Shares of Uber Technologies Inc. and the ride-hailing giant’s smaller rival, Lyft Inc., have sprinted higher this year. But analysts on Friday suggested there might not be much left in the tank for either stock heading into 2024.
Nomura analysts Anindya Das and Masataka Kunugimoto on Friday downgraded Uber UBER, -2.49%
to a neutral rating from buy, arguing that most of the things that could drive the stock higher are already baked into the price. They also downgraded Lyft LYFT, -3.54%
to their equivalent of a sell rating from buy, saying the company failed to fully capitalize on the travel industry’s post-pandemic recovery.
Shares of Uber, which closed out the year up 142%, were down 2.5% on Friday. Lyft’s stock gave up 3.4% and finished 2023 up 34.8%.
Uber, the analysts said, had managed to grow this year while occasionally turning a profit, and consolidated its grip on the ride-sharing markets in the U.S. and Canada. Meanwhile, Lyft, they said, had stumbled in its efforts to take advantage of the travel rebound after pandemic restrictions eased, cutting more staff this year after doing the same in 2022.
After years of losing money, they said Uber’s stronger financials this year allowed it to refinance its debt at a lower interest rate and extend the terms of that debt. They noted the company recently joined the S&P 500 Index SPX
and that the market is expecting more stock buybacks from the company, as well as interest-rate cuts by the Federal Reserve next year.
“Thus, most of the milestones and catalysts that we were anticipating to boost Uber’s stock value have been largely met,” they said.
They added: “At this time, we think most of the catalysts for the stock are already priced in, and Uber is fairly valued at the current price. We therefore downgrade it to Neutral from Buy.”
Lyft has tried to cut its prices to compete with Uber, and has held off on expanding into areas like food delivery. But as travel demand settles, the analysts suggested, the advantages would still flow to its archrival.
“We expect 2024 to be more of a ‘normal’ year, in terms of people’s propensity to travel,” the analysts said. “Once the current rebound in travel subsides, we think Lyft’s subscale market positioning, and lack of cross-selling opportunities (unlike Uber), could constrain topline growth for the company.”
“Offsetting a more moderate pace of ridership growth by raising prices would be challenging for Lyft,” they said, “as we think it would be bound by the actions of its larger and more profitable peer, Uber.”
U.S. stocks recovered some ground on Friday, after four days of losses, as shares of regional banks rebounded and the main indexes received a boost from a strong April jobs and Apple’s better-than-forecast earnings.
What’s happening
On Thursday, the Dow Jones Industrial Average fell 287 points, or 0.86%, to 33,128. It remains on track for a 1.5% weekly drop.
Lyft Inc. on Thursday reported first-quarter results that beat expectations, but a forecast that fell just shy of analysts’ estimates weighed on the company’s stock.
Lyft shares LYFT fell 15% after hours. They had dropped 1.8% in the regular session to close at $10.69 after a six-day positive streak.
Lyft Inc.’s incoming Chief Executive David Risher looks at the ride-hailing company’s competition with Uber Technologies Inc. as a way to keep both companies “honest and focused,” he said in an interview with MarketWatch on Monday.
“There’s lots of two-service dynamics, or market dynamics, like Coke and Pepsi, or the Nasdaq and the [New York Stock Exchange],” Risher said. “You want that level of competition.”
Lyft LYFT, -2.74%,
which has lost $2.2 billion, or about a third, of its market capitalization since it reported earnings last month, announced Monday that board director Risher will take over as CEO of the struggling company. He will replace company co-founder Logan Green, who will become chairman of the board.
Lyft is competing with much larger rival Uber UBER, -0.42%,
which has gained ride-hailing market share in recent years at the expense of Lyft, according to YipitData, which says Uber now has about 74% of U.S. market share vs. Lyft’s 26%. Risher declined to say much about how he would differentiate himself from the outgoing CEO, but he indicated that Lyft will not attempt to compete with Uber in other services, such as delivery.
“I don’t want to get in a car with someone that’s just delivered a pizza,” he said.
“At some point, I don’t think of this as just an Uber battle,” he said. “It’s a battle against staying at home. How do we get people out? How do we get them playing and working together?”
Lyft’s new top executive was for the past 13 years CEO of Worldreader, a nonprofit that focuses on children’s literacy through digital reading. Risher said because of that, he’s familiar with “doing more with less… you have to be more efficient.”
