HSBC upgraded its rating for both Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) from a hold to a buy on Monday. HSBC says it sees more than a 30% upside for both stocks.
Uber shared edged higher by 3.2%, while Lyft shares opened 4% higher on Monday.
“We think regulatory concerns are priced in, whilst we continue to see a lot of optionality around product improvements for both Uber and Lyft,” HSBC analyst Masha Kahn wrote in a note to investors.
Uber and Lyft have both fallen well below their initial public offering price. The two companies have witnessed their stock price get hammered after reporting losses in their quarterly financials. Many investors began to doubt the two companies’ ability to profit.
However, HSBC believes that Uber and Lyft will be able to profit and pull back their sales on track. HSBC cites Russian ride-sharing company Yandex and Chinese food delivery service Meituan Dianping as profitable companies within the delivery and ride hailing marketspace.
“We think the ridehailing businesses of Uber and Lyft can reach profitability if both pull back on sales & marketing and leverage the fixed cost base,” Kahn said. “In ride-hailing and food delivery globally we see room for only two large players and expect more consolidation in both sectors.”
Despite HSBC optimistic outlook for the two companies, the firm lowered its price target on the two stocks.
In an unusual move, HSBC lowered its price target for Uber to USD 44 per share from USD 49 per share and Lyft’s price target to USD 62 per share from USD 67 per share.
In the previous quarter, Uber reported that net losses rose from USD 878 Million a year ago to USD 5.23 Billion in the second quarter. Meanwhile, Lyft reported net losses of USD 644.23 Million, increasing from USD 178.90 Million the same quarter a year ago.
Nonetheless, the two witnessed their active rider counts surge. Uber reported a 30% growth in its monthly active platform consumers, while Lyft reported a 41% growth in active riders.
Uber Chief Executive Officer Dara Khosrowshahi explicitly mentioned to investors during the Company’s IPO launch back in May that Uber would continue to operate on net losses for the long term. Khosrowshahi noted that the Company expects losses to dwindle in 2020 or 2021.