Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER) stocks have both been hit hard. That said, Lyft stock has badly underperformed both Uber, its largest competitor, and the S&P 500.
Lyft is down 48.8% year to date, much worse than the 23.2% decline Uber has seen. While Uber is down 50% from its highs, Lyft is down an astounding 70%. That’s a horrible performance for a stock that just went public about a year ago.
Investors have been seemingly dumping Lyft since its IPO. That’s due to weak fundamentals and worries over profitability. More lately though, the novel coronavirus has hurt more than anything.
It’s causing the public to hole up in their homes, leaving only for certain things like grocery shopping. Air travel has taken a big hit too, all but removing airports as a revenue generator for ride-hailing services. With cities on lockdown and travel taking a big hit, so too are Lyft’s financials.
A Deeper Dive
At this point, it’s very difficult, if not impossible, to say what the financial impact will be for Lyft. We don’t know to what extent the coronavirus will impact revenue, which has a trickle-down effect on the rest of the financials.
All we know is that it’s taking a big hit. But we also know consumers are eager to get “back to normal” once all of this is over, and thus, putting ride-hailing back in play.
At the end of 2019, Lyft stock had a $13 billion market cap. That was down considerably from the $24 billion market cap it had when it went public. Now, the company has a market cap of just $7.2 billion. At its March low, this figure stood at sub-$5 billion.
There’s no guarantee that any buyers will step up, but in the sub-$10 billion range, some M&A players may start to take a closer look at Lyft. That’s especially true if there’s a belief the business can be run profitably. Thus far, it has not.
Over the trailing 12-months, Lyft has generated 39.8% gross margins on revenue of $3.61 billion. That lags Uber’s 49% gross margin on $14.1 billion in sales. More concerning than the gap in gross margins though, is Lyft’s ability to turn a $2.7 billion loss on $3.6 billion in sales.
With that said, a lot of that loss can be tied to its IPO and further, Lyft has improved on this front, with operating margins climbing in each of the past several quarters. Management hopes to continue in that direction, predicting that it will be profitable by the end of 2021. That’s about a year behind Uber’s goal, which aims to be profitable by the end of this year.
Trading Lyft Stock
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I don’t know if Lyft is an M&A candidate or how long investors will tolerate quarterly loss after quarterly loss. That’s especially true with Uber generating better gross margin on significantly larger revenue and becoming profitable roughly a year before the Lyft (if it comes to fruition).
In short, these developments make it hard to be a buyer of Lyft stock. Making matters worse is the economic halt we’re experiencing at the hands of COVID-19.
Despite all of this, investors still want to know, has Lyft bottomed?
In early February, Lyft stock was looking good. Shares were riding the 20-day and 50-day moving averages higher and just broke out over the 200-day moving average and $50 resistance.
Unfortunately, shares quickly broke down — shedding more than 73% in just five weeks — and didn’t stop falling until bouncing off $15. That level proved to be the bottom, for now. However, on the rebound Lyft stock couldn’t reclaim the 23.6% retracement near $32 and quickly dropped back below the 20-day moving average. Thus far, it has failed to hold the $22.50 level too.
Investors want to know, what now?
From here, bulls need to see Lyft stock reclaim the $22.50 level, and preferably, reclaim downtrend resistance (blue line) and the 20-day moving average. Above that puts the 23.6% retracement back in play, along with the 50-day moving average.
Below $22.50 keeps $20 on the table. Below the latter puts the low near $15 in play. If that’s the case, Lyft could retest or take out its March bottom, even though it looked like a capitulation.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
