The mission for Lyft (NASDAQ:LYFT) in 2020 is to find that elusive thing called a profit.
Growth has been there. If it hits the consensus revenue estimate of $984 million when it reports earnings Feb. 11, Lyft will have brought in almost $3.6 billion of revenue in 2019. That’s nearly double 2018’s $2.2 billion, which in turn was double 2017’s $1.1 billion.
But the market is no longer offering a premium for growth if not accompanied by profits. Since it went public in April Lyft shares are down almost 40%. Over the last six months they’re down 20%.
Since 2020 dawned, however, Lyft stock is up 10%. Is now the time to buy?
The Losses
Lyft lost over $900 million in 2018, and another $2 billion for the first three quarters of 2019. Optimists are thinking it can hold that to under $300 million for the fourth quarter, or $1.03 per share. Pessimists think the loss will be closer to $400 million, or $1.22 per share.
How long can these losses be sustained? Lyft had over $3 billion in cash and short-term securities in the bank at the end of September. It can keep losing money. But would you want to pay over four times revenue for it? That’s what Lyft’s $14 billion market capitalization says you’re paying.
The California State Pension fund, known as Calpers, was willing to try during the fourth quarter, to the tune of over $11 million. They made money. InvestorPlace’s Tyler Craig has suggested you can sell naked puts at $42.50, near the Feb. 3 opening bid of $47.41, and possibly be a big winner while limiting potential losses. Sounds like a plan.
Lyft also has a plan to stem the red ink. The company laid off 90 people in its sales and marketing departments, out of 5,500 total employees. CEO Logan Green thinks he can achieve profitability by late next year. Well, not profitability. More like earnings before interest, taxes, depreciation and amortization, the kind of profit you claim when you’re not showing any and want to get bought out.
The Assembly Bill 5 Saga
Standing in the way of profit is Assembly Bill 5, a law that went into effect last year aimed at reining in Lyft and its rival, Uber (NYSE:UBER).
The law classifies drivers as employees, demanding they be given the benefits of employees. But it does this for all freelancers who mainly work for one company, including freelance business writers based in California.
This has brought Lyft allies in its fight against the law, which includes a lawsuit, lobbying and a ballot initiative.
Some freelance writers have already lost work over the law, but they can get around that by forming limited liability companies, as I did several years ago. There’s filing paperwork, and the hassle of paying for business licenses, as well as filing business taxes. But there’s also protection in the case of lawsuits, which given Lyft’s safety record, are a real danger.
The Bottom Line on Lyft Stock
InvestorPlace’s Vince Martin calls Lyft “an intriguing trade” going into earnings, noting that at least one bull has a price target of $96.50 on the stock.
Martin also notes that many companies, including Facebook (NASDAQ:FB), have fallen hard after their initial public offerings, then recovered. CrowdStrike Holdings (NASDAQ:CRWD), Chewy (NYSE:CHWY) and Pinterest (NYSE:PINS) all found their footing after early troubles.
If you want to gamble, buy here and sell if Lyft meets the optimists’ targets. But if you’re not willing to pay close attention and hit the sell button quickly if you’re wrong, don’t even think about it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
