Last year ride share companies Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER) finally went public. Lyft held its initial public offering in March, with Uber following suit in May. Both companies quickly dropped well below their IPO prices, and both were trading at record lows by late fall. After trading at over $46 at the end of June, LYFT dropped below $26 by mid-November. Since then, it has been slowly climbing. Its Friday close of $31.37 represents a 21% gain since that low point. With earlier-than-expected profitability being promised, will the Lyft stock recovery continue into 2020?
Both LYFT and UBER gave early investors a rough ride in 2019. Both ride share companies saw their stock values plummet well below IPO levels, and both suffered through a particularly difficult fall. Overall, the Lyft stock price saw a 45% decrease for 2019, while Uber was down 28%.
How do financial analysts feel about Lyft stock? Of the 37 analysts polled by CNN Business, 23 have LYFT rated as a “buy.” Their $70 median 12-month price target offers a tempting 62.07% upside. In comparison, 23 of 37 analysts also have Uber rated as a “buy,” but their 12-month median price target offers a more modest 40.26% upside.
In other words, despite a disappointing 2019, the professionals see 2020 as being much better for ride-sharing companies. Even though its performance was significantly worse than Uber stock on the year, they’re especially optimistic about Lyft.
Profitability Promised for 2021, But How?
Lyft started the year awash in red ink with all signs at the time pointing to this continuing. In its first earnings report after its March IPO, the company posted a $1.14 billion loss. Total costs and expenses for the quarter were $1.9 billion — up from $643 million the year before. Lyft announced that it would continue spending heavily during the year on initiatives ranging from autonomous driving to a rollout of driver maintenance centers. Investors weren’t impressed and the market reaction was to send the LYFT stock price down 19% over the next week.
Analysts had been expecting that the earliest Lyft could hit profitability was by the end of 2022. However, the company claimed in October that it will do so by the end of 2021. How, exactly, Lyft plans to become profitable is something that NYU marketing professor Scott Galloway has been critical of. Earlier this year, he told Fox Business:
“When you take a trip in Lyft and they charge you $12, it’s really costing them $20. So it’s economically irresponsible as a consumer not to take Lyft but for shareholders and investors, at some point when the music stops, this is going to be ugly.”
Despite challenges, including legislation passed in California that forces companies to treat app-based “gig economy” workers as employees and a growing number of women suing over sexual assaults by drivers, Lyft says it is going to be profitable sooner than expected. Unlike Uber, the company has stayed away from side-businesses like food delivery and focused on the North American market rather than global expansion. In October, the company’s CEO spoke at a conference, where he said that Lyft had been cutting back on rider and driver subsidies, turning its focus to profitable growth rather than scale. He told conference attendees:
“We’ve never laid out our path to profitability, and we know that’s a question on a lot of investors’ minds. We’re going to be profitable on an adjusted Ebidta basis a year before analysts expect us to. We’re going to hit this target in Q4 2021.”
Music to investors’ ears, that statement caused Lyft stock to surge 9% on the day.
Bottom Line for LYFT
Ride sharing companies remain a gamble. There are many forces conspiring against them, from legislation that gives drivers expensive rights to cities that ban their use altogether, to the risk that consumers will balk at more reasonable (profitable) rates. That being said, LYFT has convinced investment analysts that is positioned for profitability, and sooner than anyone was expecting. Lyft stock is on the track to continued recovery in 2020 and if those analysts are right, it could well come close to hitting those lofty IPO levels once again this year.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.