Core Platform Contribution Margin is described as “profit (loss) as a percentage of core platform adjusted net revenue.” This describes the profit margins from every ride-hailing trip or food delivery, (the latter applying only to Uber). This margin falls between gross margin and operating margin.
CPC Margin is calculated by starting with core platform net revenue, minus costs like marketing research-and-development costs, and the result is the “core platform contribution (profit) loss. Divide this by core platform net revenue.
The operating profit margin is lower than the Core Platform Contribution Margin as the latter doesn’t include R&D from autonomous vehicles. Conveniently, they’ve come up with a metric to remove these investments.
df814209-09dc-4fb5-85a5-b1bb6f03ecbd_Uber-and-Lyft-Premium-Analysis-2019.pdf
Uber and Lyft Premium Analysis 2019
SECTION 1: Contribution Margins
I’ve written about Uber and Lyft extensively and want to expand on a few key metrics that are causing further concern. There are thousands of key metrics across the technology industry not recognized by the financial industry. Venture capitalists rely solely on these key metrics to make informed decisions around which companies they should invest in.
Popular key metrics in mobile are monthly active users, daily active users, average revenue per user, churn and retention. For cloud SaaS, net retention rate, monthly retention rate, gross revenue retention, customer lifetime value and customer acquisition cost are a few key metrics that are important.
Here’s a snapshot of key metrics tracked by a VC on a SaaS investment:
Uber and Lyft’s Key Metric:
Core Platform Contribution Margin is described as “profit (loss) as a percentage of core platform adjusted net revenue.” This describes the profit margins from every ride-hailing trip or food delivery, (the latter applying only to Uber). This margin falls between gross margin and operating margin.
CPC Margin is calculated by starting with core platform net revenue, minus costs like marketing research-anddevelopment costs, and the result is the “core platform contribution (profit) loss. Divide this by core platform net revenue.
The operating profit margin is lower than the Core Platform Contribution Margin as the latter doesn’t include R&D from autonomous vehicles. Conveniently, they’ve come up with a metric to remove these investments.
Here’s a snapshot of Uber’s contribution profit (loss) worsening quarter-over-quarter (40)% and also the decline in contribution from the core platform over the past six months (87)% with an increase in other bets.
As a percentage of revenue, the Uber’s most recent contribution margin is 8.2%. Here is what the contribution margin looks like historically:
Compared to Lyft’s contribution margin, which is nearly 5x better and has been very consistent, as well:
Negative (or very low) contribution margins indicate that Uber is becoming less profitable as it gains more customers. This could be due to Uber competing in global markets and needing to lower prices to remain competitive.
The problem for Lyft, is that due to its association as a ride-share company, it will continue to be overshadowed by Uber’s performance. From a key metrics standpoint, Uber is weaker than Lyft. Regardless, both companies are weak fundamentally and provide an excellent opportunity to hedge long positions.
Additional Reading on Uber and Lyft’s Fundamentals:
Path to Profitability is a Dead End
Uber: Q1 Earnings
Uber’s IPO Lyft’s IPO
SECTION 2: Lyft Technical Analysis
By Knox Ridley
We don’t have a full year of price action for Lyft, but we do have some information to work with. First off, if we look at the Anchored Volume Weighted Average Price (AVWAP), which is anchored to the opening high, you’ll notice that Lyft’s price has predominantly stayed below that line, which is highlighted in aqua blue. Furthermore, the recent leg down is showing significant weakness, which can be seen in the separation between the AVWAP and the current price.
This same weakness is further highlighted between the separation in the long-term trend line, highlighted in black and the current trend price. As the RSI approaches the 60 line, the price is making a much lower low, which is not even approaching this trend line or the AVWAP. The continued separation between the AVWAP, long term trendline and the price is an indication of increasing weakness in Lyft.
Institutional Buyers/Sellers:
Those massive spikes in volume indicate institutions buying and selling at specific prices. Because of this, these price points will mark significant support/resistance zones. This is noticeable in how the price bounced around the institutional price clusters, highlighted by the black lines, before finally giving way to the downside last Tuesday, September 25th. This most recent selloff not only broke with force through this support region, but also the 61.8% extension, making all time new lows.
This is notable for a few reasons. One, there is institutional money that sees Lyft as a buy at these levels, so a large amount of money is pegged at these prices. Also, these levels indicate strong support for this very reason, which now will act as resistance.
Negative RSI Reversal:
The negative RSI reversal pattern is currently playing out in Lyft. This happens when the price is making lower lows, while the RSI makes higher highs. This is an indication of fading momentum, and a great indication of further downside ahead. This pattern is highlighted with the blue circles in the chart.
Furthermore, the internal strength of Lyft is quite weak. It has been stuck in bear internals, unable to barely break the 50 line before turning back down to oversold levels. In a bear market, the RSI will not cross the 60 line. When I see a stock unable to cross the 50 line before turning back, it’s a sign of a strong downtrend in play.
Elliot Wave:
There’s a clear first leg down (A Wave), corrective move back up (B Wave), and we are now in the process of a new leg down (C Wave). I’m targeting the 100% extension of the A Wave, which puts us in the $27-$27.50 range.
Typically, we’ll see the down legs in a corrective move that are of equal length (A=C). We will see bounces along the way, but as long as Lyft stays below its AVWAP and the long-term trend line, I will be targeting this zone as a profit taking zone for my short.
SECTION 3: UBER TECHNICAL ANALYSIS
By Knox Ridley
There’s slightly less price action with Uber. For a brief period, it engaged in a slight uptrend, spending half of its time trading above the Anchored Volume Weighted Average (AVWAP), anchored to the high of its open, which is highlighted in aqua blue. However, once it broke the AVWAP, it started a downtrend that appears intact and pointing to more downside.
Negative RSI Reversal:
The RSI is showing the same negative reversal pattern we see in Lyft. This pattern is very reliable in indicating that a new leg is developing in the downtrend. I think it’s very likely that we will make new lows.
Further evidence that the price is rolling over can be found in the KST indicator. The KST is one of my favorite change in direction indicators. It’s a combination of short-term and long-term Rate of Change indicators combined into one. As you can see, the KST has moved back up to the high, while the price of Uber is making lower highs. The KST is currently rolling over hard, which I use in conjunction with the other indicators to help me determine a short.
Elliot Wave:
All corrective retraces move in a 3 wave pattern (A,B,C). The 3rd leg (C), is typically the length of the first leg (A). Now the internal structure of these corrective moves can move in a 3-3-5, pattern or a 5-3-5 pattern, but the larger pattern is usually a 3-step move. Furthermore, when a stock has very little price action, the Fibonacci ratios tend to be great sign posts for a change in trend, or an indication of a further decline.
I currently see the A-wave as complete, and then the market began an brief uptrend – the corrective B-wave. I was expecting the B-wave to be longer, which I highlighted the likely regions in blue. However, once the price action hit the long-term trend line in black, which coincided with the 23.6% retrace line of Wave A, the downtrend commenced, which is an indication that the B-wave is over.
The market likes symmetry, and 3-leg corrections will typically exhibit this symmetry. So, the length of the A-wave (1st leg) will determine the length of the C-wave (3rd leg). This final push will typically be of equal length or an extended ratio of the A-wave (first leg). So, if the C-wave will be a similar length as the A-wave, that will put us around $25.75. This is my final target for my short position before we should see a corrective rally, which will either be the start of a new uptrend, or a corrective rally in a much larger 3-wave correction.