Lyft (NASDAQ:LYFT) Is Becoming the Ridesharing Industry’s Third Wheel
On the surface level, ridesharing service provider Lyft (NASDAQ:LYFT) seems like an attractive, undervalued alternative to sector king Uber (NYSE:UBER). Further, with the economy on a recovery trek, the smaller competitor could ride coattails. However, should broader conditions become squeezed, the ridesharing industry could become commoditized. In that scenario, Lyft arguably doesn’t offer competitive distinction. Therefore, I am bearish on LYFT stock.
Financial Backdrop for LYFT Stock Seemingly Points in a Positive Direction
A deeper look at Lyft’s financials suggests that the stock is actually undervalued relative to rival Uber. Right now, Lyft shares trade at a forward earnings multiple of 42x and a trailing-year sales multiple of 1.51x. In sharp contrast, UBER trades at a forward earnings multiple of almost 60x and a revenue multiple of 4.3x.
Considering that the comparison is between two direct competitors, LYFT stock appears to be the more attractive opportunity. Not only that, but it’s also the smaller of the two, with a market capitalization of $6.88 billion compared to Uber’s $158 billion. Therefore, Lyft should have an easier time scooping up market share in a burgeoning field.
And yes, the ridesharing space is definitely a burgeoning ecosystem. According to Fortune Business Insights, this industry could expand at a compound annual growth rate of 16.3% from 2021 to 2028, culminating in a sector value of $242.73 billion. Another source, Straits Research, is even more optimistic, signaling a CAGR of 20.38% from 2023 to 2031 with an end valuation of $564.2 billion.
The point is that ridesharing represents a hot space, and LYFT stock is objectively an undervalued play compared to UBER.
Adding to the enthusiasm, Lyft reported adjusted earnings per share of 19 cents in its fourth quarter of Fiscal 2023. This figure beat the consensus EPS view of 8 cents. As well, the company posted revenue of $1.22 billion, matching analysts’ expectations. Notably, from Q1 through Q4, Lyft’s average positive earnings surprise came out to 531.6%.
If that wasn’t enough, for the current fiscal year, analysts anticipate that Lyft will print revenue of $5.13 billion. That’s up 16.5% from last year’s tally of $4.4 billion. And in Fiscal 2025, the expectation calls for sales of $5.76 billion. If so, that would represent a 12.3% year-over-year lift.
Still, the aforementioned price-to-sales ratio of 1.51 could be a value trap.
Lyft’s Rival Features Superior Projected Growth
When looking at earnings performances, it appears that rival Uber may be raising more questions. For example, in the company’s Q3 earnings report, it posted EPS of 10 cents, missing the consensus view of 12 cents. Still, one major difference is that Uber was profitable on a GAAP basis last year.
On the other end of the scale, Lyft wasn’t profitable on a GAAP basis because of its operating losses. Therefore, the profitability stems from a non-GAAP adjusted view. Of course, that’s nothing out of the ordinary. However, when making a direct comparison, it’s difficult to ignore Uber’s advantage (so far) in this department.
An even more pressing issue centers on Uber’s projected growth. By the end of the current Fiscal year, analysts believe that Uber’s sales will reach $43.28 billion, up 16.1% from last year’s print of $37.28 billion. Notably, though, for Fiscal 2025, experts believe the ridesharing giant will ring up $50.4 billion on the top line. That would be 16.4% up from 2024’s projected revenue.
That’s problematic because LYFT stock is the smaller entity. Basically, its smaller size should be a tailwind for the underlying enterprise. It takes less effort to move a smaller object up the ladder than a bigger one. However, what analysts are saying is that the bigger, bulkier, and less flexible Uber will likely expand at a greater rate than the smaller, nimbler Lyft.
In that case, LYFT stock may be a cheap Maserati. When it comes to automotive design, very few companies can compete with the evocative lines of the Modena, Italy-based enterprise. However, the problem with Maserati is that you could be cruising down the freeway one minute, and your car could be on fire the next.
LYFT stock certainly looks comparatively cheap to UBER. That said, if the latter gets you to your destination, the premium would be worth it.
Commoditization Risks
Finally, if the broader economy suffers a slowdown, LYFT stock may be more vulnerable to downside risks. It’s not just that the company isn’t profitable on a GAAP basis. Rather, Lyft arguably isn’t as creative as its rival. Uber is venturing into other businesses, including efforts to disrupt the shipping industry. On the other hand, Lyft appears content to be an Uber alternative.
So far, that has performed reasonably well for LYFT stock. Nevertheless, if economic conditions fluctuate, Uber’s expansive profile may help it weather the storm. Meanwhile, Lyft would likely be left fighting in an increasingly commoditized space. That could present additional challenges that make LYFT’s cheaper multiples a bit more suspect.
Is LYFT Stock a Buy, According to Analysts?
Turning to Wall Street, LYFT stock has a Hold consensus rating based on four Buys, 24 Holds, and two Sell ratings. The average LYFT stock price target is $15.75, implying 12.3% downside risk.
The Takeaway: LYFT Stock Is Cheaper, But at What Cost?
When stacked between the two, LYFT stock offers a cheaper valuation than UBER. However, the question mark is that analysts project a higher growth rate for the much larger enterprise. Given Uber’s expanding businesses, that’s not surprising. On the flip side, Lyft appears content being a ridesharing alternative. Still, this narrative could face commoditization risks if the economy starts struggling.
