Jim Cramer checks in on the gig economy
TLDRJim Cramer discusses the gig economy, focusing on companies like Uber, Lyft, and DoorDash, which have seen significant growth since the market bottomed in October 2022. However, with the Federal Reserve's interest rate hikes in 2022, these companies had to shift towards profitability, leading to increased service costs. Uber, despite a strong market share in ride-sharing and meal delivery, reported mixed results, with a miss in gross bookings and an unexpected loss attributed to a markdown in equity stakes in other companies. Lyft, on the other hand, showed signs of a turnaround under new CEO David, with better-than-expected gross bookings and a modest EBITDA beat. Cramer remains optimistic about Uber's prospects, citing consistent growth in profits and cash flow, and sees potential for Lyft to become a takeover target if it continues on its current trajectory.
Takeaways
- 📈 Uber, Lyft, and DoorDash experienced rapid growth after the market bottomed in October 2022.
- 🌐 Maple Bear, parent of Instacart, started showing growth in January but faced challenges as the market cooled in March and April.
- 💵 The gig economy companies shifted focus to profitability due to increased borrowing costs after the Fed's rate hikes in 2022.
- 🚗 Uber maintains a 76% market share in ride sharing, though it's behind DoorDash in meal delivery.
- 📊 Uber's stock soared to over $80 in March from lows years ago, driven by its first profitable growth and a $7 billion buyback announcement.
- 📉 Despite Uber's post-earnings pullback, the company remains promising with strong cash flow and consistent profit growth.
- 🔍 Lyft, as the underdog, is holding its ground against Uber and showed solid innovation and financial improvements under new leadership.
- 📈 Lyft's results led to a 7.1% stock increase last week, highlighting its potential as a takeover target if it maintains performance.
- 📑 Both Uber and Lyft reported solid quarters, but Lyft's performance was more positively received than Uber's.
- 🔄 The narrative around Uber and Lyft indicates a potential turnaround story, despite some ongoing challenges like gross booking softness.
Q & A
What has been the performance of gig economy companies like Uber, Lyft, and DoorDash since the market bottomed in October 2022?
-Since the market bottomed in October 2022, gig economy companies such as Uber, Lyft, and DoorDash have experienced significant growth, with their stocks 'on fire.' However, there was a pullback from their highs during the market cooldown in March and April 2023.
How did the Federal Reserve's interest rate policy impact these gig economy companies?
-The Federal Reserve's decision to keep interest rates low for an extended period made it incredibly cheap for these companies to borrow money. However, when the Fed began tightening in 2022, the gig economy had to pivot towards profitability, making their services more expensive.
What was the stock performance of Uber Technologies after they reported their February results?
-Uber Technologies' stock rallied from lows a couple of years ago to above $80 in March before pulling back to $66. The stock soared due to their ability to deliver profitable growth, reporting blowout numbers in February and announcing a $7 billion buyback, the first in the company's history.
What were the key issues in Uber's reported results that caused concern?
-Uber's gross bookings missed expectations due to a shortfall in the ride-sharing business, which is their core business. Additionally, they reported a loss of 32%, contrary to expectations of a 22-cent profit. The loss was attributed to a markdown for Uber's equity stakes in other companies, not their core business.
What is the current state of autonomous driving in relation to Uber?
-Despite the noise made by companies like Tesla about autonomous vehicles, Uber's involvement in autonomous driving is not expected to materialize anytime soon.
How did Lyft perform in comparison to Uber in the first quarter?
-Lyft, the underdog in the ride-sharing space, reported better-than-expected gross bookings that matched Uber's in the first quarter. They also showed a modest EBITDA beat and surprisingly free cash flow, indicating a more efficient fight.
What was the market's reaction to Lyft's reported results?
-The market reacted positively to Lyft's reported results, with the stock rising about 7.1% the following week, although it has since given back some of those gains.
What is the outlook for Lyft's future performance?
-Lyft is making progress towards becoming a proper growth story, with the potential for the stock to work higher as long as the narratives remain in place and the company continues its turnaround under the new CEO.
