Lyft Inc (LYFT, Financial) could deliver a stock price recovery, in my opinion, after its 11% decline in the past six months.
The ride sharing company is investing in its self-driving capabilities, improving its sustainability credentials and expanding its range of partnerships.
Driverless potential
The company is investing in its self-driving capabilities. For example, in the fiscal 2019 fourth quarter, it opened its first dedicated self-driving test facility, which significantly expands the conditions and scenarios it can use to test its autonomous vehicles.
It also started to use data from journeys travelled in its driver-controlled vehicles to enhance the performance of its driverless vehicles for the first time in the fourth quarter. This has provided the company with vital information that could improve the efficiency and reliability of its self-driving vehicles, according to its fourth quarter results.
Lyft increased the number of miles travelled by its driverless cars in the fourth quarter. It operated its autonomous vehicles over thousands of miles per month on public roads. This could provide it with a competitive advantage compared to other companies that are seeking to provide driverless vehicles.
e-bikes
The company relaunched its electronic bikes (aka e-bikes) in the fourth quarter. They have resonated with its customers, and reported a higher number of rides per day per bike compared to Lyft’s manual bikes. It plans to roll out its e-bikes across new markets in fiscal 2020, which could strengthen its competitive position.
In addition, the business released its latest scooter model in the fourth quarter. It has superior durability and lower operating costs than its previous model. The rollout took place at the same time as the company removed its old scooter model from its unprofitable markets. This could enable it to focus on locations which have the greatest scope to impact positively on its financial performance.
Sustainability
Lyft launched 200 long-range electric vehicles in its fourth quarter as part of its Express Drive rental program. The program increases the availability and accessibility of electric and hybrid vehicles for the company’s drivers, which improves its sustainability credentials.
This could resonate with its customers and improve their levels of loyalty. Around 88% of consumers have stated that they are more likely to become a customer of a business which has a positive environmental or social impact. The program also cuts costs for the company’s drivers and improves their overall pay. This may lead to greater satisfaction levels among Lyft’s drivers, which could produce higher service levels for its customers.
Potential challenges
The company benefitted from a large amount of publicity in 2019 that arose from its stock market listing. This helped to increase its brand awareness and encouraged a large number of consumers to try out its services. This momentum may not continue in 2020, and growth in demand for its services may slow.
Additionally, Lyft was able to reduce its costs in fiscal 2019 by exiting its unprofitable markets and services. For example, its costs as a proportion of its revenue declined 4 percentage points to 14% in the fourth quarter. Its scope for cost reduction may be more limited in future, which could reduce the rate at which its overall financial performance improves.
In response, the company has expanded its presence within the healthcare sector. It has partnered with nine of the top 10 largest hospital systems in the U.S. to offer non-emergency medical transportation to their patients. This could be a significant growth opportunity for the business, since its service can reduce costs for healthcare providers and ensure that their patients make their appointments.
In addition, the business has partnered with a range of global brands to offer discounts on Lyft’s rides to their customers. For example, Lyft partnered with Hilton (HLT, Financial) in fiscal 2019. The hotel chain’s members can redeem their Hilton points for Lyft ride credits, and can also request a ride from within the Hilton mobile app. This provides Lyft with access to Hilton’s 100 million loyalty program members, and may boost demand for its services.
Outlook
Market analysts forecast that the company’s loss per share will narrow from $4.62 in fiscal 2020 to $3.58 in 2021. Its lack of profitability may be a concern for some investors, but its growth strategy could catalyze its bottom line and boost its stock price in upcoming years.
Disclosure: The author has no position in any stocks mentioned.
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