Lyft (LYFT -0.49%), the second-largest ride-hailing company in the U.S., went public on March 29, 2019, at $72 per share. It closed at its record high of $78.29 that same day.
Today, Lyft's stock trades 80% lower at $15. The bulls retreated as its growth slowed, it racked up more losses, and it struggled to keep pace with its larger competitor, Uber (UBER -0.24%). Uber's stock has risen nearly 50% from its IPO price.
Image source: Getty Images.
Lyft disappointed many early investors, but it's starting to look undervalued relative to its growth potential. Let's see why it might be the perfect time to buy this unloved stock.
How fast is Lyft growing?
Lyft only operates its ride-hailing services in the U.S. and Canada. It also provides bicycle and electric scooter rentals in select cities. Unlike Uber, Lyft doesn't provide its own first-party food delivery services. However, it provides some third-party food deliveries with partners like DoorDash (NASDAQ: DASH) and Grubhub.
From 2018 to 2023, Lyft's revenue grew at a compound annual growth rate (CAGR) of 15% as its number of year-end active riders rose from 18.6 million to 22.4 million. However, that growth trajectory wasn't smooth; it lost millions of active riders during the pandemic in 2020, and it didn't surpass its pre-pandemic peak of 22.9 million riders until 2024.
|
Metric |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|---|
|
Active Riders |
18.6M |
22.9M |
12.6M |
18.7M |
20.4M |
22.4M |
|
Revenue |
$2.2B |
$3.6B |
$2.4B |
$3.2B |
$4.1B |
$4.4B |
Data source: Lyft.
As the pandemic headwinds dissipated, Lyft also struggled with driver shortages. Those shortages drove up its prices and further eroded its defenses against Uber. However, it regained its footing over the following years by expanding its Lyft Pass service for businesses, relaunching its Lyft Pink membership program, rolling out its Women+ Connect feature (which matches female and non-binary riders with female and non-binary drivers), and raising its incentives for its drivers.
It expanded its ecosystem with new features like Price Lock, its subscription-based service that lets its riders lock in prices to set destinations, and launched Lyft Media, which streams videos and ads across its app and in-car tablets. It also deepened its partnership with DoorDash and worked with companies like Mobileye (NASDAQ: MBLY) to test out autonomous rides.
At the end of the third quarter of 2024, Lyft's active riders rose 9% year over year to 24.4 million. For the full year, it expects its total rides to grow by the mid-teens as its gross bookings rise by approximately 17%. Analysts expect its revenue to rise 31% in 2024 and grow 15% in 2025 and 13% in 2026. With an enterprise value of $4.5 billion, Lyft still looks dirt cheap at less than 1 times next year's sales. Uber, which has an enterprise value of $139 billion, is valued at nearly three times next year's sales.
How profitable is Lyft?
Under David Risher, who took the helm as Lyft's CEO in April 2023, the company focused on cutting its costs and narrowing its losses -- even as it rolled out new features and dozens of updates for its mobile app. As a result, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) finally turned positive in 2023.
Analysts expect its adjusted EBITDA to rise 67% in 2024, 36% in 2025, and 32% in 2026. They also expect it to turn profitable on a generally accepted accounting principles (GAAP) basis in 2025 and more than triple its GAAP net income in 2026.
Based on those expectations, Lyft trades at just 9 times next year's adjusted EBITDA. Uber looks a bit pricier at 16 times next year's adjusted EBITDA. Plus, Lyft expects its free cash flow (FCF) to exceed $650 million in 2024. That would represent its first year of positive FCF. At its current enterprise value, Lyft trades at just 7 times the low end of that FCF forecast. That makes it a lot cheaper than Uber, which still trades at about 22 times its estimated FCF for 2024.
Lyft could be a great turnaround play for 2025
In the past, it was easy to write off Lyft as a struggling underdog that would be crushed by Uber. But it has carved out a defensible niche as the second-largest ride-hailing service provider in the U.S. and Canada, and it's locking in its drivers and riders with more features and perks. Its profits are rising as economies of scale kick in, and it still looks undervalued relative to its growth potential. Investors who take a chance on Lyft today could be well rewarded as it continues to expand.
