Company Reports

We are lowering our fair value estimate for narrow-moat Lyft to $15 from $25 after the firm reported mixed results, with in-line quarterly results offset by weak guidance for the upcoming third quarter. Driving most of our fair value revision, however, is an updated growth outlook for the firm’s gross bookings and its revenue in the near-to-medium term. We believe that while Lyft’s topline has been decelerating in recent quarters, a more pronounced deceleration could occur in 2025. We expect macro concerns in 2025, including a weakening job market, along with increased competition from Uber, will drive customers away from the firm’s platform. Further, while we view the entrance of AV, or autonomous vehicle, fleets as a potential advantage for Uber, which can build partnerships with AV firms to provide its ridesharing expertise, the same cannot be said about Lyft due to the firm’s limited scale. With the firm’s shares trading down sharply after reporting results, we continue to view Lyft as moderately undervalued relative to our updated fair value estimate.

In the US market, Lyft has emerged as the number-two ride-sharing player, a position we think it will keep for years to come. It is currently having difficulty maintaining its market share against the market leader, Uber, in pursuing riders in a highly lucrative addressable market (including taxis, ride-sharing, bikes, and scooters). In our view, Lyft warrants a narrow economic moat rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive the firm to profitability and excess returns on invested capital.

We are maintaining our $25 per share fair value estimate for narrow-moat Lyft, and believe shares remain undervalued. We’ll know more once rival Uber reports; however, initial numbers for Lyft appear solid. Gross bookings increased 21% year over year, ahead of guidance, while adjusted EBITDA was also impressive, coming in at $59.4 million compared with the high end of guidance of $55 million. Full-year guidance was reaffirmed, and the expected full-year percentage of EBITDA converting to free cash flow was increased to 70% from 50%. As such, Lyft remains well on track to meet our full-year expectations for 17% growth in gross bookings, and improving margins and cash flow generation. We continue to think that Lyft can achieve consistent low-teens revenue growth in the coming years and gradually improve margins and cash generation, becoming free cash flow positive this year.

In the US market, Lyft has emerged as the number-two ride-sharing player, a position we think it will keep for years to come. It is currently having difficulty maintaining its market share against the market leader, Uber, in pursuing riders in a highly lucrative addressable market (including taxis, ride-sharing, bikes, and scooters). In our view, Lyft warrants a narrow economic moat rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive the firm to profitability and excess returns on invested capital.

In the U.S. market, Lyft has emerged as the number-two ride-sharing player, a position we think it will keep for years to come. It is currently having difficulty maintaining its market share against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $690 billion (based on gross revenue) by 2028, up from our estimate of around $500 billion in 2023. In our view, Lyft warrants a narrow economic moat rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive the firm to profitability and excess returns on invested capital.

We are maintaining our $25 fair value estimate for Lyft, despite Uber's growth and higher market share raising doubts about Lyft's network effect. While Lyft’s fourth-quarter and 2023 results included increases in rides, riders, and frequency, the firm's platform still needs to provide increased incentives to attract drivers, as indicated by the decline in the take rate. We continue to expect the take rate will stabilize and maintain our expectation for Lyft to achieve GAAP profitability by 2027, as its network effect continues to grow.

Lyft reported better-than-expected results as its latest pricing adjustments have driven the rider count, number of rides, rider monetization, and the number of drivers higher. The increase in ridership has encouraged new drivers to join Lyft and existing drivers to drive longer, relieving some of the driver supply pressure that had pushed ride costs up and riders away from Lyft. While Lyft’s network effect has brought back some of those riders, we do not see this impacting the market share dynamics between the firm and the market leader, Uber.

In the U.S. market, Lyft has quickly emerged as the number-two ride-sharing player, a position we think it will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $670 billion (based on gross revenue) by 2027, from our estimate of over $430 billion in 2022. In our view, Lyft warrants a narrow economic moat rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive the firm to profitability and excess returns on invested capital.

Our main takeaway from Lyft’s second-quarter results is that while the firm lowered prices to be more in line with the market, its network effect did not weaken much—the number of riders continued to grow (as expected) while revenue generated per rider declined by only single digits from last year when prices were high due to a shortage of drivers. Uber did not experience such a decline in rider monetization because its prices have been more steady as it experienced fewer limitations on the supply side than Lyft did last year. If Lyft maintains its prices at market level while lower than last year, we do not foresee a significant change in market share between the two.

In the U.S. market, Lyft has quickly emerged as the number two ride-sharing player, a position we think the firm will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $670 billion (based on gross revenue) by 2027, from our estimate of over $430 billion in 2022. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital.

