(Bloomberg) -- Consumers have rediscovered the desire to travel following the pandemic, but the reopening trade isn’t filtering through to ride-hailing companies, which are poised to report quarterly results in an unfriendly environment for the stocks.

Shares of both Uber Technologies Inc. and Lyft Inc. have struggled throughout 2022, extending long-standing slumps as they fail to live up to the hopes of optimistic Wall Street analysts. The pair are confronting high inflation and a potential economic downturn that could damp demand. At the same time, aggressive interest rate increases by the Federal Reserve have made unprofitable growth stocks like these very much out of favor.

“We’re seeing a real reckoning across the class of companies that might have good growth prospects, but which aren’t making money,” said David Klink, senior equity analyst at Huntington Private Bank. “There’s a higher hurdle for owning growth stocks if the growth isn’t profitable, and just because Uber’s valuation looks low, it can still move lower.”

Uber shares fell 0.4% on Monday, while Lyft dropped 2.2%.

Uber reports second-quarter results before the market open on Tuesday. Lyft’s will follow after the market closes Thursday. While Uber’s stock rose 15% in July, that was its first positive month of 2022; it remains down 45% for the year. Lyft has lost nearly 70% of its value this year, while the Russell 1000 Index is down 14% and a gauge of airline stocks, another industry that’s a reopening beneficiary, has fallen 19%.

The comparatively better performance at Uber, investors say, come as it operates internationally, while Lyft is only in the US and Canada. In addition, Uber’s larger scale and auxiliary businesses like Uber Eats provide additional levers for growth. Analysts expect Uber to report a revenue increase of almost 90% in the quarter, compared with less than 30% at Lyft.

“Uber might have somewhat better prospects than Lyft, but only a few companies can really maneuver in this environment, and Uber and Lyft aren’t among them,” said Ken Mahoney, chief executive officer at Mahoney Asset Management, who said he wouldn’t invest in either. 

A driver survey by MKM Partners in July found that increased fuel prices probably were leading drivers to cut down on the number of hours on they were on the road, suggesting potential supply constraints for Uber and Lyft heading into the third quarter.

“GDP is slowing, consumers are tightening their belts, and there’s high gas prices and upward pressure on wages,” Mahoney said. “It’s possible their profitability picture worsens further, and in this environment, investors are really looking at cash flow and wanting quality.”

Unprofitable growth stocks more broadly face challenges such as a rising cost of capital and tightening financial conditions that will limit their potential valuation upside, Goldman Sachs Group Inc. strategist Ryan Hammond wrote in a report last week.

Despite the headwinds, Wall Street remains positive on Uber. Almost 90% of analysts tracked by Bloomberg recommend buying the stock, while only one has a sell rating. The average analyst price target is $46.75, roughly double where the stock is now.

For Lyft, about 60% of analysts recommend buying, while the rest have the equivalent of a hold rating; none advocate selling, and the average analyst price target of $35.67 suggests a return potential of more than 160%.

JPMorgan is among the firms with a positive stance. It has an overweight rating on both Uber and Lyft, and named Uber one of its top picks, behind Amazon.com and Booking Holdings Inc.

Both are emerging as more structurally profitable, and they’re trading at a “March 2020 cash crunch/early pandemic price,” wrote analyst Doug Anmuth. However, he added, the pair remain “show-me stories, especially in challenging macro or a recession.”

Tech Chart of the Day

Technology stocks rallied on the last trading day of July in what became the Nasdaq 100 Index’s biggest monthly gain in more than two years. Amazon.com Inc. and Apple Inc. added about $196 billion in market value on Friday following their quarterly reports. The e-commerce giant notched up its biggest monthly gain since October 2009, while for the iPhone maker it was the largest since August 2020.   

Top Tech Stories

  • Tesla Inc. has signed new long-term deals with two of its existing Chinese battery-materials suppliers, the latest move by automakers to secure supplies amid intensifying competition.
    • Investors expect Elon Musk to sell more shares of Tesla by the end of 2022, according to the latest MLIV Pulse survey.
  • Alibaba Group Holding Ltd. fell on Monday amid escalating concerns that the stock could be booted off US exchanges for failing to comply with disclosure rules.
  • Sony Group Corp. fell as much as 7% after the tech giant trimmed its profit outlook, reflecting the impact of recession fears on the global gaming industry.
  • Japan’s push to turbocharge its startup ecosystem as part of Prime Minister Fumio Kishida’s New Capitalism agenda will need at least a decade to bear fruit, according to Yo Shibata, a Japanese entrepreneur and angel investor.
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  • Jidu Auto, an  autonomous electric vehicle startup backed by Chinese tech giant Baidu Inc., is considering raising about $300 million to $400 million in fresh funds, according to people familiar with the situation.

(Updates to market open.)

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