Why Is Lyft Stock Falling, and is it a Buying Opportunity? | LYFT STock Analysis

SUMMARY

Parkev Tatevosian, CFA, analyzes Lyft's recent financial performance, highlighting strong customer growth and operational improvements. He discusses the challenges posed by autonomous vehicle technology and provides an updated valuation, concluding that Lyft appears undervalued despite industry risks.

MAIN POINTS

• Lyft reports over 28 million active customers, a 17% increase year-over-year, and discusses its autonomous vehicle initiatives. [0:00]
• Gross bookings reach $4.9 billion, up 19%, with strong cash flow and a record sixth consecutive quarter of double-digit active rider growth. [1:01]
• Rising car ownership costs make ridesharing more attractive, while investment in driverless technology presents both risks and opportunities for Lyft. [2:00]
• Lyft forecasts continued near-term growth but faces Wall Street expectations of revenue deceleration in coming years due to autonomous vehicle risks. [3:00]
• Improvements in margins and cash flow are noted, with Lyft's valuation reaching historically low levels compared to peers with minimal growth prospects. [4:00]
• A proprietary discounted cash flow model suggests Lyft is undervalued at $14 per share, leading to a reiterated buy rating despite a preference for Uber. [5:00]

DETAILED ANALYSIS

Lyft has demonstrated notable growth in its active customer base, surpassing 28 million riders, which marks a 17% increase from the previous year and sets a new company record. This expansion is reflected in the company's financials, with gross bookings rising 19% to $4.9 billion and the portion retained by Lyft increasing 14% to $1.7 billion. Operational cash flow also improved, reaching $307.7 million, indicating a healthy cash flow to sales ratio and highlighting the company's ability to generate cash from its core business.

The continued rise in car ownership costs, including payments, maintenance, insurance, and fuel, has contributed to the growing appeal of ridesharing services, particularly for individuals without families. Lyft, along with competitors such as Uber, is investing in autonomous vehicle technology to address the evolving landscape of urban transportation. While the technology is advancing, regulatory and political challenges remain significant barriers to widespread adoption.

In the near term, Lyft projects further growth, forecasting gross bookings of $5.4 billion for the next quarter, which would represent a 19.5% year-over-year increase. However, Wall Street analysts anticipate a slowdown in revenue growth, with projections falling from 16% this year to 12% next year and dropping below double digits by 2028. This outlook reflects concerns about the impact of autonomous vehicles on the traditional rideshare business model.

Despite these risks, Lyft has made substantial progress in improving its operating profit margin, which has climbed from -35% in 2021 to -3% in the most recent period, and its cash flow to sales ratio has improved dramatically since 2017. The company's current valuation is notably low, with a forward price-to-earnings ratio of 8.4 and a forward price-to-operating cash flow of 6.6, levels typically reserved for mature companies with limited growth prospects. A proprietary discounted cash flow analysis values Lyft at $32 per share, significantly above the current market price of $14, suggesting the stock is undervalued.

While acknowledging a preference for Uber, the analysis concludes that Lyft represents a buying opportunity at current levels.

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