Jim Cramer checks in on the gig economy

CNBC Television
13 May 202406:15

TLDRJim Cramer's analysis on the gig economy discusses the post-market bottom performance of companies like Uber, Lyft, and DoorDash. Despite the Federal Reserve's interest rate hikes in 2022, which increased borrowing costs and forced gig economy companies to focus on profitability, Uber has managed to deliver profitable growth and announced a $7 billion buyback. Lyft, under new leadership, has shown signs of a turnaround with improved market share and financials, including a modest EBITDA beat and free cash flow. Both companies reported solid quarters, with Lyft's results being well received, while Uber's were met with skepticism due to gross bookings softness. Cramer remains optimistic about Uber's prospects and advises buying the stock, while Lyft's potential as a takeover target is highlighted if the stock remains undervalued.

Takeaways

  • 📈 Uber, Lyft, and DoorDash have experienced significant growth since the market bottomed in October 2022.
  • 📉 The gig economy stocks pulled back from their highs after the market cooled in March and April 2023.
  • 💸 The Federal Reserve's decision to keep interest rates low made it cheap for these companies to borrow money, but this changed with rate hikes in 2022.
  • 🚗 Uber, despite having a 76% market share in ride share and being a significant player in meal delivery, is still behind DoorDash in that space.
  • 📊 Uber's stock price rallied from lows to above $80 in March before pulling back to $66, driven by profitable growth and a $7 billion buyback announcement.
  • 🤔 Uber's recent earnings report showed a miss in gross bookings and a loss, primarily due to a markdown in equity stakes in other companies, not the core business.
  • 🚀 Lyft, the underdog in ride share, reported better than expected gross bookings and held steady in market share, showing signs of a more executive fight.
  • 💹 Lyft's full-year forecast was mostly unchanged, but they raised free cash flow guidance substantially, which is a positive sign.
  • 🤓 Innovation on the platform is cited as the main reason for Lyft's improved numbers.
  • 🚨 There is a concern about whether Uber has an affordability problem going forward.
  • 👍 Both Uber and Lyft reported solid quarters, with Lyft's report being well received and Uber's being less so, but the turnaround story for Uber is still promising.

Q & A

  • What has been the general trend for 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, although they faced a pullback in March and April 2023.

  • Why did gig economy companies need to pivot towards profitability?

    -The Federal Reserve started tightening in 2022, which led to higher interest rates. This made borrowing money more expensive for companies, necessitating a pivot towards profitability.

  • How did Uber's stock perform after reporting its financial results for February?

    -Uber's stock rallied significantly, soaring above $80 in March before pulling back to $66. This was due to the company reporting strong numbers and announcing a $7 billion buyback, the first in its history.

  • What was the main reason for Uber's reported loss in their recent earnings?

    -Uber's reported loss was primarily due to a markdown for its equity stakes in other companies, such as a ride-sharing company in China, rather than issues with its core business.

  • What was Jim Cramer's stance on Uber's stock after their recent earnings report?

    -Despite some concerns, Jim Cramer remained optimistic about Uber's prospects, noting that the company is consistently growing profits and generating significant cash flow. He gave his blessing to buy the stock, as the company would be buying alongside investors.

  • How did Lyft perform in terms of gross bookings in the first quarter compared to Uber?

    -null

  • What was significant about Lyft's full-year forecast?

    -While Lyft maintained its previous outlook, it raised its free cash flow guidance substantially, which is a positive sign for investors.

  • What is the current market perception of Lyft's stock?

    -The market perception of Lyft's stock is positive, as indicated by the stock rally after their earnings report. However, it has given back some gains since then.

  • What is the potential implication for Lyft if its stock remains low?

    -If Lyft's stock remains low, there is a possibility that it could become a takeover target, especially if the company continues to show signs of a successful turnaround.

  • What is the concern regarding Uber's future performance?

    -There is a concern that Uber might face an affordability problem, which could impact its gross bookings and overall performance.

  • How does Jim Cramer view the gig economy's future, considering the recent performance of Uber and Lyft?

    -Jim Cramer views the gig economy's future with a positive outlook, considering the solid quarters reported by both Uber and Lyft. He sees Uber's situation as a turnaround story that is progressing well.

  • What is the significance of autonomous driving for Uber's future?

    -While there is a lot of noise about autonomous driving, particularly from Tesla, Jim Cramer suggests that autonomous vehicles are not happening soon. Therefore, the focus remains on the company's current business model and profitability.

Outlines

00:00

🚗 Gig Economy Performance and Uber's Profitable Growth

The 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 faced by these companies as the Federal Reserve's interest rate hikes made borrowing more expensive, pushing them towards profitability. Uber, as the leading ride-share company, managed to deliver profitable growth and announced a $7 billion buyback, its first in history. Despite concerns about its fundamentals and a recent earnings report that showed a loss, the company is seen as consistently growing profits and cash flow. The narrative suggests a reset of expectations post Q1 results and remains optimistic about Uber's future, even recommending the stock for purchase.

