Lyft’s [LYFT] share price has almost doubled since March lows thanks to passengers steadily returning to the service after coronavirus lockdown measures began to ease. Lyft’s share price has also been boosted by California’s Proposition 22 decision in early November, which ruled its workers can be treated as independent contractors rather than employees. As the tech company prepares to release Q3 earnings on 10 November, will Lyft’s share price take investors for a ride?
Lyft’s share price began 2020 at $43.58 and climbed to $53.94 on 11 February, before plunging to $16.05 on 18 March as coronavirus fears battered markets.
Despite revealing in May that its Q1 numbers had been strong, with revenues up 23%, the group warned that ride volumes among tourists, shoppers and office workers were being hit by the pandemic as more people stayed at home. Indeed, volumes in April were down 75% year over year.
However, as lockdowns and travel restrictions gradually eased, Lyft’s share price soared back to $40.98 on 8 June. Although Lyft’s share price was down 30.6% for the year to 6 November, it has recovered 85.9% since March lows.
In its second quarter earnings report, Lyft reported that revenues had fallen 61% and losses had widened, sending its share price down to $22.23 on 28 October. Fears over a second wave of the coronavirus and further lockdown restrictions kept pressure on demand. In September, executives at Lyft revealed that rides were down 53.6% year over year in the first two months of Q3.
However, as of last week, Lyft’s share price was boosted again by California’s decision regarding Proposition 22, which means the company will not have to spend money on employee benefits such as overtime pay and sick leave.
Looking ahead to the third quarter, analysts at Zacks Equity Research believe that, “with people mostly confined to their homes amid the ongoing coronavirus pandemic, Lyft’s ride volumes continue to be significantly weak”.
"with people mostly confined to their homes amid the ongoing coronavirus pandemic, Lyft's ride volumes continue to be significantly weak" - Zacks analysts
It forecasts that revenue per Active Rider — those who take at least one ride during a quarter via its app — would be down 30.3% from a year ago with total revenues reversing 47.5% to $502m.
However, it adds that ride volumes are now improving, meaning adjusted EBITDA loss for Q3 will be below $265m. That compares with $128.1m in 2019.
Is a sector outperformance possible?
There is certainly relief over the Californian verdict for investors, but the coronavirus pandemic remains a concern, potentially leading to further lockdowns, as well as restricted tourism and office working, until a vaccine emerges.
Even in the current so-called “new normal”, there are likely to be social and economic restrictions that will affect the demand for ride sharing. Lyft also suffers slightly in comparison with Uber [UBER] as it does not have added services such as food delivery.
As Schaeffer’s Investment Research argues, though, there is enough of an addressable market and plenty of cash in the company to see it ride through the pandemic. “It will likely ramp up its revenue growth for years to come and eventually reach profitability,” Schaeffer analysts wrote, adding: “Lyft remains poised for massive stock growth in the long term.”
"Lyft remains poised for a massive stock growth in the long term" - Schaeffer analysts
Evercore ISI has an Outperform rating and a $48 average target on Lyft’s share price. Benjamin Black, an analyst at the firm, said the Proposition 22 verdict had “removed the greatest overhang” threatening Lyft.
Black also said he believed that Lyft’s share price could outperform rival Uber given its greater US exposure and a “suppressed valuation multiple”.
Credit Suisse also holds an Outperform rating and a $66 target price. Stephen Ju, an analyst at the firm, stated that the Californian vote could stunt other regional efforts to change worker classification.
Wedbush analyst Dan Ives noted the decision has now lifted a “major threat to the future of the gig economy”.
Elsewhere, Deutsche Bank has a Buy rating and $55 target, according to The Fly. Analysts at Jefferies also rated the stock a Buy, giving it a price target of $40.
The consensus among 41 analysts polled on Market Screener is that the stock will Outperform, and they gave an average target price of $40.43.
|Operating margin (TTM)||-54.73%|
|Quarterly revenue growth (YoY)||-60.90%|
Lyft's share price vitals, Yahoo Finance, 9 November 2020