Evercore Along For Bullish Ride With Uber, Lyft

The ride-hailing industry is on a path to profitability sooner than some may think, with a huge untapped market left to capture, Evercore ISI said Thursday.

The firm started coverage of the industry with bullish takes on the two main players: Uber Technologies Inc UBER and LYFT Inc LYFT.

The Analyst

Benjamin Black initiated coverage of Uber with an Outperform rating $60 price target.

Black started coverage of Lyft at Outperform with a $74 price target.

The Thesis

Ride-hailing is completely disrupting the American transportation market, Black said in a Wednesday note — and there’s enough disruption for both companies to do well.

Evercore’s model suggests both companies will break even in 2022, a year ahead of Street estimates.

The sell-side firm sees a road to 20% EBITDA margins at scale for Lyft and 25% margins for Uber by 2030, the analyst said. 

Lyft

The profitability path is contentious, particularly Lyft, Black said, and he acknowledged that margins will “get modestly worse before they get better.”

Among the things that will weigh on margin expansion in 2019 are expenses: not only for drivers, but also for technological advances in autonomous driving, as well as spending on bikes and scooters, the analyst said. 

Lyft’s trendline toward profitability is underappreciated, he said, noting the company has improved margins by 20-plus points for the last three quarters.

“Looking past the FY19 ‘investment year’ we have strong conviction the tenor of improvement continues." 

Uber

Uber’s potential for success goes beyond ride-hailing, with strong opportunities in its food delivery and freight businesses, Black said. 

Uber has a massive total potential market of more than $7 trillion across all business lines, the analyst said. 

“Rather than just a product — UBER is a global transportation platform which has amassed global infrastructure across 700 cities,” he said.

“To look for examples of add-on businesses, you don’t have to look further than the EATS business — which on the back of the ridesharing infrastructure has grown to an $8 billion business in just two years. The freight business is also following a similar trajectory.”

Price Action

Uber shares were up 5.07% at $44.31 at the close Thursday, while Lyft shares were 4.79% higher at $61.21. 

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Photo courtesy of Lyft.