Lyft (LYFT) and Uber (UBER) Upside Appears Limited

Lyft, Inc. (LYFT) added another 5% to a torrid two-week advance overnight after beating third quarter 2020 earnings estimates by $0.01, posting a loss of $0.89 per share. Revenue decreased a staggering 47.7% year over year to $499.7 million, beating $489.3 million consensus. Active riders fell 44% year over year, while revenue per rider contracted 7%. Even so, active riders increased by 44% compared to the second quarter.

Key Takeaways

  • Lyft beat top- and bottom-line estimates but posted a steep loss on sharply declining revenue.
  • Lyft and Uber Technologies, Inc. (UBER) have booked high-percentage gains since the passage of California's Proposition 22.
  • Uber stock just hit an all-time high.
  • Lyft stock faces strong resistance between $39 and $41.
  • Additional upside potential for both stocks appears limited.

Lyft stock has rallied more than 40% since California voters approved Proposition 22, allowing ride-share drivers to continue working as independent contractors and not employees. Rival Uber has booked a smaller gain over the same period but holds a much stronger technical position, lifting to an all-time high on Monday. In contrast, Lyft just reached the halfway point of a steep decline that ended at an all-time low in the teens in March.

Both companies now expect profitability by the end of 2021 after missing 2020 projections due to the COVID-19 pandemic. Food delivery has underpinned Uber revenue throughout the year, unlike Lyft, with UberEats orders surging due to closed and capacity-restricted indoor dining. Meanwhile, both companies are vulnerable to "wishful thinking" because customers are likely to avoid the insides of strange automobiles long after a vaccine is approved and distributed.

An independent contractor is a person or entity contracted to perform work for – or provide services to – another entity as a nonemployee. As a result, independent contractors must pay their own Social Security and Medicare taxes. In addition, the entity is not required to provide the contractor with employment benefits, such as health insurance, that it might otherwise be required to provide were the contractor an employee.

Lyft Daily Chart (2019 – 2020)

Chart showing the share price performance of Lyft, Inc. (LYFT)

Lyft came public at $87.24 in March 2019 and hit an all-time high at $88.60 in that session. It then dropped like a rock, slicing through the IPO opening print in a steady downtrend that initially found support in the mid-$30s in October. The stock broke that trading floor in March 2020, dropping 40 points in just six weeks. A bounce into the second quarter stalled at the narrow alignment between broken support and the 200-day exponential moving average (EMA) in June and eased into a steady downtick that hit a six-month low ahead of the election.

The rally lifted above the .50 selloff retracement and 200-day EMA on Monday, while the post-news advance has stalled just below the .618 retracement at $39. The June swing high is situated just two points above that level, suggesting limited upside potential after the high-percentage uptick. Extended testing at the moving average is likely after momentum fizzles out, raising the odds that the stock will trade in the mid-$30s for weeks or months, waiting for ridership to increase.

Uber Daily Chart (2019 – 2020)

Chart showing the share price performance of Uber Technologies, Inc. (UBER)

Uber came public in May 2019, two months after its rival, opening at $42 and rallying to a new high at $47.08 in June. It sliced through the IPO opening print in August, entering a downtrend that settled in the mid-$20s in November. The stock broke that support level in March 2020, descending to an all-time low in the mid-teens. The subsequent uptick mounted the 200-day EMA in June, yielding an extended test that ended with a breakout after the election.

The momentum-fueled rally has now completed a 100% retracement into the June 2019 high. It mounted that level by two points on Monday and reversed, settling near the prior high on Wednesday morning. This price zone marks classic resistance that is often reached with a vertical buying spike, suggesting limited upside potential and the start of a consolidative period that could easily reach last week's gap between $36 and $40.

A retracement refers to the temporary reversal of an overarching trend in a stock's price. Distinct from a reversal, retracements are short-term periods of movement against a trend, followed by a return to the previous trend.

The Bottom Line

Lyft stock has continued the post-election ride-share rally with a strong buy-the-news reaction after earnings. Even so, short-term upside potential appeared limited for Lyft and its rival Uber.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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