Jim Cramer checks in on the gig economy

Jim 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, the market cooled in March and April, causing these companies to pull back from their highs. With the Federal Reserve tightening interest rates in 2022, these gig economy companies had to pivot towards profitability. Uber, despite having a 76% market share in ride-sharing and being a significant player in meal delivery, has seen its stock fluctuate. The company reported strong growth but missed gross bookings due to a shortfall in ride-sharing. Lyft, on the other hand, has been making strides towards becoming a proper growth story under its new CEO, with improved numbers and solid innovation on the platform. Both companies reported solid quarters, but the market's response to their reports varied. Cramer remains optimistic about the prospects of Uber and Lyft, suggesting that they are on the right track despite some challenges.

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 interest rate hikes in 2022 forced gig economy companies to pivot towards profitability.
• 🚗 Uber, despite having a 76% market share in ride-sharing, is focusing on profitable growth after reporting strong February numbers and a $7 billion buyback.
• 🚕 Uber's recent earnings showed a miss in gross bookings, primarily due to a shortfall in the ride-sharing business.
• 📊 Uber's earnings report included a loss, which was attributed to a markdown in equity stakes in other companies, not the core business.
• 🚫 Autonomous vehicles are not expected to impact the gig economy in the near future.
• 👍 Lyft, under new CEO leadership, has shown improvement in gross bookings and market share, with a focus on innovation and profitability.
• 💹 Lyft's full-year forecast was mostly unchanged, but they raised free cash flow guidance, indicating a positive outlook.
• 🤔 There is a concern about whether Uber has an affordability problem that could affect its business.
• 🔍 Both Uber and Lyft reported solid quarters, but market reactions were mixed, with Lyft's results being well received and Uber's met with skepticism.

Q & A

What happened to the gig economy after the market bottomed in October 2022?

Companies like Uber, Lyft, and DoorDash experienced significant growth after the market bottomed in October 2022. However, the market cooled in March and April, causing gig economy names to pull back from their highs.

What was the impact of the Federal Reserve's interest rate policies on gig economy companies?

The Federal Reserve's decision to keep interest rates low for an extended period made it incredibly cheap for gig economy companies to borrow money. However, when the Fed started tightening in 2022, these companies had to pivot towards profitability, which made their services more expensive.

How did Uber's stock perform after the company reported its February results?

Uber's stock rallied from lows a couple of years ago to above $80 in March before pulling back to $66. The stock soared because the company figured out how to deliver profitable growth, reporting blowout numbers and announcing a $7 billion buyback, the first in the company's history.

What was the reaction to Uber's earnings report on the last Wednesday mentioned in the transcript?

The reaction was mixed. While revenue beat expectations by 148% year-over-year, there were concerns because Uber's gross bookings missed, primarily due to a shortfall in the ride-sharing business. Additionally, the company reported a loss instead of the expected profit, which was attributed to a markdown for Uber's equity stakes in other companies.

What is the current market share of Uber in the ride-share industry?

Uber holds the number one position in the ride-share industry with a 76% market share.

What is the current state of autonomous driving for Uber?

Autonomous vehicles are not expected to happen anytime soon, despite the noise made by companies like Tesla about robo-taxis.

How did Lyft perform in terms of gross bookings in the first quarter?

Lyft's gross bookings matched those of Uber in the first quarter, indicating a more competitive fight and a steady market share, which is a positive sign for the company.

What was the market reaction to Lyft's earnings report?

The market reacted positively to Lyft's earnings report, with the stock going up about 7.1% the following week, although it has given back some of those gains since then.

What is the outlook for Lyft's full-year forecast?

Lyft maintained its previous outlook but raised its free cash flow guidance substantially, which is a positive sign for the company's financial health and growth prospects.

What is the current narrative for both Uber and Lyft?

Both companies reported solid quarters. Uber is viewed as a turnaround story that is going great, while Lyft is making progress towards becoming a proper growth story under its new CEO.

What is the potential concern for Uber's future performance?

There is a concern that Uber might have an affordability problem, which could affect its gross bookings and overall performance in the future.

Why might Lyft become a takeover target if its stock remains low?

If Lyft's stock stays down while the company continues its positive turnaround, it could become an attractive takeover target due to its potential for growth and its position within the gig economy.

