We came across a bullish thesis on Lyft, Inc. (LYFT) on High Growth Investing’s Substack by Stefan Waldhauser. In this article, we will summarize the bulls’ thesis on LYFT. Lyft, Inc. (LYFT)'s share was trading at $13.80 as of Jan 24th. LYFT’s trailing and forward P/E were 0.90 and 17.04 respectively according to Yahoo Finance.
A ridesharing passenger and driver in a car, looking out the window in anticipation of their destination.
Lyft, the ride-hailing company, has struggled to achieve the international recognition that Uber enjoys, primarily focusing on the U.S. and Canada while Uber has expanded worldwide. In North America, Lyft is the clear number two, with an estimated 20-25% market share compared to Uber's dominant position, which is nearly three times larger. This competitive imbalance, coupled with concerns about potential disruption from autonomous vehicles (AVs) and years of operational setbacks, has contributed to an over 80% decline in Lyft's stock price since its 2019 IPO. At first glance, the company's prospects may appear bleak. However, a deeper analysis reveals significant undervaluation and untapped potential.
Lyft went public at a peak valuation of $72 per share during a period of cheap capital and aggressive growth strategies. This "growth at any cost" mentality, followed by the devastating impact of the pandemic, resulted in years of multibillion-dollar operating losses. The turning point came in 2023 when David Risher, a seasoned executive and former Amazon leader, replaced the company's co-founders as CEO. Under Risher’s leadership, Lyft initiated a much-needed restructuring, pivoting to a focused, efficient business model. The company reduced its workforce by over 25% and streamlined operations to enhance profitability and competitiveness. Despite these changes, Lyft has maintained its growth trajectory, operating a platform that serves 5.5 million weekly active passengers and 500,000 drivers, facilitating two million rides daily.
By 2024, Lyft’s gross bookings grew 17% year-over-year to exceed $16 billion, with revenues from these bookings reaching $6 billion. The company’s free cash flow margin is already in double digits, and although a small net loss is expected for 2024, this is likely the last year in which the company will report negative net income. The adjusted EBITDA margin, a key profitability metric, turned positive in 2023 at 1.6%, is expected to reach 2.3% in 2024, and could climb to 4% by 2027. These projections suggest that Lyft, like Uber, will continue to benefit from its low capital intensity, with over 90% of EBITDA likely converting into free cash flow by 2027.
Lyft’s long-term goals further highlight its growth potential. By 2027, gross bookings are projected to reach $25 billion, with EBITDA surpassing $1 billion and free cash flow exceeding $900 million. These targets, communicated at the company’s June 2024 Investor Day, may even prove conservative. In Q3 2024 alone, Lyft generated $243 million in free cash flow, and the trailing 12-month figure was $641 million. Achieving an EBITDA margin of 5-6%—similar to Uber’s 8% in its mobility-as-a-service segment—could push Lyft’s free cash flow to $1.1-1.35 billion by 2027, doubling current levels.
Despite these promising fundamentals, Lyft remains deeply undervalued. With a market capitalization of $5 billion, the company trades at less than 8 times trailing 12-month free cash flow and a revenue multiple below 1—exceptionally low for a profitable digital platform. If Lyft achieves its mid-term goals, the stock could easily double by 2027, presenting a compelling opportunity for investors.
The disconnect between Lyft’s valuation and its potential stems largely from skepticism about its ability to adapt to the rise of autonomous vehicles. Many investors view Lyft as a casualty of the so-called robotaxi revolution, driven by companies like Waymo and Tesla. However, Lyft’s management has repeatedly emphasized its role as a partner to AV providers, offering critical expertise in demand generation, marketplace management, and fleet operations. The company has already announced partnerships with Mobileye, May Mobility, and Nexar, although a high-profile collaboration with a market leader like Waymo or Tesla would likely be a game-changer for investor sentiment.
As AV technology continues to evolve, Lyft’s partnerships position it as a key enabler rather than a competitor, mitigating the risk of disruption. This strategic alignment, coupled with strong operational improvements and growing profitability, makes Lyft’s current valuation an attractive entry point. With a clean balance sheet, growing free cash flow, and a clear path to sustained profitability, Lyft offers an exceptional risk/reward proposition. For investors willing to look beyond the headlines, the stock’s deeply discounted price provides a rare opportunity to capitalize on the company’s transformation and long-term growth potential.
Lyft, Inc. (LYFT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held LYFT at the end of the third quarter which was 53 in the previous quarter. While we acknowledge the risk and potential of LYFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LYFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
