Let me put it simply. Lyft (NASDAQ:LYFT) is not worth investing in right now. Buying Lyft stock will likely be a money-losing move in the long run. Why? It has a poor financial outlook.
So far, the company has not been able to produce a profit, even on an EBITDA — earnings before interest, taxes, depreciation and amortization — basis. I doubt it will ever do so.
Lyft does not make profits even on an adjusted EBITDA basis. These adjustments typically add back one-time charges. In the past four quarters, it has lost money on an adjusted EBITDA basis. That is true when looking at its quarterly, annual and 12-month performance.
The fact that Lyft has been consistently unprofitable and will likely stay that way, plus the reality of new competition, will depress Lyft stock. Most investors should stay away from this stock, at least until it can show some profits.
Competition From Tesla
Tesla (NASDAQ:TSLA) is getting serious about entering the ride-hailing business. One Tesla bull, analyst Tasha Keeney of Ark Invest, told Benzinga that Tesla’s entry into that business will compete directly with Uber (NYSE:UBER) and Lyft.
This analyst also said in another interview recently that Tesla could launch a ride-hailing network ahead of reaching full autonomy. Tesla has a lower cost basis for running such a network. This is especially true since electric vehicles are more cost-effective than gasoline-powered cars at Uber and Lyft.
Keeney thinks Tesla could charge a premium price over Uber and Lyft given its inherent advantages. Tesla could get a higher EBITDA margin than Uber. As noted, Lyft is not yet EBITDA profitable, even on an adjusted basis.
Tesla CEO Elon Musk told CNBC last year that by 2020 year-end Tesla would have 1 million robotaxis on the road. No analyst thinks that will happen, although a ride-hailing service could potentially launch.
The analyst also said that Tesla is much better integrated on both an insurance and finance basis. Nevertheless, it is not completely clear that Tesla will be able to be profitable in ride-hailing.
All of this adds up to headaches for Lyft, including a potential price war. Moreover, Lyft does not have Tesla’s deep focus on autonomous driving data and capabilities.
What Analysts Predict for Lyft
A survey of 19 analysts polled by Yahoo! Finance estimate Lyft will produce a loss of $2.32 per share this year. A poll of 21 analysts for 2021 has an average EPS estimate of negative 78 cents.
As noted, Lyft produces a negative adjusted EBITDA. Adjusted EBITDA profits rarely result from negative earnings. It is possible, but not very likely.
Lyft will produce its second-quarter earnings on Wednesday, Aug. 12. Analysts are expecting a per-share loss of 98 cents.
Barron’s Connor Smith recently discussed a negative research report by a Raymond James analyst. The bottom line on Lyft stock is that margins and trends are working against the company. This is especially true since Lyft is focused solely on the North American market and does not have a food delivery service.
What Should You Do With Lyft Stock?
In short, stay away from the stock. Eventually, some corporation will take over Lyft. It would likely be at a much lower price. Maybe Tesla or some other EV maker would step up. At some point, Lyft has to finance its losses. A takeover could be an easier way to do this.
There are many other stocks, including Tesla stock, that offer a similar or even better risk-return ratio for most investors.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide, which you can review here.
