Lyft's Ready For Pickup, But Guggenheim Waits For Another Ride

Despite the Street’s pre-IPO excitement, Lyft Inc LYFT closed down 8.3 percent on its first day public. One analyst team shares the market’s hesitation.

The Rating

Guggenheim analysts Jake Fuller and Ali Faghri initiated coverage with a Neutral rating and no price target.

The Thesis

Fuller and Faghri cite too many variables around Lyft’s long-term execution. Uncertainties linger around valuation, a path to profitability, revenue growth sustainability, and scaled investments in bikes, scooters and self-driving cars. Profitability is of utmost concern.

“LYFT targets a long-term contribution margin of about 70% and EBITDA margin of about 20%, but did not articulate how it might get there,” the analysts wrote in a note.

They anticipate four strategies to achieve profitability: a decrease in driver pay, the cancellation of incentives, a cut to insurance costs or a shift toward autonomous vehicles.

“The first two would be tough in a highly competitive category, the third might not be enough by itself and the fourth is likely 10 years out,” they wrote. “Without self driving cars, we model to EBITDA break even in 2022 and a 5 to 10% margin in 2023.”

In the meantime, Guggenheim forecasts decelerating revenue growth and expanding losses.

It’s not entirely pessimistic, though.

“We understand the excitement around LYFT given a large total addressable market (TAM) and low penetration, positioning along the front lines of a shift in how we think about transportation and, of course, strong topline growth,” the analysts wrote. “That said, we simply have to look too far out with too many big assumptions in order to make a case for the stock.”

Price Action

At time of publication, shares were set to open down 3.9 percent at $75.21.

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Photo courtesy of Lyft.