Lyft (NASDAQ:LYFT) reported third-quarter results which showed that, as I previously predicted, the company’s business is meaningfully recovering. Meanwhile, lyft stock will benefit tremendously from two recent political developments, and I continue to believe that it has two strong, longer-term positive catalysts.
On Nov. 10, Lyft reported that its Q3 revenue had jumped 47% versus Q2 to $500 million, while its net loss had come in at $459.5 million, down from $463.5 million during Q3 of 2019.
The data points indicate that, in-line with my previous predictions, the company’s business has rebounded tremendously since the lockdowns eased and Americans became less fearful of the novel coronavirus. Additionally, Lyft’s cost-cutting has helped to relieve the pressure on its bottom line.
Political Developments Will Help Lyft
On Election Day, California voters passed Proposition 22, which “exempts Uber, Lyft and other app-based transportation and delivery companies from classifying their workers as employees, and lets them keep treating them like independent contractors,” according to CNBC.
Before the initiative was approved, a law passed by the California legislature would have forced Lyft and Uber (NYSE:UBER) to classify their drivers as full-time employees, likely forcing the ride-sharing companies to provide them with costly benefits. That, in turn, would have meaningfully lowered their profits. In addition to saving Uber and Lyft a great deal of money in California, the success of Proposition 22 has given investors hope that the companies can avoid having their drivers classified as full-time employees in other states.
Meanwhile, on the national level, progressive Democrats will not control Congress in 2021, easing fears that the lawmakers would force Uber and Lyft to classify all of their U.S. drivers as full-time employees.
Longer-Term Positive Catalysts
As I’ve written in the past, I believe that, for some time, worries related to the pandemic will prevent many consumers from using mass transit and that Lyft and Uber will benefit from that trend.
As shown by the dramatic increase of Lyft’s Q3 top line versus Q2, that thesis is beginning to play out, albeit more slowly than I had expected. But as overall fears about the virus continue to drop, travel increases, and more people realize that the odds of catching the coronavirus from a masked Lyft driver sitting at least a couple of with his or her back to you aren’t very high, the company’s results should continue to rebound going forward.
And of course Lyft will benefit tremendously from the introduction of a vaccine for the coronavirus. I believe that, by March or April, most Americans will have been vaccinated against the disease. That, in turn, is likely to unleash huge pent-up demand for travel, boosting Lyft’s results and Lyft stock in the process.
Autonomous Vehicle Impact on Lyft Operations
Finally, I continue to believe that, over the longer term, Lyft will get a huge boost from autonomous vehicles or AVs. By eliminating Lyft’s largest cost — drivers- – AVs will give the company’s profits a big boost.
Recently a Seeking Alpha columnist argued that Lyft will be buried under an avalanche of competition once AVs are launched. But I believe that the company’s first-mover (or second-mover, behind Uber) advantage will leave it well-positioned in the sector even after AVs are launched.
First of all, many consumers may not want to take the time to download a new ride-sharing app, so millions of them will keep using their Lyft app even as new competitors enter the space. Secondly, as AVs make ride-sharing much cheaper, the market will probably expand a great deal. Many families are likely to even get rid of one of their vehicles and rely on ride-hailing instead.
The Bottom Line on Lyft Stock
Lyft is clearly recovering and has strong medium-term and longer-term catalysts which I believe the market is still underestimating. Consequently, I advise investors to buy Lyft stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.