Company Overview: LYFT, Inc. (NASDAQ: LYFT) is involved in offering an on-demand transportation-as-a-service (TaaS) and is one of the fast-growing and top transportation systems in Canada and the United States. LFYT has a network of shared bikes and scooters in different locations to focus on the requirements of riders who are looking for short trips.

LYFT Details

Cost Reduction Initiatives & Strong Liquidity Position are Key Catalysts: Lyft, Inc. (NASDAQ: LYFT) is based in San Francisco, California, and was founded in the year 2012. The networks run by the company permit access to multiple transportation options through its platform and mobile-based applications. Notably, the company’s offerings permit entry to a network of pooled bikes and scooters for quicker and shorter rides, and first-mile and last-mile services of multimodal journeys.

To entice drivers, passengers and riders of shared bikes and scooters to use LYFT’s platform, the company provides various incentives, which include schemes like lowest secured payments, volume-based discounts, and performance-built bonus payments. The company also realizes revenues via its network of shared bikes and scooters and also from its Express Drive program from lease income under an arrangement with its third-party Express Drive partners.  In a recent SEC filing, the company disclosed that rideshare trips rose by 7.3% in August from July. Notably, rideshare rides skyrocketed 78% in July from April. Bike rides on a weekly basis increased more than 200% at the end of June from April levels. In 2QFY20, bike revenues increased both on a sequential basis and on the prior corresponding period.

Going forward, the company expects to generate profit in 2021, owing to its cost-cutting measures. Despite 20-25% fewer rides due to coronavirus-led lockdown, the company’s ongoing cost-reduction efforts, it is likely to generate $300 million of annualized fixed-cost savings by 2020 end. Further, the company intends to lessen capital costs massively to maintain a healthy cash position and tackle the current challenges. For FY20, the company expects capital expenditure to be ~$125 million, down from $150 million predicted earlier. The company had initially guided its original capital expenditure to be around $400 million in FY20. Thus, these initiatives are likely to aid the company’s bottom-line, partly offsetting the revenue decline due to softness in rides.

Talking about FY19, pre-Covid-19 period, revenues increased a whopping 68% from the prior corresponding period and came in at ~$3.6 billion. A higher number of ActiveRiders aided the top-line growth. The number of Active Riders rose between 23% and 44% in each of the quarters of 2019 as compared to the same periods in 2018, owing to broader market adoption of ridesharing along with the company’s schemes to attract and retain riders. It is worth noting, that the company competes with Uber in the ride-hailing market and has witnessed growth in Active Riders. Coming to the financials, the company witnessed a CAGR of 119.2% in revenue in the time period of FY16-FY19.

Past Performance (Source: Company Reports)

2QFY20 Key Financial Highlights: During the quarter, the company reported total revenue of $339.3 million.  The company’s Revenue per Active Rider declined 2% to $39.06 million. Active riders went down 60% year over year, owing to coronavirus-led fear, which is keeping people homebound. During the quarter, adjusted net loss stood at $265.8 million, as compared to an adjusted net loss of $197.3 million reported in the year-ago period. Adjusted EBITDA loss in 2QFY20 came in at $280.3 million as compared with $204.1 million loss incurred in the year-ago quarter. The adjusted EBITDA margin came in at -82.6% in the reported quarter compared with -23.5% in the year-ago period. Total costs and expenses came in at $826.84 million, down 46.3% year over year. Contribution during the quarter came in at $117.3 million, down 70.6% year-over-year.

2QFY20 Key Highlights (Source: Company Reports)

Balance Sheet & Cash Flow Details:  The company exited the period with cash & cash equivalents and short-term investments balance of ~$2.77 billion. Long-term debt at the end of the period stood at $623.4 million. Operating cash outflow for the six months ended June 30 2020, came in at $958.6 million, as compared to the year-ago cash outflow figure of $69.5 million. The company has a strong balance sheet and remains confident to navigate the economic turbulence ahead.

Lyft Raises Alarm on Possible Delay of Actions in California: Recently, the company notified the market that it might have to suspend operations in California if it is compelled to comply with the law of reclassifying its drivers as employees. Notably, the company’s biggest competitor, Uber also gave a similar warning. On August 10, 2020, a California-based judge allowed the state’s request for an initial injunction that involves both the companies to classify their drivers as employees as a substitute for independent contractors. In the intervening period, Lyft is likely to request the ruling court for an increase in the stay order. Failure to maintain the independent-contractor status for its drivers, LYFT might take the radical step of halting operations in California.  

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 52.74% of the total shareholding. Fidelity Management & Research Company and Rakuten Inc. hold maximum interests in the company at 13.60% and 10.35%, respectively.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: The Company reported June’20 gross margin at 0.7%. Current ratio of the company stood at 1.56x, higher than the industry median of 1.59x and the year ago figure of 1.23x. The company’s debt to equity ratio during the quarter stood at 0.31x, as compared to the industry median of 0.67x, depicting a healthy balance sheet.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Key Risks: The company’s financials reflect a substantial downturn in it’s core ridesharing business, thanks to the quarantine led by COVID-19 outbreak. The company faces stiff competition from Uber that provides similar services. Further, adverse currency translations, volatile macroeconomic environment and global pandemic led by COVID-19 outbreak are key persistent challenges to the company.

Outlook: The company estimates adjusted EBITDA loss for 3QFY20 to be below $265 million, thanks to the monthly upturn in ride volumes in August. This projection is based on the belief that spending on driver incentives, and average daily rideshare ride volumes continued to be the same in September compared to August.

With each passing day, the market for driverless or self-driving cars is achieving fame. Lyft seeks to become a major player in this space. Notably, the company’s partnership with Amazon amid the rising spread of coronavirus is encouraging. Additionally, the company’s investment in proprietary technologies and predictive analytics will aid it to deliver an affordable, accessible, and high-quality experience for its riders, going forward. Further higher investment in mapping, routing, payments, in-app navigation, and matching technologies is likely to increase the efficiency of its platform, thereby positively impacting revenues in the near future.

Further, the company opines that it’s competitive strength and commitment towards its culture and values will aid the company to deliver its mission of enhancing people’s lives with the world’s best transportation. Going forward, the company’s strong performance on the back of product innovation, market growth, and focused execution is likely to be a key growth driver. LYFT’s initiatives to invest in technology know-how may result in the future generation of top-line and improvement of margins.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of LYFT closed at $24.66 with a market capitalization of ~$7.69 billion as on 22 October 2020. The stock made a 52-week low and high of $14.56 and $54.5, respectively, and is currently trading at the lower band of the range. On a technical analysis front, the stock has a support level of ~$23.86 and an immediate resistance level of ~$27.89. The stock witnessed a sharp correction amid the ongoing panic related to coronavirus and fell 20% and 43.4% in the three months and one year, respectively. We believe that LYFT is well-positioned to weather this coronavirus-led crisis, with an aggressive cost reduction plan, which, in the future, will narrow down the expenditure and aid the company to come out stronger. Considering the operational excellence, focused execution, and current trading levels, we have valued the stocks using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). In view of a long-term purview, we give a “Buy” recommendation on the stock at the current market price of $24.66, down 1.87% as on 21 October 2020.

LYFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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