Shares of ride-sharing company Lyft, Inc. (LYFT) plunged sharply after it provided disastrous fiscal 2023 first-quarter guidance. LYFT’s CFO pointed to “seasonality and lower prices” to explain the guidance. The company also suffered a substantial adjusted fourth-quarter loss, primarily reflecting higher insurance reserves.
LYFT’s fundamentals depict an unfavorable investment case right now. An unexpected loss in the fourth quarter and weak guidance for the first quarter of 2023 sent shares to all-time lows of $8.46. The stock has declined 20% over the past month and 52.1% over the past six months. It is currently trading below the 50-day and 200-day moving averages of $12.79 and $13.84, respectively, indicating a downtrend.
In this peace, I have explained many other reasons why I am extremely bearish on this stock.
The ride-hailing company LYFT struggles to find its footing in the post-pandemic world. The company reported an adjusted loss of $0.74 per share for the fourth quarter of fiscal 2022, while analysts expected an adjusted EPS of $0.13. LYFT’s net loss widened 107.7% year-over-year to $588.10 million.
The company’s quarterly earnings were hurt by $201.30 million of stock-based compensation and related payroll tax expenses and restructuring charges related to recent layoffs. It also increased its insurance reserves and current liabilities during the quarter.
In November 2022, LYFT announced to lay off 13% of its workforce, or approximately 700 jobs, to reduce costs ahead of uncertain economic conditions.
The company reposted massive losses in the fourth quarter despite reporting 20.4 million riders, its highest total in nearly three years. Its revenue was $1.18 billion, up 21% year-over-year and ahead of analyst estimates.
For the first quarter of fiscal 2023, LYFT is expected to report revenue of about $975 million, below Wall Street's estimate of $1.09 billion. “Our Q1 guidance is the result of seasonality and lower prices, including less Prime Time. Additionally, our different insurance renewal timing puts differently timed pressure on our [profit and loss statement],” Chief Financial Officer (CFO) Elaine Paul said in a statement.
After weak guidance, LYFT was hit by downgrades from several analysts. They think that Uber Technologies (UBER) is cementing its place as a leader. JP Morgan analyst Doug Anmuth downgraded the stock from Overweight to Neutral, cutting the price target from $29 to $15.
“Our positive thesis on Lyft had been based on post-pandemic recovery combined with an accelerated shift to profit through cost rationalization. However, rideshare is now approaching full recovery in the US, but Lyft is not,” said Doug Anmuth.
In contrast, rival UBER posted its strongest quarter ever in its earnings report released last week. “We are concerned that it has become more difficult for Lyft to operate in a normalized environment, and we believe that Uber's network and scale benefits are increasingly weighing on Lyft's execution,” Doug added.
Wedbush analyst Daniel Ives also downgraded the stock from Outperform to Neutral and slashed the price target from $17 to $13. In addition, Truist Securities analyst Youssef Squali downgraded LYFT from Buy to Hold and lowered the price target from $40 to $14. DA Davidson, Loop Capital, and Piper Sandler analysts also bailed on the stock.
Here is what could shape LYFT’s performance in the near term:
Deteriorating Financials
LYFT’s gross profit decreased 4.3% year-over-year to $400.60 million in the fiscal fourth quarter that ended December 31, 2022. Its adjusted EBITDA loss widened 421.6% from the year-ago value to $248.30 million. Also, the company’s adjusted net loss worsened by 200.2% year-over-year to $270.80 million.
Furthermore, the company reported a net loss per share of $0.74 for the fourth quarter. As of December 31, 2022, its cash and cash equivalents were $281.09 million, down 38.5% from the previous year. LYFT’s current liabilities stood at $3.13 billion, compared to $2.52 billion as of December 31, 2021.
Unfavorable Analyst Estimates
Analysts expect LYFT’s revenue to increase 12.1% year-over-year to $981.80 million for the first quarter (ending March 2023). However, the company is expected to report a loss per share of $0.07 for the ongoing quarter.
In addition, the consensus EPS estimates of $0.02 and $0.06 for the second quarter (ending June 2023) and third quarter (ending September 2023) indicate a decline of 82.1% and 46% year-over-year, respectively.
Poor Profitability
LYFT’s trailing 12-month EBIT margin of negative 33.60% compares to the industry average of 9.62%. Likewise, its trailing 12-month EBITDA and net income margins of negative 29.82% and negative 38.69% stand out in contrast to the industry averages of 13.21% and 6.53%, respectively.
Moreover, the stock’s trailing 12-month ROCE, ROTC, and ROTA of negative 183.19%, 44.90%, and 34.78% compare to the industry averages of 13.84%, 6.90%, and 5.24%, respectively.
POWR Ratings Reflect Bleak Prospects
LYFT has an overall D rating, translating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. LYFT has an F grade for Sentiment, in sync with its poor financials and unfavorable analyst expectations. In addition, it has a D grade for Stability. The stock’s 24-month beta of 1.38 justifies the Stability grade.
LYFT is ranked #61 in the 80-stock Technology-Services industry.
Beyond what I have stated above, we have also given FUBO grades for Quality, Momentum, Growth, and Value. Get all LYFT POWR Ratings here.
Bottom Line
LYFT is currently trading 78.5% below its 52-week high of $40.46. Despite delivering growth in revenue and rider count, the company posted an unexpected loss in the fourth quarter of fiscal 2022. Furthermore, the company provided revenue guidance for its first quarter of fiscal 2023, well below Wall Street expectations.
LYFT’s prospects look gloomy amid changing trends in consumer habits. The company is losing ground to more diversified rival UBER, given the fierce competition on pricing. Considering its mounting losses, unfavorable analyst estimates, and poor profitability, it could be wise to avoid this stock this year.
Stocks to Consider Instead of Lyft, Inc. (LYFT)
The odds of LYFT outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) or B-rated (Buy) stocks from the Technology-Services industry instead:
Celestica, Inc. (CLS)
Box, Inc. (BOX)
Jabil Inc. (JBL)
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LYFT shares were trading at $8.56 per share on Monday morning, down $0.15 (-1.72%). Year-to-date, LYFT has declined -22.32%, versus a 1.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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