Lyft (LYFT) stock might have stumbled out of the gate following its IPO since early April. With just a month of trading action, the stock is trading at $58 to $60 in a fairly tight range despite the IPO pricing initially at $78. Typically stocks drop following an IPO with Lyft being no exception.
However, some positive commentary tied to the stock, and on-going revenue growth with gradual improvements in profitability could make this a long-term attractive play. After all, Lyft just had its IPO. Given a number of quarters with some successful execution, and on-going ramp into an open field opportunity in ridesharing, Lyft stock is still poised to grow quite significantly.
With the impending Uber IPO set to take place within days, investors should still consider Lyft as another alternative given Uber’s heightened market valuation (approximately $90 billion), but also over subscribed offering, which will make the IPO a little frothier in terms of valuation before it also compresses. Uber’s basically a bigger version of Lyft chasing after the same rideshare/autonomous market opportunity and losing significant sums of money but growing sales quickly. Uber’s valuation is 5x larger than Lyft’s current market cap of $16.8 billion, hence Lyft’s long-term growth runway might be more attractive given it’s smaller size.
With some of the hype subsided, analysts have also weighed in on Lyft’s stock. Michael Olson from Piper Jaffray initiated coverage at Overweight and $78 price target:
We initiate coverage of LYFT with an OW rating and $78 PT. We believe Lyft will be both a driver and beneficiary of the growth of ridesharing and autonomous tech over the next 10+ years. LYFT may not be the right fit for all investors, given the company’s current materially unprofitable state, but for those with a long-term view, and patience, we recommend owning shares at these levels. We do expect solid near-term top line results, as the company has been gaining market share in recent quarters, but the path to significantly positive net income will be a multi-year journey.
The long-term growth narrative could very well be attractive, as Olson anticipated Lyft’s long-term profitability to trend higher. The analyst goes onto mention, “We believe that scale and improved operating leverage over several years could bring the company to a ~20% EBITDA margin over the long-term (~2023 timeframe).” In the meantime, anticipate a very slow ramp-up in terms of profitability metrics, but perhaps shareholders already anticipate that this will be a cash bleeding operation until Lyft reaches a stable business state.
Lyft has approximately 35% market share in the United States, according to the report which has steadily improved over the past several years despite the presence of Uber. What makes Uber’s valuation significantly larger than Lyft is its international presence along with food delivery via Uber Eats. Lyft hasn’t expanded beyond the United States and Canada and instead doubled-down on the domestic opportunity by expanding its network of drivers in most suburban and urban areas reaching 95%+ of the U.S. population. goes onto mention, “While Uber clearly has significantly more scale, especially with its international footprint, Lyft is growing more rapidly. We expect Lyft will continue to take market share in the North America ridesharing market over the coming years, unless Uber becomes more aggressive with rider and driver acquisition/incentives.”
Hence, the market opportunity.
Where does the rest of the Street side on Lyft stock? It appears mostly bullish, as TipRanks analytics demonstrate LYFT as a Buy. Out of 20 analysts polled in the last 3 months, 13 are bullish on the stock while 6 remain sidelined and one is bearish. With a return potential of nearly 20%, the stock’s consensus target price stands at $74.06. (See LYFT’s price targets and analyst ratings on TipRanks)