Ride-sharing service Lyft (NASDQ:LYFT) has put together a (shortened) week of gains. It started to take off on April 6 and LYFT stock has risen roughly 37% in value. It still has a long way to go before coming anywhere near the $54 level it was flirting with just prior to the novel coronavirus market meltdown. But the rise is impressive. Especially for a company whose primary source of revenue — ride-sharing — is being obliterated by the lockdown.
So what’s behind the recent rise in Lyft stock, and what are the odds it’s going to continue?
During a time when many companies are laying off employees, some gig economy companies are making out alright. There is no shortage of workers looking to pick up work. With consumers reluctant to go out shopping and many stores and restaurants closed, deliveries are going gangbusters. Especially food and grocery deliveries.
However, ride-sharing drivers are hearing crickets. No one is going out at night, many companies are telling employees to work from home, and besides — in the midst of a pandemic, who wants to get in a small, enclosed space with a stranger? Ride-sharing business is reportedly down 70% in some cities.
Food is the New Passenger
It makes sense that LYFT stock was punished given the circumstances, but why has it begun to bounce back?
First, there’s sense that the ride-share business has hit bottom. Second, Lyft has been aggressively searching for additional revenue opportunities. This includes the possibility of its drivers doing food or medical supply delivery. In addition the company is collaborating with Amazon (NASDAQ:AMZN), directing drivers to positions delivering grocery and package delivery for the e-commerce giant.
These measures will help Lyft retain drivers during this business drought, and they all have the potential to develop into permanent revenue sources for the company in the future.
How is LYFT Stock Doing Compared to Uber?
The novel coronavirus hasn’t just put the hurt on LYFT stock, it’s hit the competition as well. From its 2020 high close to the worst of the selloff, LYFT took a 70% hit. For Uber Technologies (NASDAQ:UBER) it was a 64% drop.
The difference that’s made the coronavirus effect slightly less damaging for Uber is likely Uber Eats. Ride-shares made up the majority of Uber’s revenue, but it at least had an established side business in food delivery. And that is one industry seeing a spike in demand.
Bottom Line on LYFT Stock
As InvestorPlace contributor Thomas Niel points out, Lyft already had issues to deal with that were hurting its stock price. Profitability remained a moving target, and there were dark clouds on the horizon in terms of labor issues. Competition from Uber was obviously a factor as well.
However, the single-biggest factor that’s caused LYFT stock to be hammered over the past two months is the coronavirus. Sooner or later the lockdown is going to end, and people are going to start using ride-share services again.
The expectation is that Lyft stock is going to recover, but the timing of that recovery is the tricky part. The company is going to be spinning its wheels until some sense of normalcy begins to return.
The 35 investment analysts who were surveyed by CNN Business are strongly in favor of buying LYFT at its current price. They have a median 12-month price target of $53, showing a confidence that Lyft stock isn’t going to just recover from the coronavirus, it’s going to resume a climb back toward last summer’s levels.
In terms of the timing of the recovery, keep watching the coronavirus progress. It can’t get much worse than now for Lyft — it’s not like any fewer people could possibly be using a ride-sharing service — but once restrictions start loosening up, a return to business as usual should begin. And if Lyft is successful in adding some delivery services as permanent lines of business, LYFT may actually see a revenue boost compared to its pre-coronavirus state.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