05:00

🚕 Lyft's Turnaround and Market Share Stability

This paragraph focuses on Lyft's recent developments under its new CEO. It contrasts Lyft's situation with Uber's, noting that Lyft has managed to match Uber's gross bookings in the first quarter, indicating a more competitive fight and a stabilization of market share. Lyft reported a modest EBITDA beat and surprisingly free cash flow, with good guidance for profitability in the current quarter. The company's full-year forecast was mostly unchanged, but free cash flow guidance was raised substantially, which is seen as a positive sign. The paragraph concludes by suggesting that Lyft's stock could rise further if the company continues on its current trajectory, and even speculates on the possibility of Lyft becoming a takeover target if it remains undervalued.

Mindmap

Keywords

💡Gig Economy

The gig economy refers to a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. In the context of the video, companies like Uber, Lyft, and DoorDash are highlighted as key players in this economy. The discussion revolves around how these companies have been performing since the market bottomed in October 2022 and their shifts towards profitability.

💡Market Bottomed

A market bottomed refers to a period when the market reaches its lowest point before starting to recover or rise. The script mentions that the gig economy companies have been performing well since the market bottomed in October 2022, indicating a turnaround in their financial performance.

💡Profitability

Profitability is the ability of a company to generate more income than its expenses, resulting in a profit. The script discusses the shift of gig economy companies towards profitability, emphasizing that they had to pivot from a focus on growth to a focus on earning profits, especially after the Federal Reserve started tightening interest rates in 2022.

💡Interest Rates

Interest rates are the percentage at which interest is paid by borrowers and is calculated based on the amount a borrower owes. The script mentions that the Federal Reserve's decision to keep interest rates low made it cheap for gig economy companies to borrow money. However, when the Fed started tightening in 2022, it affected the financial strategies of these companies.

💡Gross Bookings

Gross bookings refer to the total amount of money taken in by a company before any expenses are subtracted. In the context of the video, Uber's gross bookings missing expectations is a point of concern, indicating a shortfall in their ride-sharing business which is considered their core operation.

💡Equity Stake

An equity stake is an ownership interest in a company, usually in the form of shares of stock. The script discusses how Uber's loss was primarily due to a markdown for its equity stakes in other companies, which impacted their earnings report.

💡EBITDA Forecast

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company's financial performance and is used as a forecast to predict future profitability. The script mentions that Uber's EBITDA forecast was not good, which is a concern for investors as it indicates potential future financial struggles.

💡Consumer Weakness Fears

Consumer weakness fears refer to concerns about a decrease in consumer spending power or a decline in the overall economy that could negatively affect businesses. The script connects a drop in gross bookings to consumer weakness fears, suggesting that there might be a broader economic trend impacting the gig economy companies.

💡Autonomous Driving

Autonomous driving refers to vehicles that are capable of driving themselves without the need for a driver. The script briefly touches on the topic, mentioning that autonomous vehicles are not happening anytime soon, despite the hype around them, particularly from companies like Tesla.

💡Stock Buyback

A stock buyback occurs when a company purchases its own shares from the market, which can increase the value of the remaining shares. The script highlights Uber's announcement of a $7 billion buyback as a significant event in the company's history, signaling confidence in its financial health and future growth.

💡Market Share

Market share is the portion of the total market for a particular product or service that a company controls. The script discusses Lyft defending its market share against competitors like Uber, which is a positive sign for the company's stability and growth prospects.

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, started growing in January but faced a market cooldown in March and April.

These companies had a lot to prove with their first quarter reports, showing a pivot towards profitability.

The Federal Reserve's interest rate hikes in 2022 led to increased borrowing costs for gig economy companies.

Uber Technologies, the leading ride-share player, has a 76% market share and is a significant player in meal delivery.

Uber's stock rallied to above $80 in March before pulling back to $66, driven by profitable growth.

Uber reported blowout numbers in February and announced a $7 billion buyback, the first in the company's history.

Despite concerns about fundamentals, Uber's revenue increased by 148% year-over-year.

Uber's gross bookings missed expectations due to a shortfall in the ride-sharing business.

The company's loss was attributed to a markdown for 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 setbacks, Uber is consistently growing profits and generating significant cash flow.

Lyft, the underdog in ride-sharing, reported better-than-expected gross bookings under new CEO David.

Lyft's market share is holding steady, and they reported a modest EBITDA beat and surprisingly free cash flow.

Lyft raised its free cash flow guidance substantially, indicating a positive outlook.

Lyft's stock rallied after the report, showing progress towards becoming a proper growth story.

Both Uber and Lyft reported solid quarters, with Lyft's report being well received and Uber's facing criticism.

The future outlook includes monitoring Uber for affordability issues and the potential for Lyft as a takeover target.

The gig economy stocks with a sub-$7 billion market cap present a turnaround story that is going great.

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