Angelo Zino, Senior Industry Analyst at CFRA, talks about what to expect from Uber and Lyft earnings, as well as how rising fuel prices are affecting profit margins for the ride-hailing companies. 

Opening Bell

Uber, Lyft to Report Q1 Earnings After the Bell

here to discuss is Angelo Zino, senior industry analyst at C. F. R. A research. Angelo Uber's gonna be reporting first quarter earnings after the bell on Wednesday. What do you think investors really should be watching for Uber in particular? Yeah, I mean, as far as Uber is concerned, I mean clearly they have two key businesses, right, You've got the ride sharing side of things and then you got the food delivery business and, and clearly one kind of, they've got very different trends embedded within them. This is all going to be driven by the ridesharing side of things in terms of the recovery we're seeing on the travel side of things. So that's really where the momentum and the growth and our expectation for them to kind of beat on the upside is going to come from on the food delivery side of things. It's more about sustaining elevated levels. We've seen them do a number of acquisitions here over the last year or two, we've seen that business essentially tripled over the last two years where ridesharing has essentially kind of been stuck in neutral. So, you know, I think food delivery kind of takes its foot off the gas here. But the key there continues to be expanding the addressable market, increasing order sizes while kind of volume tapers off and then on the ride sharing things. I mean we, that's the business that we think this year will grow at least 25-30% and even long term, we think it's a 20% plus sustainable growth rate. It does seem like on the Uber east side of things that, that there is a factor for the reality of inflation weighing down on the consumer and not expecting volume, as much as they're expecting kind of to just maintain a sense of customer loyalty amongst maybe most of their customers and continue to grow, uh, you know, the, I guess the average ticket price, so to speak here, you know, for, for those customers moving forward, is that truly the case here? And will, you know, the demand side on the, on the ride hailing side really offset? Um, you know, the losses eventually on the Uber each side. Yeah, I think, you know, as far as the, you know, on the food delivery side of things, it's definitely going to get more challenging in nature. I mean, clearly we're all kind of going out, we're, you know, we're utilizing, we're just kind of, you know, going out to eat more and we're just, you know, utilizing were being more selective in terms of the platforms. Um, and I think restaurants also have a lot more power on their end, kind of in today's market. First, the market over the last two years now, as far as kind of ride sharing side of things. Um, it's definitely a little bit tougher here in terms of overall, it's been very choppy, we kind of had a january, you had a micron really kind of, um, you know, bite into some of the potential demand, their things really came surging back in, in february and um, you know, then by late february into March, we saw those higher oil prices and that's clearly having an impact on the driver's supply side of things. And really, I think that's going to be the biggest question mark in terms of the earnings season here, it's what's happening on the driver's side of things, because we know demand is strong from the consumer right now, but wait times are increasing, prices are also increasing on the ride sharing side of things and we know there is pricing power in that business model given what we saw last year, I think now it all depends on how capable are they meeting this demand, giving that driver supply situation right now. Speaking of the drivers supply situation right now, 43% of Uber and Lyft drivers are saying um, that they're, they're driving less and they may have to actually quit completely despite those new fuel surcharges that were put in place to try and offset, you know, the, the, the impacts of the fuel prices right now, do you anticipate retaining drivers is probably going to be one of the biggest challenges, if not the biggest challenge going into the second half of this year? Yeah, I mean, it was a huge problem last year, if you kind of go back to Q two Q three of last year, I mean, there were some massive stimulus packages, um, that both Uber and Lyft kind of implemented to try to kind of get a lot of those drivers back onto the workforce and in this type of situation we've kind of not, we did see an improving supply situation entering the year but of course the higher fuel course now are having another dent here. I mean we've seen some of the, some of the some subsidies put in place by both those companies. Um you know, four drivers out there wasn't much, we, I think it was about 45 to 55 cents depending on where we're looking at Uber or lift, but you know that being said, I think it's gonna, it's gonna be an issue kind of sustaining um the drivers kind of on their platform. I think there could, could potentially be a need to incentivize again from Uber and lift side of things and of course again this is going to be more of a take paid functionality. How much are both Uber and Lyft gonna kind of be able to hold onto those profits. Um you know, over the next couple of quarters and how much more are they going to have to give to these drivers to stimulate them to stay on board. You know, Uber has been implementing some interesting strategies, we obviously cover the headline where Uber lists all its new york city taxis, all of new york city taxis on its platform then you've got this Uber kind of super app plan that's going on, could the ride sharing giant really gain success you think by segmenting its business even further like it did with Uber eats. I think about if it truly becomes kind of the super Ackwards utilizes other, you know, infrastructure already in place like new york city taxis that could be beneficial to margins if there is actually momentum there and it becomes just more of a software and utility kind of company as opposed to the way that it is right now. Yeah, yeah, no, I think that's a great point. I think, you know, when we kind of look at what Uber is doing right now, I think it makes a lot of sense to kind of partner with these new york city taxi drivers yourself and, and that's the top three market for them. So that's critical. They've done other, you know, they've done other partnerships like this around the globe, but nothing this big in terms of new york city. So we'd expect to see more of that um, taking place. It does, does help out with kind of supply situation, does help out with the scalability of that business. I think also it helps, you know, increase eyes, in terms of the platform for Uber that also helps kind of um, the each side of things as well if you're utilizing the ridesharing side of things. Um, history is sewn um, that people are also going to kind of test out to each side of things and I think what's also important what investors might be underestimating is the potential for them to kind of get ad revenue on that platform as they continue to scale that business overall on both sides of the things. Each as well as ride sharing your again, getting more eyes out there, It appeals to advertisers, they're going to get more ad revenue outside of that. And you know, long term kind of the question most investors have out there is whether or not Uber and Lyft have sustainable business models that can get, you know that sustainable profitability and I think this goes a long way in helping towards that again longer term vision but there's that potential there. Speaking of business models, it's focusing on this last minute with with lift here, lift is B. And E. P. S estimates by 50% of the time and revenue estimates each time by 100%. What's your outlook for the company's revenue? You know like it's looking back to last quarter and then more importantly looking forward because unlike Uber lift only has to worry about the ride hailing side of things and right now it could be walking into into some nice tail winds. Yeah, I mean listen I mean the cops are going to get tougher in terms of the revenue side of things. So they grew 70% back in Q. Four. Our expectation is about 35 40% here into Q one. And and we'll decelerate as the year goes on. But that being said, I mean we do have high expectations in terms of Um you know, the volume returning on the ride sharing side of things. And as a result, even as we exit the calendar year, we're looking at 25% growth in terms of revenue growth for lift. I mean we all want to get out and about right. We have been cooped up for two years and there is a more solid wave of people going out and doing things this summer and traveling even more. We're seeing that happening across the board. Angela really appreciate your time. We gotta go. We're coming up against the Bell, Angelo Zino, senior industry analyst at C. F. R. A Research.