Risher will receive a signing bonus of $3.25 million and have an annual salary of $725,000, according to Lyft’s filing with the Securities and Exchange Commission on Monday. He confirmed to MarketWatch that he intends to donate $3 million of that signing bonus to Worldreader.
“I told the board it’s very important to me that Worldreader become stronger instead of becoming weaker,” Risher said.
Risher is also active in efforts to encourage wealthy philanthropists to give away their money faster. He and his wife, Jennifer Risher, launched a group called Half My DAF in 2020 that aims to move money out of donor-advised funds and into the hands of working charities more quickly.
“My wife and I do that on the side,” Risher said. “For a long time, I’ve been a purpose-driven leader. But Lyft is my No. 1 focus.”
Before leading Worldreader, Risher was an early employee of Amazon.com Inc. AMZN, -0.09%,
becoming its first head of product and head of U.S. retail, as well as a general manager at Microsoft Corp. MSFT, -1.49%.
He said that experience gives him an “understanding of competition.”
He said Lyft will compete by focusing on customers and drivers, such as making sure drivers are picking up customers on time. He said there won’t be much difference in the company’s stance on treating drivers as independent contractors when he takes over.
Lyft, like Uber, has been under pressure from investors to become profitable. The way to get there is through making sure to address it from both the “cost side and the volume side,” Risher said.
Risher officially takes the helm on April 17. Like Green, co-founder and President John Zimmer also will relinquish a role in day-to-day operations, but will continue as vice chair of the board.
MarketWatch staff writer Leslie Albrecht contributed to this article.
Lyft Inc. is bringing in a new chief executive and removing its co-founders from running the ride-hailing company on a day-to-day basis, sending shares more than 3% higher in after-hours trading Monday.
Lyft LYFT, -2.74%
announced after markets closed Monday that board member David Risher will take over as CEO, replacing co-founder Logan Green. Green and Lyft’s other active co-founder — John Zimmer, who had been serving as president — will remain on the company’s board as chair and vice chair respectively, but not actively participate in running the company.
“I’m honored and humbled that Logan, John, and the board have trusted me to lead Lyft,” Risher said in a letter to employees. “And I’ll start by saying this: I want Lyft to lead, and I’m thrilled to lead Lyft.”
Risher worked at Microsoft Corp. MSFT, -1.49%
in the 1990s before becoming employee No. 37 at Amazon.com Inc. AMZN, -0.09%,
according to Lyft’s announcement, which noted that he received a permanent thank you on the Amazon website from founder and former chief executive Jeff Bezos upon his departure in 2002. For the past 13 years, he has been in charge of a nonprofit focused on childhood literacy called Worldreader.
“Across all three organizations, I learned of the power of leading with purpose,” he wrote to employees. “Each organization derived tremendous energy through a singleness of purpose. It’s what attracted and retained great people, allowed us to make focused decisions and inspired our customers.”
In an interview with The Wall Street Journal, Risher — who has been on Lyft’s board since 2021 — admitted that Lyft faces competitive issues, seemingly referencing Uber Technologies Inc. UBER, -0.42%.
He mentioned “a very aggressive — very aggressive — competitor,” while adding, “I think being a strong No. 2 is a good place to be.”
D.A. Davidson analyst Tom White told MarketWatch on Monday afternoon that the change at the top could be “a potential model positive.”
“A new leader with broader range of experiences could signal increased willingness to broaden Lyft’s strategic aperture a bit as it relates to other possible adjacent products (delivery?), partners, or ways to create value,” he wrote in an email.
Green and Zimmer began developing the company nearly 15 years ago, and launched the service in 2012, according to their separate letters to employees. They have jointly led the company since, including through a 2019 initial public offering that gave them special shares with stronger voting power.
“To say I have loved leading Lyft is an understatement,” Green wrote in his letter to employees. “To say that I will miss working alongside you and this incredible team every day doesn’t even come close. This was an adventure of a lifetime, and I’ve loved every minute of it — the sweetness of the highs, and the pain of the lows that make you appreciate the next win that much more. I’m eternally grateful to this team.”
Lyft shares sold for $72 in its IPO, and closed Monday at $9.60 before moving closer to $10 in the extended session. Lyft stock has plummeted nearly 75% in the past 12 months, dropping 74.4% as the S&P 500 index SPX, +0.16%
has declined 12.6%.
