Lyft Is An Attractive GARP (Growth At A Reasonable Price)
Lyft (LYFT) $13.50
I’ve started buying the stock based on improving fundamentals, market position, and attractive valuation metrics relative to competitors.
Lyft, trading at $13.50, appears significantly undervalued with a forward P/S ratio of 0.9x despite showing strong operational improvements and market share gains. While playing second fiddle to Uber in the ride-sharing market, the company's recent performance and valuation metrics suggest a potentially attractive investment opportunity for long-term investors.
Lyft demonstrates strong fundamental growth and progression toward sustainable profitability. The company achieved its first profitable quarter in Q2 2024, marking a significant milestone in its operational history.
Despite its conservative guidance, Lyft's fundamental improvements, and a clear path to improved profitability through restructuring support a positive outlook:
Key Performance Metrics - Q2 2024
Revenue: $1.44 billion (+40.6% YoY)
Total Rides: 205.3 million (+15.4% YoY)
Active Riders: 23.7 million (+10.2% YoY)
Gross Bookings: $4.02 billion (+16.6% YoY)
Net Profit: $5 million (vs. -$114.3 million in Q2 2023)
Operational Highlights
10% faster ETAs year-over-year
25% QoQ reduction in primetime surcharge
Adjusted EBITDA at 2.6% of gross bookings (up from 1.2%)
Market share gains against Uber
User Engagement Growth
Rides per active rider increased to 8.66 (from 8.27 in Q2 2023)
Consistent quarter-over-quarter growth in rider engagement since Q1 2023
Financial Performance (H1 2024)
Revenue: $2.71 billion
Operating Cash Flow: $432.4 million (from -$144 million in H1 2023)
EBITDA: $162.3 million (nearly triple from $63.7 million)
Strategic Initiatives
Announced restructuring of bike and scooter operations
1% reduction in total headcount
Expected one-time costs: $34-46 million
Lyft Media advertising platform
70% YoY revenue growth
Partnerships with 40+ major brands
10x industry average click-through rate
“Primetime" pricing strategy
Enhanced transparency for drivers
Monthly subscription options
Differentiated value proposition
Market Position & Outlook
Industry Growth Potential
Ride-sharing market expected to reach $305 billion by 2029
Lyft maintains a strong position as the second-largest player in the U.S. market
Valuation Metrics
Price/Operating Cash Flow: 16.6x
EV/EBITDA: 10.7x
More attractive valuation compared to competitors:
Uber (P/OCF: 30.4x, EV/EBITDA: 40.8x)
EV/Sales: 0.7x (vs. Uber's 3.3x)
Revenue Growth: 40% (vs. Uber's 15.9%)
Challenges & Risks
Q3 2024 guidance indicates a potential growth slowdown
Projected gross billings of $4-4.1 billion (flat sequentially)
EBITDA guidance of $90-95 million (below analyst expectations)
Weaker Competitive Position
Secondary market position to Uber
Customer preference typically favors Uber first
Limited geographical diversification
Operational Challenges
37% YoY increase in insurance costs
Rising operating expenses (13.8% of gross bookings)
Higher sales and marketing costs
Conclusion
While Lyft faces significant challenges as the second-largest player in the ride-sharing market, the current valuation of 0.7x EV/Sales appears overly pessimistic given the company's improving fundamentals and market position. The stock presents an attractive opportunity for longer-term investors.
Disclaimer: No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Fountainhead blogs on Seeking Alpha and other websites. He is not a licensed securities dealer broker, investment advisor, or investment bank. He may or may not have positions in the stocks or securities discussed. His posts reflect his opinions, and he is not getting any compensation for the posts, except for Seeking Alpha posts. Past performance is no guarantee for future results.