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American households may be cutting back on everything from Big Macs and caramel frappuccinos to trips to Disneyland. But they are not ready to forgo their takeaways and rideshares yet.
In an earnings season marked by company warnings over softer consumer spending, gig economy companies stood out for their resilience.
At Uber, gross bookings grew by 19 per cent year-over-year to $40bn during the second quarter. Revenue, or Uber’s cut from those bookings, was up 16 per cent at $10.7bn. Both figures were above expectations. Unlike the big consumer groups that leaned on price increases to offset volume decline, underlying demand at Uber is up. Trips grew by more than a fifth to 2.8bn.
It’s a similar story at rival Lyft, which reported a 17 per cent rise in gross bookings and 41 per cent jump in revenue. DoorDash, the largest food-delivery company by market share in the US, delivered a 23 per cent rise in revenue. The number of orders placed on its platform grew by nearly a fifth to 635mn. Instacart, the grocery delivery service, reported a 7 per cent rise in order volume and a 15 per cent rise in revenue.
It appears that consumers accustomed to the ease of hailing a ride or having something delivered to their doorstep with the touch of a button are loath to give that up. Having users who tend to be higher income helps.
But gig economy companies — which are labour intensive businesses — can also benefit when the economy slows. More people look for side gigs to supplement their incomes. This increases the pool of drivers and delivery people. Delivery times and prices come down; the service becomes more reliable and affordable. This helps attract more users.
Still not all gig economy stocks are created equal. Uber, whose global platform includes rides, food delivery and freight, has an edge when it comes to attracting labour and customers. Its multi-vertical structure makes it more appealing to potential drivers by providing more options for earning money. They can shift to ferrying meals when ride share demand slows, for example. Uber is also further along compared to others in reaching profitability, having reported its first annual profit on a net income level last year.
By contrast, Lyft is a “pure-play” ride-hailing company that focuses mainly on the US market. It only reported its first ever quarterly profit — $5mn — during the second quarter. DoorDash made a loss while Instacart reported a 46 per cent drop in net income to $61mn.
Valuations reflect this. Uber shares, up 57 per cent over the past year to touch a new high in February, look fully priced. At 36 times forward earnings, the stock trades at a premium to Lyft’s 13 times and Instacart’s 30 times. But as consumer concerns start to hit shares around the sector, investors may find Uber a good place to hitch a ride.
