Should you buy Lyft stock? Feb 2023

Bullish Studio

Visit our Substack for more: https://www.overlookedalpha.com  Lyft is struggling to prove its business model, as the losses keep mounting and the cash flow continues to be negative. With the current cash balance and (lack of) profitability, the company can continue operating for less than 2 years.   Additional funding will be required, whether it comes in the form of debt or equity, but that doesn’t make their path to profitability any easier.  Lyft also suffers from questionable leadership. Management has been incredibly slow to cut costs in the face of inflation and has sunk money into unnecessary mapping products.   So Lyft is in a tricky spot. It’s unlikely the company can increase its prices because they don’t have pricing power. They also can’t negotiate lower driver fees as they have competition from Uber.  . So the only lever that management has is to lower operating expenses, which is a difficult task since operating expenses would need to halve just to break even. Overall, Lyft is up against the scale of Uber and doesn’t look compelling.   That’s why I give the stock a bearish rating. But these are my personal opinions not financial advice. And I hold no position in Lyft stock.

Transcript

00:00 Should you buy Lyft stock? Since its IPO in March 2019, Lyft stock is down almost 90%.

00:07 The company that was expected to challenge Uber has been nothing but a disappointment

00:11 so far. With $281 million in cash and $803 million in debt, the enterprise value of Lyft

00:18 is roughly $4.5 billion.

00:21 And the company's recent earnings report didn't bring any good news either. Full

00:25 year 2022 revenue came in at $4.1 billion but the company posted a $1.6 billion net

00:31 loss and a negative margin of almost 40%.

00:35 Top line revenue did grow at a rate of almost 28% as the world opened up but gross margins

00:40 shrunk from 47% in 2021 to 41%.

00:45 The only real positive is that operating expenses didn't grow as fast as revenue. Operations

00:50 and support costs increased 10% while R&D costs fell by 6%.

00:56 So far Lyft is struggling to prove its business model as the losses keep mounting and the

01:00 cash flow continues to be negative. With the current cash balance and lack of profitability,

01:06 the company can continue operating for less than two years. Additional funding will be

01:11 required whether it comes in the form of debt or equity but that doesn't make their path

01:15 to profitability any easier.

01:18 Lyft also suffers from questionable leadership. Management has been incredibly slow to cut

01:23 costs in the face of inflation and has sunk money into unnecessary products like maps.

01:29 So Lyft is in a tricky spot. It's unlikely the company can increase its prices because

01:34 they don't have pricing power and they can't negotiate lower driver fees as they have intense

01:40 competition from Uber. So the only lever that management has is to lower operating expenses

01:46 which is a difficult task since operating expenses would need to halve just to break

01:50 even.

01:51 So overall Lyft is up against the greater scale of Uber and the stock doesn't look

01:55 compelling. That's why I give the stock a bearish rating but these are my personal opinions

02:00 not financial advice and I've got no position in Lyft stock.

02:04 For more detailed investing ideas visit our website overlooksalver.com

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