After two and a half years as a public company, Lyft (NASDAQ: LYFT) has still yet to deliver any profits for early shareholders. Its stock is trading more than 40% below its IPO level—and this is good news for long-term growth investors.
With economic activity starting to pick up, the San Francisco-based ridesharing company may be finally hitting its stride. And while Lyft is still not profitable, improvements in its cost structure and the launch of complimentary services point to a strong 2022 and beyond.
When Will Lyft Be Profitable?
In 2020, the Covid-19 pandemic wreaked havoc on the ride-hailing industry as it did to many others. With restaurants, bars, and entertainment venues closed, demand was minimal. Although Lyft performed better than analysts feared, it still lost a whopping $2.66 per share.
Lyft’s bottom-line performance in the first quarter of this year was actually worse than in 2020 amid increased spending but still tepid demand. Things looked significantly better in the second quarter. The company posted a narrower than expected loss of $0.05 as it was able to rein in costs and benefit from higher rider volumes.
Last quarter’s result was significant because it marked the first time Lyft reached EBITDA profitability—and because it did so six months ahead of schedule. The first period of positive EPS could come as early as the current quarter. We’ll learn in early November if Lyft is able to beat the consensus forecast of a $0.03 per share loss and turn its first real profit.
The first full year of profitability is expected to be 2022. Analysts are forecasting Lyft will swing to a profit of $0.69 per share. Of course, much will depend on how things develop on the pandemic front. But as things are shaping up, Lyft should finally be profitable in its 15th year in business.
What are Lyft’s Growth Opportunities?
People are getting more comfortable with contactless everything these days. That goes for Lyft’s cash-free ride-hailing service which is now available in more than 600 U.S. cities and in Canada. There’s no doubt the Lyft app is resonating with customers and especially Millennials. It just needs a healthy economic environment and the riders that come with it. As restrictions on dining and leisure activities continue to be lifted, the company’s core business is positioned to thrive.
Beyond car ridesharing, Lyft also operates a fleet of bikes and scooters designed for short-distance travel in urban settings. It is this expansion into other transportation modes that will also be a key growth contributor over the next three to five years.
It is likely that both Uber and Lyft can find success in the post-pandemic world as people embrace the perceived safety and cleanliness of ride-hailing services over taxis. A key difference between the two though, is that Uber has entered the food delivery business whereas Lyft has not.
Lyft does, however, have a partnership with Grubhub whereby Lyft Pink members get access to the Grubhub+ service go along with the program’s other perks such as 15% off rides. Still, less than a year old, Lyft’s Grubhub+ connection versus Uber Eats will be a key battleground to watch.
Another disruptive force in consumer transportation is self-driving vehicles. Lyft sold its Level 5 autonomous driving division earlier this year but is staying in the game. Instead of developing the technology on its own, it plans to form partnerships with self-driving technology groups to have exposure to this potentially huge long-run growth driver.
Lyft is getting ready for the future of transportation by further investing in the transportation-as-a-service, or TaaS model. Management is making a big bet that over time consumers will shift from the hassle and expense of vehicle ownership to more service-based transportation modes. If it’s right, it could gain access to a larger chunk of the industry as people rely further on ride sharing.
Is Lyft Stock a Buy?
In terms of the technical indicators, Lyft looks to be on the upswing. After dipping below the lower Bollinger band earlier this month, the stock has broken back into the band’s mid-section in decent volume. If it can maintain support at the $49 level, a near-term run to $56 to $57 looks plausible.
Looking beyond the near-term, there’s reason to believe Lyft can return to its days as an $80-plus stock. There is not an analyst on the Street that currently calls Lyft a ‘sell’ which suggests the downside is limited. Since the company reported second-quarter results, twelve sell-side firms have issued ‘buy’ ratings with price targets ranging from $65 to $88. Even the most cautious post-earnings stance (Nomura’s ‘hold’ rating and $59 target) still represents 21% upside from present levels.
As far as valuation, Lyft isn’t cheap at more than 70x fiscal 2022 earnings. Nor are shares of Uber which is not expected to be profitable for some time. But buying Lyft here still makes sense if you are a long-term growth investor because the industry is still in the early stages of a multiyear growth trajectory.
More than just a ride-hailing business, Lyft will have multiple growth levers at its disposal as transportation becomes more tech-forward. Look for more investors to hop on board as the company rings up profits in the quarters ahead.
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