Wedbush Says 'Too Early To Be Over-Reactive' With Lyft

In its second day on the market, Lyft Inc LYFT dipped below its $72 IPO price to close at $69. The negative sentiment resonates even with some of the company’s long-term bulls.

The Rating

Wedbush analysts Daniel Ives and Amir Chaudhri maintained a Neutral rating on Lyft with an $80 price target.

The Thesis

The analysts aren’t entirely pessimistic.

“While shares are off from the highs, we think it's too early to be over-reactive and believe investors will support shares and be patient with the heavy losses as long as the key growth drivers are present as the company delivers robust results over the coming quarters,” Ives and Chaudhri wrote in a note.

Lyft’s transportation as a service (TaaS) model has already proven itself a winner as consumers shift from car ownership to ride-sharing. The current course of U.S. transportation drove significant growth through the last few years.

But success is fragile. Any growth deceleration in top-line metrics — take rate, active rides and rides per active rider — could call attention to operating losses and Lyft’s yet-unproven profitability prospects.

“While we are bullish on the long-term opportunity for Lyft with robust growth prospects as the No. 2 player in a $1 trillion transportation as a service (TaaS) market and the future of mobility, our concerns remain the vague path to profitability and the current valuation with no true public comps,” Ives and Chaudhri wrote.

If Lyft fails to prove itself, it may cede investor capital to competitors.

“With the Uber IPO expected to come in short order, Lyft's IPO was supposed to be a watershed moment for the highly anticipated 2019 tech IPO class,” Ives and Chaudhri wrote. “Investors will soon have a second option... while competitor focus will likely also zero in on Waymo/Google and even the traditional auto sector which is investing in autonomous vehicles in its own right.”

Still, it may enjoy continued upside as investors learn more about Uber’s financial metrics, according to Wedbush.

Price Action

At time of publication, Lyft shares were set to open down 4.8 percent at $65.69.

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