There's no sugarcoating it. Lyft (LYFT +2.14%) has been an absolute dud for investors. As of this writing, shares of the ride-hailing service are 84% below their peak price, which was set back in March 2019. This is a very disappointing performance, but the huge dip might be too hard to pass up for some investors.
So is Lyft a super stock to buy now? Let's take a closer look and see if the company can rev itself up again.
Healthy growth and improving bottom line
Even in uncertain economic times, when consumer mobility might be under pressure, Lyft is still expanding at a healthy pace. Revenue in the most recent quarter (third quarter of 2023, ended Sept. 30) totaled just under $1.2 billion, representing a 10% year-over-year increase. This was boosted by a 15% jump in gross bookings.
Key metrics are heading in the right direction. The sales gain matched the 10% rise in active riders. And Lyft completed 22% more rideshare rides during the three-month period. This growth isn't close to the numbers the business was posting in late 2021 and early 2022, but it is still encouraging.
NASDAQ: LYFT
Key Data Points
However, solid top-line gains can't mask the issues plaguing Lyft when it comes to profitability. It appears as though investors are demanding positive net income from the companies they own, particularly in this higher-interest rate environment.
To its credit, Lyft's operating loss of $40 million in the latest quarter continues a trend of heading in the right direction. It was a huge improvement from the operating loss of $290 million in the year-ago period.
The leadership team, led by CEO David Risher, has been focused on right-sizing the operations and getting expenses under control. This is evident across the board. Through the first nine months of 2023, Lyft spent less on research and development (R&D), sales and marketing, and general and administrative costs than during the same time in 2022, despite generating higher revenue.
Lyft is clearly trying to catch up to larger rival Uber (UBER +0.53%), which posted operating income of $394 million in the three-month period that ended Sept. 30. But the hope is that Lyft doesn't sacrifice growth opportunities by becoming too frugal.
NYSE: UBER
Key Data Points
Looking at the valuation relative to quality
Trading at a significant discount to its all-time high, Lyft looks cheap. The current price-to-sales (P/S) multiple of just under 1.1 is less than one-third the historical average of 3.5. It's safe to say that investors have become pessimistic about this company, as the valuation clearly shows.
Lyft is also much cheaper than rival Uber, which trades at a P/S ratio of 3.3. Value-focused investors might think that this huge valuation disparity is unwarranted, and that Lyft's multiple will close the gap with Uber over time, mainly as it tries to boost profitability.
I view things from a different perspective. For what it's worth, Uber's current valuation is also well below its historical average. But apart from that, I think from a quality perspective, Lyft just doesn't hold a candle to its bigger opponent. Uber's larger scale allows it to operate a denser network, which leads to more efficient pricing and improved matching between riders and drivers. This results in a better user experience, the holy grail for internet-based enterprises.
Uber is also able to invest a lot more in product development than Lyft is. Uber's R&D spending totaled $797 million last quarter, more than sevenfold Lyft's outlays. This gives Uber a huge advantage when it comes to innovation potential.
It also helps that Uber has the delivery business to drive financial results should the mobility division see some weakness.
I don't believe Lyft is a smart stock to buy, simply because it doesn't even have the best product and service offering in its own industry. This stock has been a loser for investors, and it might continue this trend.
Editor's note: This article has been corrected. Gross bookings were up 15% in Lyft's most recent quarter.
