Why Lyft, Uber, and Six Flags Soared Monday

What happened

Shares of Lyft (NASDAQ:LYFT)Uber (NYSE:UBER), and Six Flags (NYSE:SIX) all surged Monday on news that Pfizer and BionTech had achieved more than 90% efficacy in Phase 3 trials of its COVID-19 vaccine candidate, by far the biggest step yet toward a coronavirus vaccine.

The news sparked a massive rally so-called “recovery stocks,” or companies, including Lyft, Uber, and Six Flags, that would benefit from an end to the pandemic and the economy and daily life returning to normal.

At the end of the day, Lyft finished up 26.3%, while Uber gained 7.4%, and Six Flags jumped 17.7%. The Dow Jones Industrial Average finished the day up 3%, showing a strong recovery in cyclical stocks, while the Russell 2000 jumped 3.7% as small-cap stocks rallied on the news.

A young man reaches his hand up to hail a car

Image source: Getty Images.

So what

Both Lyft and Uber were surging following gains last week after California’s Proposition 22 passed, allowing ridesharing companies to keep drivers as independent contractors, rather than employees, saving the companies millions of dollars and leaving their business models undisturbed. Uber even hit an all-time high on Monday.

The two ridesharing companies have been hit hard by the pandemic, which has precipitated a sharp drop in their revenue as people around the world spend more time at home.

Uber has outperformed Lyft during the crisis because its food delivery business, Uber Eats, has given it exposure to a business that has done well during the pandemic. Lyft has not yet reported third-quarter results, but in its second quarter, revenue dove 61% to $339.3 million and it reported an adjusted EBITDA loss of $280.3 million. Though its growth has experienced a temporary setback, the company is well capitalized, finishing June with $2.8 billion in cash and short-term investments, and it should return to growth once Americans return to their usual routines. After cost cuts earlier this year, Lyft is also in a better position to turn profitable, which it’s targeting by the end of next year.

Like Lyft, Uber is targeting profitability by the end of 2021, but the company’s path to profitability may be more convoluted due to its more complex business model and global presence. In its third quarter, Uber’s overall revenue fell 18% to $3.13 billion, while revenue from its ridesharing division was down 53% to $1.37 billion, and revenue from delivery operations jumped 125% to $1.45 billion. Its adjusted EBITDA loss widened slightly from $585 million to $625 million, even though it posted a $245 million adjusted EBITDA profit in the mobility segment, which does not include corporate expenses. Still, the company should return to growth when the pandemic ends, and ridesharing will go back to being its biggest business.

Six Flags, a regional theme park operator, has been among the harder-hit stocks during the pandemic. In its key third quarter during the peak summer months, the company said that attendance was just 19% of last year’s number, while revenue declined 80% to $126 million. During what’s normally its most profitable quarter of the year, the company reported a loss of $1.37 compared to a profit of $2.11 in the quarter a year ago. Since Six Flags is a highly seasonal business, investors are hopeful that the pandemic will be resolved by next summer in time for its peak season. Monday’s vaccine news is a big step in that direction.

Now what

Pfizer’s announcement does not mean that a fully distributed vaccine is imminent. The process will take months, assuming that the company gets FDA approval, and with cases spiking in North America and Europe, these companies will face more tough times before the situation improves.

Still, the Pfizer news seems to signal a turning point. The pandemic’s days are numbered, and life will return to normal. For Uber, investors seem to be especially bullish because of its execution on food delivery during the crisis.

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