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Going Into Lyft’s Earnings, Focus on the Future of Lyft Stock

Will Healy

Lyft (NASDAQ:LYFT) will release its first-ever earnings report on May 7 after the market closes. Analysts expect LYFT to report significant losses, but for now, investors may pay little heed to the numbers as other factors will be more important to the fate of LYFT stock.

With Uber's IPO Just Weeks Away, What'll Investors Do With Lyft Stock?

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Lawsuits have mounted as LYFT stock has fallen significantly below its IPO price. Moreover, attention has shifted to its much larger rival, Uber, as the latter company prepares for its own IPO. However, in order to profit from LYFT, the owners of LYFT stock should focus on the future.

LYFT Stock Will Probably Not Be Tremendously Influenced by Earnings

Analysts’ estimates on Lyft’s earnings vary widely, but the consensus estimate calls for a loss of $6.95 per share. The consensus top-line estimate is $740 million.

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Currently, LYFT stock is about 18% below its IPO price and almost 34% under its high point. With all the disappointment and investor losses  caused by the IPO of LYFT stock, the Street will probably react meaningfully to the company’s results. But since  LYFT recently launched its IPO and the company is in  a potentially game-changing industry,  I do not think the current losses or the negative earnings projected years into the future will weigh much on the minds of investors.

Most of the Street’s attention may be focused instead on the lawsuits by those who bought  LYFT stock during its IPO and on the IPO of Lyft’s archrival, Uber.

LYFT Stock Will Likely Take a Page from Netflix

However, to ultimately succeed with LYFT stock, investors must ignore such short-term events. For now, Lyft faces a more significant worry. Specifically, with its current business model, the more revenue LYFT earns, the more the company loses. In 2018, the company’s top line was more than double its 2017 revenue. However, its net losses grew from $688.3 million in 2017 to $911.3 million last year.

To move off of this unsustainable financial path, both LYFT stock and its larger peer, Uber, have taken a page from the evolution of Netflix (NASDAQ:NFLX). When Netflix began, the technology for streaming had not yet fully developed. For this reason, NFLX started as a mail-order DVD business. When the technology caught up to NFLX’s vision, Netflix relied much more on streaming. Today, only 2.7 million of Netflix’s 62 million estimated U.S. subscribers still use the DVD service.

The Future of Lyft Hinges on Driverless Vehicles

In the case of Lyft, the technology that will cut  its costs is self-driving cars. For now, the company has partnered with Aptiv (NASDAQ:APTV) to test autonomous vehicles. Through this partnership, Lyft already offers rides in self-driving cars in Las Vegas.

Much like Netflix’s DVDs, human drivers will not disappear completely. Still, LYFT will have to transport more people in driverless cars than in conventional vehicles to earn a profit. This transition should become the focus of every owner of LYFT stock.

Final Thoughts on LYFT Stock

Going into earnings, the owners of LYFT stock should focus on the future, not the present. Lyft will likely report a huge loss when it  releases the first quarterly report in its history on May 7. In response to those numbers, LYFT stock may be volatile. It may also move on news about the class-action lawsuits against it or on information about Uber’s IPO.

However, the future of LYFT stock depends on the company finding a more sustainable financial path. Much like the Netflix of years ago, LYFT can  turn profitable by utilizing new technology. As a result, traders should focus on the progress of LYFT’s transition to driverless cars.

Only through self-driving vehicles can Lyft bring its costs down enough to turn a profit and change the face of transportation. Until investors think that LYFT can carry out that vision, they should stay out of Lyft stock, regardless of the results that it posts.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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