Ride-share companies Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT) report earnings this week, with a horrific first quarter already baked into expectations as a result of the coronavirus pandemic. Uber is better positioned heading into the release because the UberEats service has generated a healthy revenue stream due to stay-at-home orders. Lyft is just now firing up a delivery program, but this venue is already over-saturated with competitors.
Both companies are burning cash at a rapid pace, with neither posting a profit since coming public. Uber has told analysts to expect profitability by the end of 2020, but it's likely to delay the date because ride sharing is as toxic as airplanes and cruise ships right now due to close contact with potentially infected drivers and sanitation that may be haphazard and ineffective. It's a dangerous scenario because free cash flow will dry up if customer buying habits fail to return to pre-crisis levels in the coming months.
Financial pressures are starting to take their toll, with Uber furloughing 20% of its workforce while Lyft is terminating 17%. Analysts have been surprisingly supportive, maintaining high ratings because they expect business to return in coming quarters. However, the denizens of Wall Street have done a bad job modeling the pandemic's impact so far, and their comments are designed to increase their firms' business rather than provide investors with unbiased analysis.
UBER Weekly Chart (2019 – 2020)
The company came public at $42 on May 10, 2019, and the stock eased into a trading range between $36 and $45. A June breakout posted an all-time high at $47.08 before turning tail in a failure swing that broke range support in August. The subsequent downtrend continued into November, when the stock posted a tradable low at $27.55. The subsequent uptick gathered strength into February 2020, topping at the IPO opening print and .786 Fibonacci sell-off retracement level.
The bottom dropped out heading into March, with a vertical decline that broke November support in a March 12 sell gap. The sell-off ended a few days later at $13.71, which marked descending trendline support and the 1.618 Fibonacci extension of the three-month bounce. The rally into April then reversed at the .618 sell-off retracement, maintaining the theme of harmonically controlled price action.
The weekly stochastic oscillator has now crossed into a sell cycle from the overbought level, predicting at least six to ten weeks of relative weakness. In turn, this suggests that the stock will retrace most of the seven-week recovery wave. Meanwhile, the on-balance volume (OBV) accumulation-distribution indicator recouped about half the losses posted during the downdraft, lowering the odds that the pullback will break the March low.
LYFT Weekly Chart (2019 – 2020)
The company came public on March 29, 2019, posting an all-time high at $88.60 in the first session and entering a downtrend that hit a tradable low at $37.07 in October. A shallow buying channel then took control, adding less than 20 points into the February 2020 high at $54.50. A poorly received earnings report later that day triggered a reversal and sell-off, which accelerated when international travel was grounded and stay-at-home orders were issued.
The stock broke October support heading into March and entered a vertical decline, finally bottoming out at $14.56 on March 18. The bounce through April recouped just half of the prior decline and, unlike Uber, failed to remount broken 2019 support. In turn, this reinforces resistance in the mid-$30s while significantly raising the odds that the next downturn will reach or break the March low.
The weekly stochastic oscillator has also crossed into a sell cycle, indicating that bears have resumed control. Adding to concerns, OBV has recouped just one-third of the sponsorship lost during the first quarter rout, perhaps adding a final nail into the coffin of the Lyft downtrend. Taken together, investors can't rule out that the company will be forced into dilutive secondary offerings, or worse yet, fail to survive without a takeover by a well-heeled suitor.
The Bottom Line
Uber is better positioned than Lyft to survive the pandemic, but neither company is likely to reward investors in the next one or two quarters.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.