Lyft reported strong first-quarter results and the new management team provided more color regarding the firm's latest strategy with which we agree mostly. However, we do not expect Lyft to take significant market share from Uber. As Lyft's network effect has weakened, thanks to Uber, the firm is now seeing more competitive pricing as the primary vehicle to increase ride demand volume, which management is hoping will then attract more drivers. We agree with such a plan but do not view it as a growth strategy; it is one to protect market share and maintain the number two position in the U.S. duopoly ride-hailing market against a stronger rival. Lyft has lost market share to Uber, as we projected last year, but we do not think that higher spending on acquiring riders will significantly reverse that trend. We continue to believe that Uber's complementary network effect moat source on the delivery side allows it to more easily and efficiently cross-sell the platform to drivers and consumers. In our view, Lyft would be just fine pricing its service in line with the market, and increasing its focus on cost efficiency, which together could result in stronger profitability, making the firm an attractive acquisition target.

In the U.S. market, Lyft has quickly emerged as the number two ride-sharing player, a position we think the firm will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $670 billion (based on gross revenue) by 2027, from our estimate of over $430 billion in 2022. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital.

We are maintaining our $34 fair value estimate on Lyft. The firm announced that its founders, Logan Green and John Zimmer, plan to no longer hold executive management positions. In addition, David Risher will replace Green as the CEO of Lyft beginning on April 17. Green will become the chairman of the firm’s board, while Zimmer, currently the firm’s president, will leave his position on June 30, but will remain the vice chairman of the board. Lyft also maintained its first-quarter revenue guidance of $975 million (an 11% increase from 2022) and adjusted EBITDA between $5 million and $15 million.

We maintain our $68, $34, and $159 fair value estimates of Uber, Lyft, and DoorDash, respectively, after the California appeals court ruled in their favor by upholding Proposition 22, meaning drivers and couriers will remain classified as contractors under the state's law.

Shares of Lyft traded down 30% in after-hours after the firm’s disappointing first-quarter outlook overshadowed strong fourth-quarter results. Lyft’s guidance supported our assumptions that the firm’s progress to GAAP profitability will be delayed, the firm is less likely to hit $1 billion in adjusted EBITDA in 2024 (due to operations and change in non-GAAP reporting), and that it may be losing market share to Uber, as we stated in our previous note. However, we were pleased with the growth in active riders and monetization, which indicates a network effect is present, although not as strong as Uber’s.

In the U.S. market, Lyft has quickly emerged as the number two ride-sharing player, a position we think the firm will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $670 billion (based on gross revenue) by 2027, from our estimate of over $430 billion in 2022. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital.

In the U.S. market, Lyft has quickly emerged as the number two ride-sharing player, a position we think the firm will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $670 billion (based on gross revenue) by 2027, from our estimate of over $430 billion in 2022. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital.

While Lyft’s mixed third-quarter results and fourth-quarter guidance were disappointing, we continue to see strength in the firm’s network effect which has driven growth in rider monetization. We were also pleased with Lyft’s latest cost-cutting measures. However, we continue to expect lower 2024 adjusted EBITDA than the firm guided for earlier this year. We have lowered our revenue growth assumption for this year through 2026 given the ongoing uncertainty regarding the macro environment. In addition, while we think Lyft will remain the second-largest ridehailing platform in the U.S., we are now assuming Uber will slightly increase its market share over Lyft during the next few years. We now see Lyft hitting GAAP profitability in 2025, a year later than we had initially projected, as we do not foresee as much operating leverage given our lower revenue growth assumption. While adjustments to our model result in a $55 fair value estimate, down from $65, we continue to view shares of this narrow-moat firm as deeply undervalued.

In the U.S. market, Lyft has quickly emerged as the number-two ride-sharing player, a position we think the firm will keep for years to come. It has successfully gained share going head to head against the market leader, Uber, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $550 billion (based on gross revenue) by 2024, from our estimate of $224 billion in 2019. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital.

The classification of drivers and couriers as contractors was at the forefront again as the Department of Labor, or DOL, proposed rescinding rules created during the Trump presidency and returning primarily to what was in effect before. While the change may increase legal challenges against Uber, Lyft, and DoorDash, we don’t believe the chances of drivers being classified as employees have changed significantly. First, before the employee classification changes under Trump, those firms continued to successfully classify drivers as contractors. Second, over time, the firms have compromised with several states and increased benefits provided to their contractors, which we think sets precedents and strengthens their current standing if challenged. In addition, we expect the DOL’s latest proposal will muddy worker classification, creating difficulties for courts and lengthening the overall legal process.