Lyft [LYFT], much like its competitor Uber [UBER], had a poor 2019. Negative sentiment towards profitability contributed to it failing to get into gear after a much-awaited IPO. The share price dropped by 35% in just over a month after its March float, only to drop further through to November and, despite a brief rally, close down 34% for the year.
It’s most recent performance may pique the interest of investors. So far this year, the stock has climbed 9.7% (through to 6 February), while the stock peaked at $50 last Tuesday. In its Q3 earnings report, the company showed potential, posting strong increases in revenue, as well as showing a reduction in losses. The company’s promise of profitability by 2021 also has some speculating on its future performance.
However, there remains debate over whether this roadmap to profitability will prove successful. Meanwhile, all eyes are on Lyft’s upcoming earnings report, due on 11 February, to see if the company will give investors a safe ride.
On 29 January, Lyft inked a deal with US hospital operator CommonSpirit Health, which has more than 700 sites in 21 states. “The new service enables CommonSpirit’s provider community to support patient care … beyond the four walls of the hospital with on-demand Lyft rides,” a spokesperson for the ride-hailing company said.
Two days later, Lyft announced that it would be cutting 90 jobs from its sales and marketing teams, equivalent to 1.6% of its 5,500-person workforce as part of a company-wide restructuring plan aimed at bringing the organisation to profitability.
“Lyft is looking to become leaner and meaner as it sets its sights on profitability by year-end 2021,” Gerelyn Terzo wrote in an CNN report, arguing that the share price drop following the announcement needn’t cause too much concern. “Why are investors punishing the stock for a good thing? They may be missing the forest from the trees.”
“Lyft is looking to become leaner and meaner as it sets its sights on profitability by year-end 2021” - Gerelyn Terz
Despite the layoffs, a Lyft spokesperson said the company would be looking to hire 1,000 new staff in 2020. Furthermore, CEO Logan Green has previously stated that the company will become profitable by late 2021. “We have put out a firm date to achieve profitability,” CFO Brian Roberts also noted, adding that he thinks “that’s unique.”
What to expect
In Q3 2019, Lyft’s revenues grew 63% to $955m from $585m a year earlier. In response, the stock rose nearly 3.5% in after-hours trading. Adjusted net loss, meanwhile, was lower than the same period the previous year, coming in at $121.6m versus the previous $245.3m.
$955million Lyft's Q3 2019 revenue - a 63% growth from year earlier
Lyft's Q3 2019 revenue - a 63% growth from year earlier
The company said it anticipated revenues between $975m and $985m for Q4, while it gave improved guidance for adjusted EBITDA loss of between $160m–$170m, compared to previous implied guidance of between $240m–$245m. The company also noted that it expected to be profitable on an adjusted EBITDA basis in Q4 2021.
Furthermore, Lyft has consistently beaten analyst expectations in the three earnings reports it has released since becoming a public company. For its upcoming results, the consensus Consensus EPS forecast for the quarter is -$.1.36, according to AlphaStreet, on revenues of $984.1m.
The publication noted that the company’s top line will benefit from prices rises, increased take rates and market share gains from rivals and traditional taxi firms, however, it also suggested that Lyft “faces immense competition in the industry that could turn fatal”. Rival Uber for example, which reported last week, has suggested that it can be profitable as early as 2020.
Meanwhile, Vince Martin, writing in InvestorPlace, said that while Lyft provided a hopeful set of results at its last earnings call, it has a long way to go to support its current $13.9bn market capitalisation. “Neither it nor Uber has proven it can drive consistent, real profitability and cash flow without significant raises in rates and/or driver pay,” he added.
“Neither it nor Uber has proven it can drive consistent, real profitability and cash flow without significant raises in rates and/or driver pay” - Vince Martin
Is the stock a buy?
Zacks currently holds a buy rating on Lyft stock, while its full-year earnings estimates have risen by 8.66% over the past quarter, suggesting improving sentiment towards the stock.
|Operating Margin (TTM)||-79.18%|
|Quarterly Revenue Growth (YoY)||63.40%|
Lyft share price vitals, Yahoo Finance, 10 February 2020
RBC has awarded Lyft an outperform rating. “We continue to believe that Lyft is beginning to prove out its path to profitability. We’re most incrementally near-term constructive on Lyft, which we believe has a reasonable shot at upwards estimates revisions.”
Among the 38 analysts polled by CNN, 22 recommend the stock as a buy, 4 an outperform and 11 a hold. Only one analyst recommends it as a sell. The average price target is $60, representing a potential 27% upside on 6 February’s closing price of $47.42.