Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...
No two ways about it: The Lyft (NASDAQ:LYFT) IPO has been a disappointment.
After opening for trading three weeks ago at a share price 20% above its offering price, Lyft stock has gone nowhere but down. As of this moment, at a share price just below $60, Lyft stock actually sells for 17.5% below its offering price -- and 24% below what investors ended up paying for Lyft by the end of its first day of trading.
Analysts are calling Lyft a "broken IPO" -- but perhaps not forever. This morning, the post-IPO quiet period preventing Lyft's IPO underwriters from making public comment on their client expired, and Wall Street rushed en masse to share their opinions of the stock's potential.
Wall Street weighs in
Surprise! The bankers who sold investors more than $2.3 billion worth of Lyft shares last month think this stock has a bright future.
Out of the 20 bankers who sold the public a combined 32.5 million Lyft shares in March, fully half now rate Lyft a buy (or an equivalent rating). Only one (which we'll get to in a moment) doesn't. Here's a quick sampling of some of the things they're saying about the ridesharing service this morning, courtesy of our friends at StreetInsider.com (subscription required).
UBS (1.98 million Lyft shares underwritten): Alongside Uber, Lyft is one of just "two players (w/ duopoly potential) attempting to utilize the shared economy model as a means to disrupt the North American transportation market." Monopolies are notoriously profitable companies, and duopolies (think Airbus and Boeing) only a bit less so. As such, UBS has high hopes that by "scaling riders (across an increasing array of transportation modes)" and "scaling drivers (thru incentives & brand affinity)," Lyft will build itself a "long runway for secular growth" -- enough to make the stock worth $82 within a year.
Piper Jaffray (260,000 shares): Farther out, Lyft has a good "10+ years" of "growth of ridesharing and autonomous tech" ahead of it. That being said, investors will need to be patient. Although the analyst predicts "solid near-term top line results" and improved market share, Lyft remains "materially unprofitable." Piper's expectation for Lyft stock, accordingly, is a bit more muted, with a $78 price target.
JPMorgan (the lead underwriter at 10.4 million shares): Lyft's "scaled, high-growth" business can be expected to grow revenue 32% annually through at least 2021 as the company expands its core ridesharing business to cover other modes of transportation ranging from bikes and scooters to public transit to -- eventually -- autonomous vehicles. Like UBS, JPMorgan thinks $82 a share is a fair price to pay for Lyft.
Cowen (325,000 shares): Another thing worth noting, says Cowen & Co., is that "Lyft's riders skew younger, with rapid growth in A18-34 demos" that could foreshadow "rising profit / ride as Lyft scales." The company already boasts a 39% share of the ridesharing market. Despite all this, Cowen values Lyft stock at a more conservative $77 price target.
Credit Suisse (8.8 million shares): And finally, second only to JPMorgan in the number of Lyft shares it underwrote at the IPO, Credit Suisse is second to none in its unabashed cheerleading for Lyft. In today's initiation of coverage, Credit Suisse argues that the company's total addressable market may be even bigger than what JPMorgan describes above. "Lyft offers the consumer the option to rent transportation capacity on an as needed basis," and if you therefore view the entire transportation market as Lyft's demesne, well, the "US Dept. of Commerce and the Bureau of Economic Analysis [value that market] at $1.2" trillion.
Even scaling back its enthusiasm to focus on solely "urban" customers aged "18+," Credit Suisse says Lyft has a "Total Addressable Market" of "$745" billion in its sights, and with less than 4% of that market currently using ridesharing services, the $2.2 billion in revenue that the company took in last year is only the tip of the iceberg.
No wonder Credit Suisse thinks Lyft is worth $95 a share -- currently the highest estimate of any analyst out there.
KeyBanc calls a pause
In the context of so much enthusiasm, investors may be wondering: If Lyft is so good and its prospects so great, then why has Lyft stock been going down, not up, ever since its IPO? For that story, we turn to KeyBank -- the lone voice crying in the wilderness that Lyft shares might actually not be a buy, but merely a hold.
Alone out of the 20 analysts who underwrote Lyft's IPO, KeyBank today rated Lyft stock "sector weight" on concerns that although the company may hold "a unique and valuable strategic position," the prospects for growth in the ridesharing industry may not be as bright as some of KeyBank's peers believe. Both the size of the ridesharing market and Lyft's market share growth therein are bound to decelerate in the near future, warns the analyst in a note covered on TheFly.com. Indeed, meaningful profits may not arrive until autonomous software is advanced enough to permit the company to evolve into a true driverless car business -- an event that still seems to be several years away, in KeyBanc's estimation.
The upshot for investors
Until then, Lyft may remain what it is today: A company with a lot of potential, but slowing sales growth (revenue doubled last year, but it tripled the year before, according to data from S&P Global Market Intelligence) and accelerating losses (in 2017, losses grew only 1% year over year, but ballooned 32% in 2018 to more than $911 million).
Whatever the long term may hold, in the near term, Lyft investors might want to buckle up and prepare for more potholes than smooth asphalt in Lyft's earnings reports.