How to Invest in Lyft

Lyft (LYFT 1.87%) is a company millions of people interact with daily, and it has been one of the most influential companies when it comes to revolutionizing how we get around. In this article, we'll discuss how to buy Lyft stock, some important things to know about the company before you do, and more.

How to buy

How to buy Lyft stock

Here's a step-by-step guide on what you'll need to do to buy Lyft stock:

• Step 1: Open a brokerage account.
• Step 2: Figure out your budget.
• Step 3. Do your research.
• Step 4: Place an order.

Let's take a closer look at each of these steps.

Step 1: Open a brokerage account

First, you'll need a brokerage account. If you're unfamiliar with them and don't have one already, a brokerage account is a specialized type of financial account designed for buying, selling, and holding securities.

In a brokerage account, you can buy and sell thousands of stocks and other investments, like mutual funds, exchange-traded funds (ETFs), bonds, options, futures, foreign exchange, and cryptocurrencies. Different brokerage firms allow customers to invest in different types of assets -- for example, cryptocurrency or mutual fund investing might not be available through all brokers.

Some excellent brokers are available, and most fit into one of two categories. On the one hand are the larger and more full-featured brokers. These typically have a full desktop investment platform with extensive educational resources, stock research reports, trading tools, and more. Charles Schwab and Fidelity are two examples of brokers in this category.

On the other hand, some newer brokers focus on providing a user-friendly experience, often centered around a mobile app. Robinhood and SoFi Technologies (SOFI 3.69%) are examples, and these can be excellent choices for people looking for an easy way to buy and sell stocks.

Step 2: Figure out your budget

Next, decide how much money you’d like to invest in Lyft stock. Keep in mind that Lyft stock (or any other stock) isn’t a great place to put money you might need in the near future because stocks can have major price swings over relatively short periods.

Step 3: Do your research

There's no one right way to research stocks. If there were, we'd all be rich.

We've included some basic statistics, trends, and future opportunities for Lyft later in this article, but we recommend you don't stop there. Take some time to explore Lyft's investor relations page. Read its latest annual report (at least the "business" section) to get a feel for what the company actually does.

Take a look at its most recent quarterly earnings report to see how the business is performing and what management has to say about it. And if you haven't already, learn some of the basics of value investing so you understand how to assess a stock's valuation.

Step 4: Place an order

Once you've opened a brokerage account, determined your budget, and decided that you want to buy Lyft stock, it's time to place an order to buy some shares. The exact order entry method will depend on what broker you use.

Some will allow you to place an order for a certain dollar amount (i.e., fractional shares), while others want you to enter a specific number of shares to buy. In the latter case, simply divide your budget by the current stock price and round down to the nearest whole number.

Should I invest?

Should I invest in Lyft?

The answer to this question depends on a few factors, such as your risk tolerance and investment objectives. With that in mind, let's take a look at some of the important facts and statistics.

First, let's briefly explore how Lyft makes its money. Lyft launched in 2012 and has grown into one of the largest transportation networks in North America. The company believes the world will ultimately move away from vehicle ownership to utilizing transportation-as-a-service (TaaS) platforms.

Most of Lyft's revenue comes from matching riders with drivers and collecting service fees and commissions. It also rents light vehicles (shared bikes and scooters) for short trips and cars for longer distances, offers services to businesses, sells bikes and bike station software, and generates revenue from a few other assets. Lyft is also in the early stages of developing a fleet of autonomous vehicles (Lyft Autonomous).

Through the first three quarters of 2023, Lyft produced more than $10 billion in gross booking volume on about 500 million rides, up by 13% and 16%, respectively, compared with the same period in 2022. So, the business is still growing at an impressive pace.

As of the third quarter of 2023, Lyft had 22.4 million active riders on its platform. That's 10% more than the previous year and the highest number since before the COVID-19 pandemic began.

Lyft's strategy has recently pivoted toward identifying interesting opportunities and executing plans to take advantage of them. For example, Lyft recently targeted rideshares in certain college markets as school started in the fall; rides grew by 25% year over year in these markets as a result.

Lyft is also rolling out innovative features, such as Women+ Connect, which matches women and nonbinary riders and drivers. The early feedback has been excellent. Finally, Lyft has done a good job of figuring out ways to better monetize its network of riders, such as incorporating third-party targeted advertising into its app.

Profitability

Is Lyft profitable?

Lyft is not profitable yet. In 2022, it generated $4.1 billion in total revenue and produced a $1.4 billion operating loss. It has produced an operating loss every year since it has been a public company.

However, Lyft is profitable on an adjusted basis, which removes certain items, such as one-time expenses and stock-based compensation. It isn't actually burning through as much cash as the bottom-line numbers might lead you to believe. Analysts expect the company to produce an adjusted profit of $0.56 per share in 2024 on 12% year-over-year revenue growth.

While Lyft isn't profitable on a consistent basis (yet), it's worth noting that the company has almost $1.7 billion in cash and short-term investments on the balance sheet, so it has considerable financial flexibility to grow.

Dividends

Does Lyft pay a dividend?

Lyft was not paying a dividend as of January 2024 and has no immediate plans to do so. Investors would be wise not to expect a dividend from Lyft until the company achieves consistent profitability. At best, this is likely to be a few years away.

ETF options

ETFs with exposure to Lyft

There are 73 ETFs that own shares of Lyft; one major ETF with a relatively high allocation is the iShares U.S. Transportation ETF (IYT -1.26%). As the name suggests, the fund tracks an index of transportation stocks, with several railroads, airlines, and logistics companies among its top holdings. The ETF also holds Lyft's main competitor, Uber (UBER -0.38%), which is the fund's second-largest holding.

As a small-cap stock, Lyft is included in several major small-cap ETFs, including the Vanguard Small-Cap ETF (VB 0.54%), Vanguard Small-Cap Value ETF (VBR 0.37%), and the Schwab U.S. Small-Cap ETF (SCHA 0.73%).

Related investing topics

Stock splits

Will Lyft stock split?

As of January 2024, Lyft had a stock price of about $13 per share, which makes a stock split rather unlikely. Typically, companies with stock prices of several hundred dollars per share are the most likely to split. If things go well, Lyft could certainly get there eventually, but that's a big "if," and investors shouldn't expect a stock split anytime soon.

The bottom line on Lyft

If you're looking to invest in the future of transportation, Lyft can be an exciting way to do it. Make sure you do your research before you decide to commit any of your money and be prepared to experience some ups and downs along the way.

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