Better Buy: Lyft or Uber?

During any economic crisis, the most vulnerable are most affected. This is the case whether we look at countries, people, businesses, or communities. The coronavirus is no exception.

This same dynamic is playing out on Wall Street. Big companies have the resources to withstand periods of economic distress. They can tap credit markets and take advantage of record-low interest rates to buffer their cash positions. When the crisis ends, they are in an advantageous position due to many of their smaller competitors being wiped out or significantly weakened.

While smaller companies take a defensive position and focus on…

survival, the bigger companies will go on offense and look for ways to grow. They are also more likely to have diversified revenues in terms of geography and adjacent businesses.

This exact sequence of events is playing out in the ride-sharing industry. Uber (UBER) is growing bigger and expanding into adjacent markets, while Lyft (LYFT) is focusing on minimizing costs to outlast the crisis. By the time the economy returns to normal, Uber’s lead on Lyft will be insurmountable.

Uber vs Lyft

Like the rest of the travel industry, the ride-sharing business has been devastated by the coronavirus. In the second quarter, both LYFT and UBER reported a decline in second-quarter revenue for ride-sharing of more than 60%.

However, while Lyft’s total revenue was 61% lower on a year-over-year basis, Uber’s total revenue was only 29% lower. This was primarily because Uber’s food delivery business increased by 113% on a YOY basis.

Currently in the US, Uber has 70% of the ride-sharing market, while Lyft has the other 30%. However, Uber has other businesses including UberEats and its growing freight business which connects truck drivers to companies.

This highlights another difference between the two companies. While Lyft is solely focused on ride-sharing, Uber has a multitude of businesses that are complementary but disconnected. For example, the coronavirus severely hurt its ride-sharing business, but it was a positive catalyst for food delivery.

Uber thinks of itself as a logistics company and envisions ride-sharing as its first product, in the same way, that Amazon (AMZN) started off selling books. This makes the company antifragile and able to thrive during this crisis.

In contrast to Lyft which only operates in the US and Canada, Uber is international and is in most major South American, European, and Asian markets except China. Thus, Uber’s revenue is geographically diversified which is another source of resiliency.

Many European and Asian countries are ahead of the US in beating the coronavirus. In its recent earnings report, it noted that in those countries, ride-sharing revenue was only down 10 to 20% from the previous year.

Similar to how UBER is battling LYFT for supremacy in North America, it’s also battling other ride-sharing companies in different, international markets. These same principles apply in those markets, and the coronavirus will give it an advantage in these markets as well.

Network Effects

In some industries, several companies are vying for market share. However, in technology due to network effects, several monopolies have emerged in areas like search and social. These sectors eventually end up with one company earning the bulk of profits.

Everyone uses Google (GOOG), because it’s the best search engine, and since it has the most users, it’s able to deliver the best results. Similarly, Facebook’s (FB) network grows in value and utility as the number of users on its platform increases. In turn, this attracts more users to its platform and makes its moat impenetrable.

UBER is leveraging network effects in each of its three major businesses. Below is a diagram from its S-1 which shows the benefits to more drivers attracting more riders due to…

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