Lyft’s (NASDAQ:LYFT) Q2 results, reported on Aug. 7, were better than expected.
Even better than the revenue beat was the company’s increased full-year guidance. Lyft stock price initially jumped on the news, then gave up all of its gains as the stock market retreated amid trade-war worries. .
While it’s great to see the company’s outlook is improving, I don’t believe that’s a reason to buy Lyft stock. Here’s why.
Investing Is About Retirement
Most people invest to fund their retirements. As a result, investors should ensure that their capital is protected as much as possible. Buying stocks is not as much about hitting a home run as it is about getting a bunch of singles over a long period.
Take Lyft stock.
It went public on March 28 at $72 per share and gained 8.7% in its first day of trading. Since then, Lyft stock price has lost all of its first-day gains and then some. Down 18% since its IPO, Lyft stock needs more good news like its raised full-year outlook if it’s going to make a comeback to $72.
However, that shouldn’t matter to those investing for their retirements. They ought to be more concerned about Lyft stock price dropping further.
As long as LYFT still doesn’t have a pathway to GAAP profitability, I can’t recommend Lyft stock in good conscience.
LYFT Has Got to Have a Shot at Profitability
In April, I compared Lyft to ShiftPixy (NASDAQ:PIXY), a company that operates a platform for hiring and scheduling shift work. It brings shift workers and employers together to do business. Like LYFT, PIXY doesn’t make money, but could soon.
That’s why I suggested that, as speculative plays go, ShiftPixy is a better opportunity than Lyft. Since then, PIXY has lost more than half its value. While Lyft has an $18 billion market cap and is a massive company relative to ShiftPixy, they both have one thing in common: They lose a lot of money. And companies that lose money are for speculators, not investors.
In Lyft’s Q2, it had revenue of $867.3 million and an adjusted net loss of $197.3 million. That means for every dollar of sales, Lyft lost 23 cents. By comparison, ShiftPixy had $14.3 million in revenue last quarter and a net loss of $5 million, which means it lost 35 cents for every dollar of sales it generated in the quarter.
Both companies’ numbers are terrible, but at least the owners of ShiftPixy stock know they’re dealing with a speculative investment.
Average retail investors who don’t know any better see Lyft’s 72% year-over-year increase in revenue in Q2, along with the 41% YoY increase in its number of active riders, and assume that, given time, LYFT will make a profit.
The truth is it might never make a profit, despite its recent good news.
In fiscal 2019, Lyft expects to generate revenue of at least $3.47 billion with an adjusted EBITDA loss of $850 million to $875 million. In 2018, Lyft’s EBITDA’s loss was around $850 million.
Do you really want to own stock in a company that’s losing close to $1 billion annually? I sure don’t.
The Bottom Line on Lyft Stock
On Aug. 19, the lock-up period will end on about 257.6 million shares of Lyft stock owned by company insiders, directors and officers. As those insiders look to sell some of their shares, the Lyft stock price could take a hit.
However, because Lyft stock is trading well below its IPO price, it’s unlikely that the earlier-than-expected end of the lock-up period will result in a mass exodus of pre-IPO investors.
But while the company’s improved outlook is a good morale booster for its employees, the reality is that the guidance hike is not a reason to buy Lyft stock. In my opinion, investors should only buy Lyft stock if the company demonstrates that it has a pathway to profitability. At the moment, such a path doesn’t exist.
If you’re looking to bet on a money loser, Roku (NASDAQ:ROKU) is a much smarter bet.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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