Lyft operates a peer-to-peer marketplace for ridesharing, with operations in the United States and Canada. Lyft also competes in the micro mobility industry, with bike and scooter offerings for short-distance urban travel, as well as in the autonomous vehicle (AV) space. It has formed partnerships with AV companies Waymo and Aptiv, and is also developing self-driving technology in-house.
Lyft’s primary competitor in the ridesharing industry is Uber Technologies. Uber is larger than Lyft in terms of market valuation and market share, with extensive international operations. However, analysts believe that the North American ridesharing industry is large enough to support both companies, and possibly even other players. Lyft can thrive, despite being smaller, because ridesharing is not a ‘winner-take-all’ industry.
Finally, analysts believe the company’s ‘big picture’ view on a path to 4Q21 profitability is still right on target. In fact, Lyft’s ongoing cost reduction ($300 million of fixed costs coupled with continued improvements in transaction processing and hosting costs) is potentially set to lead to even faster profitability. As the company now needs 5%-10% fewer rides than 4Q19 to achieve adjusted EBITDA profitability versus previously needing 5%-10% more rides. analysts reaffirm our BUY rating, promoting Lyft among the best stocks to buy.
RECENT DEVELOPMENTS
The wider year-over-year loss was primarily attributable to COVID-19 restrictions on businesses, restaurants and public events, especially in California (the company’s biggest market), which negatively impacted LYFT’s ridesharing business. Third-quarter 2020 revenue totaled $499.7 million, down 48% from the prior year. Revenue for the first nine months of 2020 reached $1.795 million, down from $2.599 million for the same time period a year ago. Adjusted 3Q EBITDA was negative $239.7 million, compared to negative $128.1 million in 3Q19.
In 3Q20, Active Riders fell 44% to 12.51 million riders from 22.31 million in the third-quarter of 2019. Revenue per Active Rider dropped 7% to $39.94 from $42.82, again reflecting the negative impact of the pandemic. analysts note that the company does not currently provide food delivery services.
However, with respect to food delivery services, on October 6, Lyft announced a partnership with Grubhub that will bring Lyft Pink subscribers (a $19.99 per month Lyft membership program) the perks of Grubhub+. The Plus membership will now be a regular part of any Lyft Pink membership.
This program will provide benefits such as 15% off every ride, priority pickup at airports, three free bike or scooter rides a month, and now, the benefits of Grubhub+, which includes free delivery of all Grubhub+ orders at participating restaurants. The initial term of the partnership is two years,
Lyft is not yet profitable, though CEO Logan Green noted at the time of the 2019 IPO that he expected LYFT to become profitable (on an adjusted EBITDA basis) by the end of 2021. He reaffirmed that timeline on the company’s 3Q20 earnings call, and said that the company would be able to reach its target with 20%-25% fewer rides due to strict cost controls, prudent capital spending, and changing car ownership trends.
EARNINGS & GROWTH ANALYSIS
Prior to the coronavirus pandemic, Lyft projected 2020 revenue of approximately $4.6 billion, up from $3.6 billion in 2019. It projected adjusted EBITDA of negative $450-$490 million. However, this guidance was withdrawn on April 21, 2020, due to pandemic-related uncertainty. No further guidance has been provided.
Analysts are also widening our 2021 loss estimate to $1.64 from $1.40 per share, again reflecting challenges from COVID-19 and a slower recovery than analysts originally expected. The consensus for 2021 calls a loss of $1.82 per share.
Lyft management believes that the world is ‘at the beginning of a shift away from car ownership to Transportation-as-a-Service, or TaaS.’ analysts believe that recent trends support this view and expect car ownership to decline over the long term. This should help Lyft to grow its share of total miles driven over time. In the near term, the company’s growth strategy centers on expanding its rider base and increasing the use of the Lyft app.
FINANCIAL STRENGTH & DIVIDEND
Financial strength ranking on Lyft is Medium-High, our second-highest ranking. The company’s debt is not rated by any of the major credit-rating agencies.
At the end of 3Q20, the total debt/cap ratio was 33.0%, up from 13.0% at the end of 3Q19. The debt/cap ratio is modestly below those of close peers and has averaged 15.5% over the past few years.
The company had total borrowings of $988.55 million at the end of 3Q20, consisting of $912.17 million of long-term debt and $76.38 million of short-term debt. This compares to total borrowings of $448.04 million in 3Q19. Debt levels are in line with the industry average.
In May 2020, Lyft issued $747.5 million aggregate principal amount of 1.50% convertible senior notes due 2025. The net proceeds were $733.2 million. In connection with this issuance,
Lyft entered into privately negotiated capped call transactions at a cost of approximately $132.7 million. Unlike Uber, Lyft does not have a revolving credit facility.
As discussed in our previous report, in April 2020, Lyft announced a restructuring plan to reduce operating expenses and improve cash flow. Restructuring charges in 2Q20 included $32.1 million for severance and related employee benefits and $3.1 million for lease terminations and other costs.
MANAGEMENT & RISKS
Logan Green is the company’s co-founder and CEO; John Zimmer is the co-founder and president and Brian Roberts is the CFO. Sean Aggarwal is chairman of the board.
In February 2020, a U.S. The District Judge in California denied options filed by Uber and Postmates for a preliminary injunction to enjoin California Assembly Bill 5, which restricts employers’ ability to classify workers as independent contractors. In May 2020, the situation became more serious when the State of California moved to sue Lyft and Uber for misclassifying drivers as independent contractors. The situation is developing and the risk could extend beyond California to every state in which Lyft operates.
COMPANY DESCRIPTION
Lyft Inc., founded in San Francisco in 2007, operates a peer-to-peer marketplace for on-demand ridesharing. Lyft was originally founded as Zimride, but reincorporated as Lyft in 2012.
The company’s app for smartphones enables consumers to contact drivers, arrange a meeting point, and get to their destination in a cash-free transaction. The company focuses on the U.S. market and has a presence in 645 U.S. cities. Along with ridesharing, Lyft operates a fleet of scooters and bikes, and is working to develop and implement autonomous vehicle technology.
According to data from Statista, and our review of Uber and Lyft 10-Ks and S-1s, gross bookings in the U.S. ridesharing market totaled $23-$24 billion in 2018.
