Ah, Lyft (NASDAQ:LYFT). As one of two heralds of the brand-new ride-hailing service sector, Lyft stock was supposed to blow investors’ minds, balloon their wallets and bust every block in sight. But as IPOs go, Lyft turned out to be pfft. Or, per a real-life metaphor you know all too well: It was just like the driver for hire who circles the block aimlessly, cuts off five cars and stops suddenly in the middle of the street without flashers. And yes, there’s a clear curbside spot just three feet ahead of him.
Yet as much as I relish any chance to bash Lyft and its rival Uber (NYSE:UBER), I must leave my feelings at the car door. The fact is that both have performed well of late, with Lyft stock having doubled since Nov. 1. The skeptic in me says this can’t possibly continue. And yet, the positive sentiments of investors and analysts alike seem to line up here.
That concerns me because in any unproven sector — and ride hailing certainly tops most if not all — a shareholder has no way to examine precedent or performance. Lyft and Uber have been public companies for months, not decades. So what does success as an operation look like for them? We won’t know until they themselves find out, define it and achieve it. And that clearly hasn’t happened yet.
Behind the Lyft Stock Lift
Oh, how I wish the Lyft app had more functionality: You know, an option that not only tells me when my driver’s arriving but also when my big check hits my bank account courtesy of Lyft stock. For the sake of your portfolio and mine, let’s look at whether we can make a case for hailing a Lyft to Wall Street.
So why has Lyft stock picked up a little octane? Sometimes, a rave from one analyst does the trick. On Dec. 7, Alexander Potter of Piper Sandler raised his rating on the company from “neutral” to “overweight.” He also revised his new price target to $61 from $39, a 56% jump.
Meanwhile, Potter belongs to a mighty big crowd these days. According to the Wall Street Journal, 41 analysts follow Lyft — more than the 40 they tally up for Apple (NASDAQ:AAPL). Of those 41, 25 call Lyft stock a buy, 14 a hold and two a sell.
Ride Hailing and the Profits Puzzle
And yet, Lyft isn’t any closer to turning a profit that it was when it first went public. To be fair, ride hailing wasn’t on most people’s minds when “stay at home” was the unofficial motto of the novel coronavirus pandemic. In 2020, Lyft stock saw its loss per share shoot up from 32 cents in the first quarter to 86 cents in the third.
Looking ahead to the next two quarters, analyst forecast consecutive losses of about 70 cents per share. And this is where I get concerned. Yes, Lyft should see more love from customers in 2021. New vaccines and a strong Covid-19 response from the incoming Biden administration promise to help the company’s bottom line more than almost anything else.
And yet…does a return to form equate to in the black? I mean: Will it ever? The two-ton gorilla sitting next to you in the backseat is that no ride hailing company has ever turned in a steady, consistent profit. It’s possible to presage what it takes to get there, but in a practical sense it has never been achieved.
The Not-So-Long and Short of It
Even the profitless EV sector can study the track records and a successes of conventional automakers to get their arms around a proven definition of success. Lyft and Uber can’t. They may get there eventually and make some investors very happy in the long run. But a wager in Lyft stock, especially in a buy and hold position, rests on the hope that someday, a ride hailing company will prove that it can generate bona fide shareholder value.
For now, any success with Lyft stock will rest with catching its upward movement before harder business model realities set in. People are ready for this damn pandemic (a.k.a. “pandamnic”) to end and when that’s in sight, you’ll see Wall Street party like it’s Covid-1999. Stocks and sectors crippled these last nine months — think travel, entertainment, restaurants and energy — will get a huge jolt where true-life jubilation meets irrational investor exuberance.
Thus I’d call Lyft stock a pretty nifty and smart short play. But definitely not a long one. That any ride hailing company will prove its business model viable remains to be seen. But people piling into Lyft after Lyft, sitting waaaaaaaaayyy closer than six feet apart, on their way to the grand reopening of a bar promoting its “Burn-Your-Mask Bonfire and Beer” night? That we can all imagine.
If that’s where you find yourself headed after cashing in on Lyft stock, remember to thank me and tip your driver generously.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.