They may both be in the ride-hailing business, but Uber Technologies (UBER 2.33%) and Lyft (LYFT 1.49%) couldn't be more different -- at least in terms of fiscal results. The former is inching its way toward operational profitability. At its current pace of progress, the latter ride-hailing outfit may never work its way out of the red.
Investors are increasingly seeing this disparity, by virtue of buying Uber shares and shedding Lyft's stock. There's an important lesson buried here, however, that's worth exploring in some detail.
The same, but (very) different
Uber is still in the red, to be clear, reporting an operating loss of $142 million last quarter, capping off the full year's operating loss of $1.8 billion. Both losses are much smaller than year-ago comparisons, though. Indeed, the full-year loss was essentially cut in half, while the quarterly is only about one-fourth of Q4 2021's loss.
How? With the exception of its actual cost of revenue (drivers, mostly), Uber's key expense items remained flat while the top line continued to grow. As a percentage of its growing revenue, most of Uber's expenditures are shrinking.
Data source: Uber Technologies. Chart by author. All figures are in millions.
The same can't be said of Lyft. In fact, its cost of revenue grew 40% year over year last quarter, dramatically outpacing a 21% top-line improvement. General and administrative costs nearly doubled thanks to severance costs. Even stripping that unusual cost from its spending, however, still leaves the organization's G&A costs in a bigger-picture uptrend. And nearly all of Lyft's expenses are up on a year-over-year basis, pushing the company deeper into the red rather than toward profitability.
Data source: Lyft. Chart by author. All figures are in millions.
Simply put, Lyft can't get the same handle on spending that Uber has.
Size matters
It's certainly frustrating to Lyft's shareholders, but it shouldn't be entirely surprising.
The two similar companies are seemingly moving in different fiscal directions for one overarching reason: size. Uber's got plenty of it. Lyft doesn't. In terms of revenue, Uber's about 10 times the size of Lyft.
Granted, more revenue means Uber is spending more on variable costs like driver compensation and administrative support. More revenue, however, also allows Uber to spend more on research and development, which in turn maintains its technological edge.
Conversely, other costs are far more fixed. Rent for corporate offices, for example, costs the same per square foot no matter how many customers an organization serves. Advertising costs the same regardless of the size of the company buying ad space. In this vein, notice that Lyft spends considerably less than Uber does on sales and marketing.
There's the rub. Lyft can't win market share from Uber if it can't advertise, but it can't advertise until and unless it wins more market share. In the meantime, it's floundering under the weight of its expenses that have likely already been lowered about as much as they can.
The big takeaway for investors is twofold.
First, this is why it's difficult for small companies to become big companies when they're doing the same thing big companies are doing. Small companies trying to penetrate an established market need to offer something unique and compelling to poach competitors' customers.
Second, this is why Lyft is essentially unownable here, while Uber is a compelling investment prospect.
That's not to say Lyft can't figure out how to expand on a budget. But given its growing losses since revenue began to recover in earnest back in 2021, the market's got every right to start asking tough questions. It may want to start by asking when and where Lyft can curb costs in other areas so it can afford to spend more or marketing and sales.
