After Lyft (NASDAQ:LYFT) IPOed at $72 a share in late March, the stock almost immediately headed downward and kept going. But even the rideshare operator's bears may have been unprepared for the ugliness of its first quarterly report as a publicly traded company.
In this segment of the Market Foolery podcast, host Chris Hill and MFAM Funds' Bill Barker consider the details of its $1.1 billion loss, and the huge revenue growth it gained at the same time, before pivoting to the angle most interesting to investors: At what point does this stock become attractive to investors again? (In the mid-$50s, where it now trades?) They also weigh in on the Uber IPO, and the difficulty of predicting how the rideshare business will evolve over the next few years.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on May 8, 2019.
Chris Hill: We're going to start with Lyft issuing its first report as a public company. It's a memorable one, because Lyft lost a billion dollars in the quarter. The company says that this will be its peak year for losses and that it sees a clear path to profitability. Boy, I really hope so, because they just lost a billion dollars in 90 days.
Bill Barker: Yeah, I think that that is not easy to do.
Barker: Despite the headlines today about one of the leaders of this country having lost $1 billion, that took him 10 years.
Hill: Right. Not 90 days.
Barker: Not 90 days. He couldn't do that. Although he did it three times, but that's another story.
Hill: That's another story.
Barker: They projected an EBITDA loss for $1.152 billion to $1.175 billion. That's a rather specific range, fairly tiny range, given the size of the loss. It's like a 1% delta between the high and low of that range, on $3.2 billion to $3.3 billion in revenue. You've got a competing stories here. One, extraordinary growth at the top line, I think 95% year over year revenue growth for the quarter. And, staggering losses. The market today has resolved that by selling off the stock.
Hill: Right. Worth remembering that -- and it's not hard to remember because it was just, I don't know, a couple of weeks ago -- that Lyft went public at $72 a share. With the sell-off today, it's at $55. There is a price at which this stock becomes attractive, I suppose. Is the mid-50s where it is? All kidding aside, that's what I was struck by. It was not that they lost a billion dollars, it's that they did it in 90 days. I don't even know how you begin to do that. It still feels like this is much higher than I would want it to be before I put Lyft on my watchlist.
Barker: OK, well, in saying that they lost $1 billion over 90 days, that is true, but misleading in the sense that a lot of it was related to stock option expense and the costs associated with going public. What they lost on an operational basis was about a quarter of that billion dollars, $1.1-$1.2 billion they're going to lose for the year. Still, losing $250 million on your operations... $776 million was the revenue, and they're losing one-third of that in operations. So, I think that they're obviously not an attractive stock to a value investor, who would want to see profits. In terms of the growth investing public, it doesn't have any momentum stock investors interested in it because it goes down every day. That's not the kind of momentum, unless you're a short seller, that you're looking for. So, you need to have that "all this top line growth is going to translate to profits at some point." When is that going to be? They're talking about a clear path to profitability. But Uber is going to be a well-capitalized company as of Friday and can fight them as to who can lose more money quickly in pursuit of customers.
Hill: Uber has set the range for their IPO at $44 to $50. I've said before, I think that's both smart of them and probably a response to what happened with Lyft's stock right after they went public. Among other things, Uber is looking to get in, if not the good graces of Wall Street, certainly the better graces of Wall Street relative to Lyft.
Barker: Yeah, and they are going to be judged through the relative-to-Lyft prism. As they should be, because it's a direct competitor, and Uber is in a few more areas of business. Uber Eats is a more attractive part of the business, and some other parts of the business. Yeah, they have to, at this point, somewhat defend themselves from the market reaction that has befallen Lyft, and say why they should be valued at the top of the range rather than the bottom or below. There are enough fast-growing companies which have clearer paths to profitability than the one that Lyft is demonstrating so far.
Hill: Beyond Meat, perhaps, could be one of them.
Barker: Uh, perhaps. [laughs] You've spent some time looking at that one. What do you think about their profits?
Hill: Well, they don't exist at the moment --
Barker: Their path.
Hill: Oh, the path. I think the path is looking pretty good for plant-based meat substitutes.
Barker: Alright, and that path is looking good for transportation-as-a-service. The question is, is the profitability of that attractive? You're going to have a couple of more shifts in the business model. The business model right now, rapid growth but no profits. You've got a lot of people you have to pay and you've got to compete on price against somebody else who is willing to compete with you on price. And you've got to displace all the cabs. The shift is going to come, of course, when autonomous vehicles become a reality. Then maybe you can take your costs down quite a bit. But those autonomous vehicles are going to have to be owned by somebody. Are they going to be owned by Lyft, are they going to be owned by third parties, are they going to be owned by the car manufacturers? It'll be interesting to see how that plays out. But it's very hard to model, in my estimation, what this is going to look like in five years.
Hill: One more factor at the moment that is not working in either Lyft's favor or Uber's favor is the current unemployment situation in America. Lowest unemployment in close to 50 years. That makes it a little bit harder for them.
Barker: It does. It means a lot of people are getting to work. They need Lyft to help them get to work, some of them.
Hill: Yes. But in terms of the employees, the actual drivers. As you said, they don't have the autonomous vehicles just yet. When you have the autonomous vehicles, you care a lot less about what the employment picture is in America. At the moment. you've got a lot of people who maybe would be considering signing up as an Uber or Lyft driver part-time, maybe on the weekends, some sort of side hustle, and they're like, "No, I'm good."
Barker: Yeah. And some of them work for Uber and Lyft. A lot of the employee situation is -- and they're not all employees, they're contractors -- it's a complication. I think that they have to spell out when the profits come and in what form in order for people to be more interested in the stock, which is not responding well to today's story. An impressive top line story, almost doubling revenues in a year. But that's not the whole story. Where are the profits? What are the margins going to look like when this thing is at scale?