Someday in the future when market historians revisit 2019, one of the themes that they’re likely to come away with is that this was the year of the flawed unicorn. Mercifully, WeWork recently scrapped plans for initial public offering (IPO), but plenty of cash-burning companies have gone public this year, including ride-hailing services Uber Technologies (NYSE:UBER) and Lyft (NASDAQ:LYFT). But Lyft stock hasn’t performed as hoped.
The smaller of the two companies by market value, Lyft was the first to go public, unveiling its IPO in April.
The post-IPO high for Lyft stock was just over $88 and if an investor liked Lyft stock at $88, $78 or $68, he or she probably has to love the shares today as they reside around $44.
Forecasting when, if ever, Lyft stock returns to the $70s or $80s is difficult, but there are rays of hope. Related to that is one of this year’s other prominent themes: investors’ increasing distaste for companies that aren’t profitable, or worse, those that can’t articulate a path to profitability.
Lyft is guilty of losing money, but it could also shed that status, sort of, sooner than previously expected. In comments made at a recent Wall Street Journal technology conference, Lyft President John Zimmer said he expects the company will be profitable on the basis of earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter of 2021, a year earlier than originally expected.
Not to nitpick, but EBITDA is a metric best reserved for asset-intensive industries, say casinos and real estate, but it has been used by money-losing technology companies for years. That said, any form of profitability is a step in the right direction for Lyft.
Another catalyst for Lyft stock could be looming as soon as Oct. 30 when the company reports third-quarter earnings. Analysts are expecting a loss of $1.59 a share and Lyft already boosted its revenue forecast for the September quarter to $900 million to $915 million, so if the loss is lower than expected and the revenue is higher than forecast, expect Lyft stock to lift off.
Examining the Bread and Butter
While Lyft and Uber have their fingers in other pies (autonomous vehicles, food delivery, shipping, etc..), the core competency of these companies is ride-hailing or ride-sharing. Clearly, the companies have disrupted the old school taxi cab model, but with that disruption has come concerns pertaining to costs researchers believe are hidden to customers.
That doesn’t mean Lyft and Uber are intentionally obfuscating per trip fees. Rather, academic researchers, including some from the University of Chicago and Rice University that conducted a recent study on the matter, see rising ride-share accidents as an oft-overlooked cost.
“Costs exist, are not trivial, and can be measured in human lives — specifically, in increased rates of major traffic accidents and traffic fatalities,” according to the study.
Other studies that for the environmentally conscious among us and those investors that prize environmentally friendly investments, Lyft stock may not be the security to embrace because the proliferation of ride-hailing companies in various markets leads to decreased usage of public transportation, such as buses and subways.
“For every year after ride-hailing companies enter an urban market, rail ridership can be expected to fall by 1.3 percent, and bus ridership by 1.7 percent, it shows,” reports CityLab, citing a University of Kentucky study.
Bottom Line on Lyft Stock
There’s no getting around the fact that Lyft is No. 2 behind Uber in the ride-share market, but that status isn’t a knock on lift stock. On an industry level, it’s not an apples-to-apples comparison, but PepsiCo (NASDAQ:PEP) will always be second behind Coca-Cola (NYSE:KO) when it comes to selling soda, but it doesn’t make the former a bad stock.
More important to the Lyft stock thesis is the company’s ability to grow margins, contain costs and enhance strategic positioning, something the company has proven adept at.
“From a strategic standpoint, Lyft is well on its way to becoming a one-stop-shop for on-demand transportation,” said Morningstar in a recent note. “It has tapped into the bike- and scooter-sharing markets, which we think are worth over $9 billion and will grow 9% annually through 2028. In our view, Lyft also appears to be aggressively pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm to expand its margins.”
Todd Shriber does not own any of the aforementioned securities.
