Friday, Apr 12th 2019

Uber/Lyft S-1 Comparison: A Tale of Five Charts

Commentary

Transportation giant Uber finally filed to go public after months of market speculation and rumors. Here are our takeaways from the S1.

On Thursday afternoon, transportation giant Uber finally filed to go public after months of market speculation and rumors. Here are our first takeaways after combing through its 3,000+ page S1.

Its TAM figures should probably be ignored.##

  • Total addressable market (“TAM”) is one of the first things investors tend to focus on when assessing high-growth, long-tail businesses like Uber
  • Across its three primary target markets (rideshare, trucking, and food service), the total implied value of the market opportunity that Uber is pitching investors represents $12 trillion – or nearly 15% of the entire world’s GDP in aggregate

Uber TAM

While historical growth has been very strong, recent quarters tell a different story, with sequential growth turning negative in the last quarter of 2018.##

  • This is especially notable since the fourth quarter is known to be a seasonally strong quarter for ridesharing businesses (holiday and business demand)
  • The third quarter is conversely a seasonally weak quarter (peak vacation season in many cities)
  • This combination of dynamics should make posting Q4 growth a very low bar to hit, which Uber didn't

Uber QoQ

We believe this negative trend is largely attributable to pressure on Uber’s take rate.##

  • Uber has consistently undercut Lyft on the portion of driver bookings it keeps, known as “take rate"
  • That delta has only increased in recent quarters as Uber and Lyft took two different approaches in shoring up their books pre-IPO
  • We believe Lyft was more focused on improving profit metrics, while Uber was more focused on managing supply/demand, resulting in the two divergent take rate trajectories we’ve observed:

Uber Take Rate

This downward trend should negatively impact gross margins, but because of different reporting practices, Uber’s gross margins actually appear higher.##

  • This is just one of the many frustrating inconsistencies in reporting standards that we encountered as we combed through the Uber’s S1
  • Slight differences in reporting standards (as well as poor disclosures on many key financial metrics) make it difficult to properly model the business and make key comparisons we believe investors should be focused on

Uber Gross Margin

Despite being 5x the size of Lyft, Uber’s profit trajectory does not appear to have as significant a lead on Lyft as we would expect.##

  • Over the last 8 quarters, Lyft has steadily made inroads on closing the margin gap between itself and Uber
  • We believe Uber’s focus on other, non-ridesharing verticals is the major contributor to this dynamic
  • Its take rate on its food delivery business, for instance, is less than half its take in core ridesharing markets

Uber Operating Margin

Finally, it has something important to say to Lyft:##

Uber S1 Excerpt

As of this writing, UBER was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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