What is the concern regarding Uber's future performance?
-There is a concern that Uber may have an affordability problem going forward, which could affect its gross bookings and overall performance.
What is the significance of the buyback announced by Uber?
-The $7 billion buyback announced by Uber is significant as it is the first in the company's history, indicating a commitment to returning value to shareholders and a belief in the company's future growth.
What is the current market share of Uber in the ride-sharing industry?
-Uber holds the number one position in the ride-sharing industry with a 76% market share.
How does DoorDash's performance compare to Uber in the meal delivery space?
-While Uber is a heavy hitter in the meal delivery space, it is way behind DoorDash, although it is still higher than any other competitor in that market.
Outlines
🚗 Gig Economy's Shift to Profitability
The first paragraph discusses the recent performance of gig economy companies like Uber, Lyft, and DoorDash, which have seen significant growth since the market bottomed in October 2022. It highlights the challenges these companies faced when the Federal Reserve started tightening interest rates, forcing them to pivot towards profitability. The paragraph provides an update on Uber's stock performance, noting its rally and subsequent pullback, and discusses the company's strategy to deliver profitable growth. It also touches on Lyft's position in the ride-sharing market, its recent report under new CEO leadership, and its efforts to maintain market share and improve profitability.
📈 Lyft's Positive Outlook Amidst Market Concerns
The second paragraph focuses on Lyft's current situation, suggesting a positive outlook for the company's stock if the existing narratives hold true. It speculates on the possibility of Lyft becoming a takeover target if its stock remains undervalued while the company undergoes a significant turnaround. The paragraph also mentions the need to monitor Uber for potential affordability issues and acknowledges the solid quarters reported by both Uber and Lyft, despite differing market reactions to their performances. It concludes by inviting viewers to stay tuned for more insights into the gig economy after the break.
Mindmap
Keywords
💡Gig Economy
💡Market Bottomed
💡Interest Rates
💡Profitability
💡Gross Bookings
💡Equity Stake
💡EBITDA Forecast
💡Consumer Weakness Fears
💡Autonomous Driving
💡Buyback
💡Market Share
💡Turnaround Story
Highlights
Since the market bottomed in October 2022, gig economy companies like Uber, Lyft, and DoorDash have seen significant growth.
The New Republic Maple Bear, a parent of Instacart, began growing in January but faced a market cooldown in March and April.
These companies had to prove themselves with their first quarter reports after the market's initial surge.
The Federal Reserve's interest rate hikes in 2022 forced the gig economy to pivot towards profitability.
Uber Technologies, the leading ride-share company, has a 76% market share and is a significant player in meal delivery, although trailing DoorDash.
Uber's stock rallied to above $80 in March before pulling back to $66, driven by their ability to deliver profitable growth.
Uber announced a $7 billion buyback, the first in the company's history, following strong February numbers.
Despite concerns over fundamentals, Uber reported a year-over-year revenue increase of 148%.
Uber's gross bookings missed expectations due to a shortfall in the ride-sharing business.
The company's loss was attributed to a markdown in Uber's equity stakes in other companies, unrelated to the core business.
Management's guidance for the quarter was mixed, with a negative impact on bookings and EBITDA forecast.
Consumer weakness fears were confirmed by the 5.7% drop in gross bookings.
Despite the current challenges, the outlook for Uber remains positive with consistent growth in profits and cash flow.
Lyft, the underdog in ride-sharing, reported better-than-expected gross bookings and held steady in market share under new CEO.
Lyft's full-year forecast was mostly unchanged, but free cash flow guidance was raised substantially.
Lyft's progress towards becoming a proper growth story was marked by good results, sending the stock up 7.1% last week.
Both Uber and Lyft reported solid quarters, with Lyft's report being well received and Uber's facing criticism.
There is a need to monitor whether Uber faces an affordability problem going forward.
The gig economy stocks with a sub-7 billion market cap present a turnaround story that is currently going well.