It's been a bit over five years since Lyft (LYFT +1.91%) had its initial public offering. Unfortunately, the stock has disappointed investors, trending lower over the last several years. The rideshare giant hasn't quite been able to live up to high-growth expectations, falling behind competitors in a volatile macroeconomic environment.
That being said, there are several reasons to believe this bumpy ride could still steer toward a more positive, long-term outlook. Let's look at where Lyft stock might go in the next five years.
NASDAQ: LYFT
Key Data Points
Record rides and climbing profitability
The option to conveniently book a ride through a smartphone app has quickly revolutionized transportation.
For Lyft, the business model of connecting drivers with growing passenger demand seems simple enough but has proven financially difficult. Weaker-than-expected earnings in its history amid significant investments to maintain a high level of customer service help explain the poor stock-price performance.
The good news for investors is that Lyft managed to post some impressive results in 2024, which could mark an emerging turnaround story.
In the second quarter (for the period ended June 30), Lyft hit multiple milestones, including a record number of rides on the platform at 205 million, representing 15% year-over-year growth. The number of active riders also reached an all-time high, up 10% from last year, suggesting the platform is as vibrant as ever.
Maybe even more important is how those operating trends are translating into stronger financials. Q2 revenue climbed by 41% from the prior-year quarter, capturing higher pricing along with the early success of its Lyft Media initiative, which integrates advertisements from major brands within the app as a new monetization channel.
The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin at 2.6% improved from 1.2% in Q2 2023, benefiting from the rider momentum and an effort to control expenses. Notably, this was the first quarter of positive generally accepted accounting principles (GAAP) profitability in the company's history, alongside more consistent free cash flow. Any bullish case for Lyft stock starts with the potential that this trajectory is just getting started.
Image source: Getty Images.
Rideshare industry uncertainties
It appears there is a divergence between Lyft's overall solid fundamentals and some underlying skepticism in the market regarding its long-term outlook.
The challenge is the unique uncertainties facing the rideshare industry, including Lyft's positioning next to its larger rival Uber Technologies. While Lyft is large in the United States with a growing presence in Canada, Uber stands out through its much larger global footprint operating in more than 70 countries.
Lyft faces an uphill battle to compete against Uber, which can leverage its ecosystem to manage costs and pricing. Uber has also expanded into areas like food and package delivery, highlighting another key difference.
Finally, there is a question of how the industry will evolve with the rise of autonomous vehicles and robotaxi technology. Lyft has already partnered with companies to offer a driverless experience in select markets, but it's thought that a gradual transition over the next decade away from human drivers will eventually be disruptive to the rideshare model.
There are many moving parts when considering Lyft stock. The key here is the company's ability to navigate this shifting industry backdrop while focusing on its core strengths. The company doesn't need to be bigger or better than Uber but simply maximize the opportunities from the areas it can control.
A bullish prediction for Lyft
Ultimately, earnings growth is often the most important factor supporting equity returns, and I'm confident that Lyft is getting that part of the strategy right.
In terms of valuation, Lyft is trading at just 16 times its average Wall Street consensus-earnings per share (EPS) 2024 estimate of $0.74 as a forward price-to-earnings (P/E) ratio. This level marks a deep discount compared to the 70 P/E ratio for Uber stock. My interpretation is that Lyft is undervalued at the current level.
Looking ahead, Lyft is forecast to accelerate EPS by 22% in 2025. The ability of the company to maintain that profitable growth path through 2029 should be a tailwind for the stock and shareholders. I believe Lyft's shares could be much higher five years from now.
