Lyft, Inc. (LYFT) and Uber Technologies, Inc. (UBER) shares charged higher in Tuesday's session after Lyft co-founders Logan Green and John Zimmer told a tech conference that they expected the ride share disruptor to turn a profit by the fourth quarter of 2021. Wall Street analysts had previously expected profitability no sooner than the end of 2022, with the updated metrics forcing a top-to-bottom re-evaluation of current ratings and value.
It makes sense for skeptical investors to question the reliability of a forecast of bullish business conditions more than two years in the future, especially when the U.S. economy could enter a recession and force a change in customer riding habits. In addition, some states are contesting the industry's legal relationship with drivers, demanding that they be treated as employees with defined benefits rather than independent contractors.
The announcement will affect sentiment ahead of third quarter earnings, with Lyft reporting on Oct. 30 while Uber follows on Nov. 4. Both stocks have scraped against all-time lows in recent weeks, and the news should attract some follow-through buying interest. Even so, it's risky to buy these stocks now for a two- to three-year hold, especially with Alphabet Inc.'s (GOOGL) self-driving Waymo in the first stages of commercial roll-out.
Lyft came public to great fanfare in the upper $80s in March 2019 and posted an all-time high in the first session. Aggressive sellers then engineered a reversal that broke the IPO opening print, initiating a potent downtrend that found support in the upper $40s in May. The subsequent bounce stalled in the upper $60s in mid-summer, ahead of a steady downtick that broke the prior low in September.
Selling pressure continued into the all-time low at $37.07 posted on Oct. 10, giving way to an oversold bounce that reached 50-day exponential moving average (EMA) resistance in the mid-$40s after Tuesday's catalyst. The stock has traded below the moving average since breaking down in July, indicating that investors can use the level as a proxy for the stock's strength or weakness, with a breakout indicating healthy demand while a reversal presages a quick trip back to the lows.
The on-balance volume (OBV) accumulation-distribution indicator tracked price action into the May low and entered a modest accumulation phase that stalled in August. Price broke support a few weeks later, but it took until the end of September for OBV to follow suit. It has bounced back to new resistance at the same time that price has reached the 50-day EMA, highlighting a barrier that could take time to overcome.
Uber came public in May 2019, less than two months after its ride sharing rival, opening in the low $40s and finding support in the mid-$30s in the following session. It rallied back to the opening day high at $45 on June 5 and eased into a sideways consolidation ahead of June 28 breakout. Trend followers got trapped in an immediate reversal that dumped the stock back into the prior range, ahead of a late July breakdown.
Bearish action posted a series of lower highs and lower lows into early October's all-time low at $28.31. The stock has bounced in three small waves since that time and has also reached 50-day EMA resistance. OBV has barely budged during the uptick, signaling an oversold tape and modest bottom fishing but few committed buyers. It will be hard to own the stock until this dreary volume pattern looks more constructive.
The Bottom Line
Lyft and Uber shares bounced to 50-day EMA resistance this week after Lyft executives told a tech audience that they expected profitability by the end of 2021. Those levels will be tough to mount until bearish accumulation-distribution patterns show more durable signals of life.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.