I added more Lyft, Inc. (LYFT) shares this morning at $17.50 following their excellent Q3-2024 results. I had first recommended Lyft last month at $13.50
Lyft demonstrated remarkable growth in the third quarter of 2024, posting significant gains in operational metrics and financial performance. The rideshare giant reported record-breaking numbers in active riders and total rides, while substantially improving its financial position through increased revenue and robust cash flow generation.
These are its major strengths
Excellent revenue, EBITDA, and Cash Flow growth
- Gross Bookings: Reached $4.1 billion, marking a 16% year-over-year increase
- Revenue: Hit $1.5 billion, showing substantial growth of 32% year-over-year
- Net Loss: Posted $(12.4) million, including a $36.4 million restructuring charge
- Adjusted EBITDA: Achieved $107.3 million, up from $92.0 million in Q3’23
- Free Cash Flow: Generated $242.8 million, a significant improvement from $(30.0) million in Q3’23
Solid Operational Achievements
The company set new records in its core operational metrics:
- Reached 24.4 million Active Riders (9% YoY growth)
- Delivered 217 million Rides (16% YoY growth)
- Maintained strong driver engagement with record driver hours
Strategic Initiatives In Autonomous Vehicles
Lyft announced significant partnerships in the autonomous vehicle space, positioning itself for future growth:
- Formed alliances with Mobileye, May Mobility, and Nexar
- Plans to launch autonomous vehicle service in Atlanta by 2025
Strategic Partnership with DoorDash
- Established collaboration with DoorDash, the leading U.S. local delivery platform
- Introduced exclusive benefits for DashPass members using Lyft services
Lyft has several weaknesses and challenges too.
- Secondary player to Uber (UBER) in the rideshare market, with only a 30% market share compared to Uber’s 70%.
- Doesn’t have the secondary revenue stream of Uber Eats to absorb fixed costs
- Smaller market share and geographic footprint
- Limited brand recognition internationally
- Heavy reliance on incentives to attract/retain drivers and riders
- High customer acquisition costs
- Competitive pressure on pricing
Wall Street seems to like it as well
“We think the strong after-hours move is deserved,” Sanderson adds, and think the results will ease concern about Lyft’s ability to grow profitably. “But management’s 15% multi-year [gross bookings] target will still be a debate, as will the company’s position for autonomous vehicles.”
“Efficiencies are driving EBITDA ahead of expectations, and the profitability of the rides business model shined, even through increased investment into rider/demand-based incentives,” Morgan Stanley’s Nowak added, raising his FY25/26 adjusted EBITDA estimates by 9% and 2%, respectively, contributing to a higher price target of $18 from $16, previously.
BofA Securities also lifted its price target, now at $19, as the company has “seemingly limited incremental share losses, focusing on core customers and commuters that are still growing order frequency.”
“We have a Buy rating on Lyft as tailwinds from mobility/transportation recovery in urban areas are outweighing risk factors like driver wage inflation, inflation’s impact on consumer travel, and competition risk from Uber and new autonomous entrants,” BofA’s Michael McGovern and Justin Post said in their research note.
Conclusion – Continuing to accumulate for 3-5 years.
Lyft has a long way to go, but the first and second quarters of adjusted operating profits in a row and strong cash flow generation suggest that it is a serious competitor to Uber.
I had recommended and started buying Lyft in October at around $13-$14, calling it an attractive GARP (Growth At A Reasonable Price), and a very reasonable valuation compared to Uber, which is unlikely to have a monopoly in the ride-sharing market.
Lyft deserves a seat at the table and with excellent Q3 results and raised guidance it looks even more compelling. Sure, there was a massive bump from $14 to $17. post earnings but the valuation is still attractive at 1.1x sales for 12-15% sales growth and at 17x earnings for a 15-17% grower.