At first glance it might look like it’s time to cozy up to Lyft (NASDAQ:LYFT). As I write this article, Lyft stock is only down 14% in 2020, and that’s quite an improvement from the onset of the Covid-19 pandemic when the stock was down nearly 65% for the year.
Lyft stock got a bump from a positive earnings report. But that earnings report only took into account the very beginning of the pandemic. That means for Lyft stock, it’s a near certainty that the worse is yet to come.
For the last year, ride-hailing companies like Lyft and Uber (NYSE:UBER) are finding out that it’s one thing to create an app. It’s another thing to operate a business that transports human beings from point A to point B.
Dana Blankenhorn recently wrote how the Covid-19 pandemic was exposing the flaws of the ride-hailing business model, particularly as it relates to the “gig economy.” But as the nation begins to re-open, there is becoming evidence that Lyft may face an even more fundamental issue. Their riders may not feel safe.
Safety and Lyft Stock
The novel coronavirus and the health and safety precautions that have occurred because of it are showcasing the law of unintended consequences.
A year ago, it was a virtual certainty that car sales were doomed to begin a long, slow spiral. The emergence of ride-hailing companies gave many city workers a cost-effective alternative to owning their own car.
But as those same Americans are getting ready to re-enter the workforce in a pre-vaccine environment, they’re rethinking the way they get to work. And early indications suggest they may favor their own car.
An article in Bloomberg sums up a new problem for ride-hailing companies: This doesn’t bode well for car-sharing either, which until recently was another popular low-cost alternative to vehicle ownership. Now it suddenly feels unhygienic.
A recent article in Consumer Reports puts a spotlight on the difficulties that Lyft and other ride-hailing companies face. In an interview with CR, Harry Campbell, founder and CEO of “The Rideshare Guy,” says that having drivers responsible for cleaning their own vehicles means that riders don’t have the same assurance that the car has been cleaned.
“Some drivers are doing a great job, but others are not,” says Campbell.
And what it makes matters worse is that some drivers have told Campbell’s podcast they can’t access the cleaning supplies and personal protective equipment (PPE) that they are supposed to have. In fact, Consumer Reports found that some of these supplies are only available at select locations, frequently remote and then in limited quantities.
Lyft and the Coronavirus
In a recent article, my colleague Muslim Farooque wrote, Lyft is suspending guidance due to the uncertainty surrounding its business environment. Farooque also outlined the numerous cost-cutting measures that Lyft is undertaking to reduce expenses.
Lyft is not alone in taking such actions. However, the long-term outlook for ride-hailing services was shaky before the pandemic. With the potential that demand may not return until there is a vaccine or proven antibody therapies, Lyft is looking at quarters of lagging revenue.
Keep Your Distance From Lyft Stock
Ride-hailing started out as such a simple concept, but even before the novel coronavirus spawned a global pandemic, ride-hailing companies were running against tough odds.
As Lyft and its rivals are discovering, ride-hailing is becoming an expensive business. And one that is about to be subject to regulations and protocols that were never foreseen.
I’ve felt that ride-hailing companies faced many challenges simply based on the business model. As I stated earlier, it’s one thing to create an app. It’s another thing to run a business that involves transporting human beings. And it’s another thing altogether when your drivers are fighting a virus that can be transmitted from asymptomatic carriers.
The worse is yet to come for Lyft stock. The smart money is going to distance yourself from the stock before that arrives.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.