All of the biggest players in ride share globally are soon to be public. Obviously, Didi came public recently. Grab in Southeast Asia is coming public via SPAC. And I think what we've learned is, the public markets bring discipline.