Outlines

00:00

🚗 Gig Economy's Post-Pandemic Shift

The first paragraph discusses the performance of gig economy companies such as Uber, Lyft, and DoorDash following the market downturn in October 2022. It highlights the challenges these companies faced when the Federal Reserve began tightening interest rates, forcing a pivot towards profitability. The focus then shifts to Uber's stock performance and its strategy to achieve profitable growth, including a significant buyback announcement. Despite missing gross bookings targets and reporting a loss, the company's core business remains strong. The narrative also touches on Lyft's position as an underdog in the ride-sharing market and its efforts to improve its market share and financial performance under new CEO leadership.

05:00

📈 Lyft's Market Share and Financial Outlook

The second paragraph delves into Lyft's recent financial report, noting that the company has managed to match Uber's gross bookings for the first quarter, indicating a stabilization in market share. The report also mentions a modest EBITDA beat and a surprisingly positive free cash flow, suggesting a solid innovation on the platform. The full-year forecast by Lyft was mostly unchanged from previous outlooks, but with a substantial increase in free cash flow guidance, which is a positive sign. The paragraph concludes with the potential for Lyft to become a takeover target if the stock remains undervalued, and the importance of monitoring Uber's affordability in the market.

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, which has seen significant growth and challenges post-market bottoming in October 2022.

💡Market Bottomed

A market bottomed refers to a period when the stock market reaches its lowest point before starting to recover. The script mentions October 2022 as the time when the market bottomed, leading to a surge in gig economy companies.

💡Uber

Uber is a leading platform in the gig economy, particularly known for its ride-sharing services. The company's stock performance, growth, profitability, and initiatives like a $7 billion buyback are discussed in the script, indicating its importance in the gig economy narrative.

💡DoorDash

DoorDash is a food delivery service and is mentioned as a significant player in the meal delivery space within the gig economy. The script compares its market performance with Uber's, noting that while Uber has a smaller market share in this area, it is still a major competitor.

💡Profitability

Profitability is the ability of a company to generate more income than expenses, resulting in a profit. The script discusses the shift towards profitability for gig economy companies as interest rates rise and cheap borrowing becomes less available, affecting their business models and consumer pricing.

💡Interest Rates

Interest rates are the percentage at which interest is paid by borrowers and is set by central banks like the Federal Reserve in the U.S. The script notes that the Federal Reserve's decision to tighten interest rates in 2022 had a direct impact on gig economy companies' ability to borrow money cheaply.

💡Gross Bookings

Gross bookings refer to the total amount of sales before any discounts, returns, or adjustments. The script mentions Uber's and Lyft's gross bookings as a key financial metric, indicating how these figures reflect the companies' performance and market share.

💡EBITDA Forecast

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company's financial performance and is mentioned in the context of the script when discussing management's guidance and expectations for the gig economy companies.

💡Autonomous Driving

Autonomous driving refers to vehicles that can navigate without human input. The script briefly touches on Uber's involvement in autonomous driving technology, contrasting it with the current state of the technology in the market, suggesting it's not imminent.

💡Lyft

Lyft is another major ride-sharing company in the gig economy. The script discusses Lyft's performance under its new CEO, its market share, and financial results, emphasizing its position as an underdog that is making strides towards growth.

💡Buyback

A buyback, or share buyback, is when a company purchases its own shares from the market, often seen as a sign of confidence in the company's future. Uber's announcement of a $7 billion buyback is highlighted in the script as a significant event in the company's history.

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.

Gig economy companies faced the challenge of proving themselves with their first quarter reports after a dramatic pullback from their highs.

The Federal Reserve's decision to keep interest rates low made it cheap for these companies to borrow money, but this changed with the tightening in 2022.

Uber Technologies, the leading player in ride share with a 76% market share, also made significant moves in meal delivery.

Uber's stock rallied from lows a couple of years ago to above $80 in March before pulling back to $66.

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

Despite growth stock trends, Uber's stock gave up some gains as concerns about fundamentals arose.

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

Uber's earnings reported a loss, contrary to expectations of a profit, primarily due to a markdown for equity stakes in other companies.

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 concerns, 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 showed signs of a more executive fight.

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 acknowledged, and the stock rallied as a result.

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 has an affordability problem moving forward.

The turnaround story for Uber is going well, and the current challenges are seen as an appropriate reset of expectations.