It’s been about a year since Lyft (NASDAQ:LYFT) came public. But unfortunately, life as a public company has proven to be mostly awful. Note that the initial public offering price was $72. But as of now, the shares fetch only $37.
This is not to imply that the company is headed for oblivion. Let’s face it, Lyft has a strong brand and the platform is solid. The growth has also remained strong. In the latest quarter, revenues jumped by 52% to $1.02 billion. It was actually the first time in the company’s history that it exceeded the $1 billion milestone.
In terms of active riders, there was a year-over-year increase of 23% to 18.6 million. There was the same increase for revenue per active riders to $44.40.
The company also thinks the growth ramp will be sustainable, as seen with it guidance. The current quarter revenue is estimated at $1.055 billion to $1.06 billion and the full-year forecast is for $4.58 billion to $4.65 billion.
Lyft’s Multiple Innovations
Then again, the company has been quite innovative. Here are just some of the initiatives:
- Shared Saver: This is for those who have daily commutes. Where the service is available, about a third of the rides use it.
- Self-Driving Program: In Las Vegas, Lyft has provided over 100,000 rides using self-driving cars. And so far, the customer feedback has been quite positive. What’s more, Lyft’s own research and development efforts for building autonomous cars has been showing progress. A key is that the company has been able to leverage the huge datasets from its ride-sharing business. According to CEO and founder Logan Green, on the earnings call: “In late 2019, the Level 5 team has started utilizing the power of this data for the first time, generating very encouraging gains in our self-driving systems performance. In 2020, we’ll double down on harnessing the power of the Lyft’s platform for AV efforts.”
- Partnerships: Lyft has stuck distribution agreements with large companies like Walt Disney (NYSE:DIS) and Hilton Hotels (NYSE:HLT). In fact, there are contracts with over 30% of the Fortune 100. There are also arrangements with more than 75 universities.
- Acquisitions: Lyft has purchased Gett, which developed the Juno Rideshare platform. There was also a deal for Halo Cars. This startup allows for putting ads on top of cars.
So why has Lyft stock been lagging? Well, there continue to be concerns about the business model. For the most part, there is little loyalty from customers – they often look for the cheapest ride.
In the meantime, Lyft has to deal with tough legal problems. One of the biggest is in California, which has tightened up its definition for who is treated as an employee. This means that Lyft’s cost structure could rise materially. And California will not be the only state or country that takes these actions.
Yet I think the biggest problem for Lyft stock is that it will not reach profitability until the end of next year, which is really too long. For example, rival Uber (NASDAQ:UBER) has reduced its own time line, with the target for profitability at the end of this year.
Because Lyft is mostly focused on ride-sharing – and may not realize as much economies of scale – the company could have inherent issues when it comes to getting to profitability. Here’s what MKM Partners analyst Rohit Kulkarni had to say about this: “We think Lyft has fewer levers to accelerate its pathway to profitability versus Uber, and we do not believe reducing marketing spend is a healthy and sustainable way to achieve sustainable profitable growth.”
Bottom Line on Lyft Stock
Yes, the sentiment on Lyft stock is fairly bad. So, there could easily be a rally. But it may not last long. Again, Wall Street is mostly focused on profitability right now. And for the most part, this does not look like a major priority for management.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.