This has been a banner week for IPOs (initial public offerings). Companies like Airbnb (NASDAQ:ABNB), DoorDash (NYSE:DASH) and C3.ai (NYSE:AI) have posted staggering gains. But it’s important to keep in mind that IPOs are not guarantees. Just look at the history of Lyft (NASDAQ:LYFT), a top ride-sharing operator. In March 2019, the company went public at $72 and rose to $78. But as of now, Lyft stock is trading at about $47. The market capitalization is $14.9 billion.
Lately, Lyft stock has been in rally mode. Back in March, the shares were fetching only $18. And since late October, the gain has been more than 100%.
So yes, there has been some nice momentum. But what comes now? Can Lyft stock extend the gains? Is there still value here? Well, let’s take a look.
The growth story for Lyft came to a screeching halt when the Covid-19 virus hit. With lower economic activity and government restrictions, there was a plunge in revenues. They were down about 61% in the second quarter on a year-over-year basis, and the net loss was $437.1 million.
But management acted quickly to cut back on costs, such as with marketing and sales. However, the company has still maintained its investments in R&D (research and development).
The result is that the cost structure is much more attractive right now. On the latest earnings call, CEO Logan Green said, “We’re focused on achieving adjusted EBITDA profitability by Q4 2021 even with a slower recovery. For context, with our current plans and execution, we’re now positioned to achieve adjusted EBITDA profitability with approximately 30% fewer rides than what was required when we originally issued our Q4 ’21 profitability target in October 2019. This is a further improvement from what we shared last quarter.”
But there are some other positives as well. For example, during the November election, Lyft was able to push through the approval of Proposition 22 in California, which is the biggest market for the company. This means that drivers will not have to be classified as full-time employees. In other words, Lyft will be able to have more flexibility with its workforce.
And the passage of Proposition 22 will likely not be just about California. The bill should set a framework with other states. The result is likely to be a favorable environment for Lyft.
Finally, Lyft has continued to strike interesting partnerships to improve the customer experience and monetization. One of the latest is a deal with Grubhub (NYSE:GRUB). That is, for members of the Lyft Pink subscription service, there will be access to unlimited free delivery from their favorite restaurants. There are also perks like discounts on food.
Bottom Line on Lyft Stock
It’s true that Uber (NYSE:UBER) is the top-of-mind company when it comes to ride-sharing services. This is certainly quite valuable and has resulted in dominant market share. As for Lyft, it has about 31% of the U.S. market, according to data from Second Measure.
But this is not necessarily a problem. The market potential is large, as ride-sharing is generally more convenient and cheaper than traditional options. For example, the General Services Administration recently signed an $810 million contract to allow up to four million federal employees to use Lyft and Uber. The deal is for a five-year period.
So yes, things are tracking nicely. But then again, Lyft stock has also baked in much of the good news. And besides, with the Covid-19 pandemic — which will likely last for at least the next quarter — getting much worse, the results could worsen as well. Thus, for now, it may be best to wait for a better price on Lyft stock.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.