Investors feeling giddy about last week’s sharp rally for stocks might want to give a listen to Tom Waits’ song, “Whistlin’ Past the Graveyard” from 1978, to sober up for the dangers that still lurk ahead.
The surge in stocks catapulted the S&P 500 index SPX, +0.92%
almost back to the 4,000 mark on Friday, also lifting it to the biggest weekly gain in roughly five months, according to Dow Jones Market Data.
“We are not convinced this is the beginning of a new bull market,” said Sam Stovall, chief investment strategist at CRFA Research. “We believe that we are headed for recession. That has not been factored into earnings estimates and, therefore, share prices.”
Stovall also said the stock market has yet to see the “traditional shakeout of confidence capitulation that we typically see that marks the end of the bear markets.”
Yet, information technology stocks in the S&P 500 jumped 10% for the week, while financials, which stand to benefit from higher interest rates, rose 5.7%, according to FactSet.
That could reflect optimism about the odds of a slower pace of Federal Reserve rate hikes in the months ahead, after sharp rate rises helped to undermine valuations and pull tech stocks dramatically lower in the past year. However, Loretta Mester, president of the Cleveland Fed, and other Fed officials since the October inflation reading on Thursday have reiterated the need to keep rates high, until 7.7% annual rate finds a clearer path to the central bank’s 2% target.
The stock-market rally also might suggest that investors view continued mayhem in the crypto sector as contained, despite bitcoin BTCUSD, +0.42%
trading near its lowest level in two years and the shocking collapse in recent days of FTX, once the world’s third-largest cryptocurrency exchange.
Blows to the American economy rarely have been good for stocks. A look at seven past recessions, starting in 1969, shows declines for the S&P 500 as more typical than gains, with its most violent drop occurring in the 2007-2009 recession.
The more than 37% drop of the S&P 500 from 2007 to 2009 was the worst of its kind in a recession since the late 1960s.
Refinitiv data, London Stock Exchange Group
While a looming U.S. recession isn’t a foregone conclusion, CEOs of America’s biggest banks have been warning about the risks for months. JP Morgan Chase’s Jamie Dimon said in October that a “tough recession” could drag the S&P 500 down another 20%, even though he also said consumers were doing fine, for now.
Still, the steady stream of warnings about the recession odds have left many Americans confused and wondering if one can even happen without an increase in job losses.
Big moves lately in stocks also have been hard to decode, given the economy was shocked back to life in the pandemic by trillions of dollars in fiscal stimulus and easy-money policies from the Fed that are now being reversed.
“What I think goes unnoticed, certainly by the average person, is that these moves are not normal,” said Thomas Martin, senior portfolio manager at Globalt Investments, about stock swings this week.
“It’s all about who is positioned how — and for what — and how much leverage they’re employing,” Martin told MarketWatch. “You get these outsized moves when people are offside.”
Here’s a view of the sharp trajectory upward of the S&P 500 since 2010, but also its dramatic drop this year.
Sharp rise of S&P 500 since 2010, but recent fall
Refinitiv Datastream
While Martin isn’t ruling out the potential for a seasonal “Santa Claus” rally heading into year-end, he worries about a potential leg lower for stocks next year, particularly with the Fed likely to keep interest rates high.
“Certainly what’s being priced in now is either no recession or a very, very mild recession,” he said .
However, Kristina Hooper, Invesco’s chief global market strategist, said the overarching story might be one of stocks sniffing out the first steps in a path to economic recovery, and the Fed potentially stopping its rate hikes at a lower “terminal” rate than expected.
The Fed increased its benchmark interest rate to a 3.75% to 4% range in November, the highest in 15 years, but also has signaled it could top out near 4.5% to 4.75%.
“If often happens that you can see stocks do well, in a less-than-good economic environment,” she said.
The S&P 500 rose 4.2% for the week, while the Dow Jones Industrial Average DJIA, +0.10%
gained 5.9%, posting its best weekly gain since late June, according to Dow Jones Market Data. The Nasdaq Composite Index shot up 8.1% for the week, its best weekly stretch in seven months.
In U.S. economic data, investors will get an update on household debt on Tuesday, retail sales and homebuilder data on Wednesday, followed by jobless claims and housing starts data Thursday. Friday brings existing home sales.
