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In the battle between the ride sharing platforms, investors are looking for ways to determine who will emerge as the winner. One Stifel Nicolaus analyst has already placed his bet. Scott Devitt, a five-star rated analyst, published a report on July 31 highlighting Uber Technologies Inc. (UBER) and Lyft, Inc. (LYFT) ahead of their second quarter earnings releases. Lyft is slated to release earnings on August 7, with Uber’s release coming one day later on August 8. The analyst outlined in his report why he believes Lyft is speeding past Uber.

Should investors take Devitt’s advice and Buy Lyft instead of Uber?

Uber Q2 Expectations

The analyst doesn’t see Uber gaining as much as the Street forecasts.

Devitt predicts second quarter adjusted net revenue will gain 17% versus Wall Street’s estimate of 19%. He expects to see 45% non-GAAP gross margin, slightly lower than the Street’s 46% prediction. The company’s adjusted EBITDA margin could come in around -33% versus other analysts’ -32% forecast.

Management is hoping to see core platform adjusted net revenue increase as a result of rationalizing in its U.S. and Latin American ride sharing segments and improvements to the structure of the Uber Eats delivery fee. At the end of its first quarter, the company started charging a smaller base delivery fee on U.S. orders plus additional service and small order charges.

Uber also pointed out that it expects sales and market costs to decline after its decision to run less consumer promotions. According to consensus estimates, investors could see a quarter-over-quarter decline of $50 million in non-GAAP S&M spending.

While Uber Eats revenue grew 149% to $1.5 billion in 2018, Devitt isn’t sure that this gives the company the competitive advantage it needs. “Uber faces competitors globally in its ride-sharing and food-delivery businesses. We also expect Uber to have slower adjusted net revenue growth and a longer road to profitability than Lyft,” he said. In his report, the analyst reiterated his Hold rating and $50 price target, suggesting 19% upside.

Lyft Q2 Expectations

Devitt has a much more optimistic take on Lyft.

He expects Q2 revenue gains of at least 62% year-over-year compared to the Street’s 60% estimate. Non-GAAP contribution margin could reach 48% versus the 47% consensus estimate. Devitt also places adjusted EBITDA margin at -33% versus the Street’s -34%.

The analyst does note that he will be looking for an explanation regarding COO Jon McNeill’s departure in late July and CMO Joy Howard’s earlier in the quarter. That being said, he thinks that an increase in brand awareness after its IPO in April and the app’s integration of Citi Bikes in New York City could drive rider growth.

Not to mention the company announced in May that it had partnered with Alphabet’s (GOOGL) Waymo to bring self-driving cars to the road.

“Pricing increases by Lyft, observed across a number of markets at the very end of 2Q and into 3Q, have the potential to offset some of the natural deceleration built into consensus forecasts and provide upside potential for 2H revenue/adj. EBITDA should demand remain healthy overall,” he added. Devitt reiterated his Buy rating and $76 price target, suggesting 25% upside potential.

Story continues

Going Forward into Q3

Going into Q3, Devitt expects Uber to deliver at least 46% year-over-year revenue growth, higher than the Street’s 44% forecast. Non-GAAP gross profit as a percentage of adjusted net revenue could reach 45% vs Wall Street’s 47%. He places adjusted EBITDA margin at -38% vs the -39% consensus estimate.

The analyst expects to see the same results from Lyft in terms of revenue and adjusted EBITDA margin, but places non-GAAP contribution margin at 48% ahead of the 47% consensus estimate.

“Lyft has the advantage as it’s focused on North American ride-sharing and could benefit from a competitive landscape there that’s becoming less focused on promotional pricing for riders. We also like Lyft’s positioning with its partnership model and believe partnerships with companies such as Waymo will keep the company on the forefront of innovations in the autonomous vehicle space,” he said.

The Final Verdict

In the battle of the rider sharers, the Street has mixed opinions as to who will come out ahead. Uber has a ‘Moderate Buy’ analyst consensus and a $54 average price target, suggesting 27% upside potential.

Lyft also has a ‘Moderate Buy’ analyst consensus and $69 average price target, indicating 13% upside potential.

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