Lyft (LYFT, Financial) is one of the largest ride-hailing platforms globally and has a 30% market share in its home market in the U.S. compared to Uber’s (UBER) 70%. Now although Uber is much more dominant than Lyft, the company does appeal to a certain market as the brand was founded upon more of a community personality.
For example, when Lyft launched in San Francisco in 2012, they encouraged Lyft drivers to affix large, fuzzy pink mustaches to the front of their vehicles. This was a very distinctive and effective marketing feature, which really did create a sense of community. The brand loyalty to Lyft has helped it stay afloat and not be pushed out entirely by Uber.
Lyft had over 22 million active riders per quarter pre-pandemic, then of course demand dropped off a cliff, but the rebound looks strong for both Uber and Lyft.
Another thing about Lyft recently caught my attention: George Soros (Trades, Portfolio) is an investor in the stock. With the backing of such a famous investing guru, I decided to take a closer look at this stock to see if it could be a growth opportunity despite the current profitability struggles of the ride-hailing business in general.
Soros' investment
In the fourth quarter of 2021, Soros' Soros Fund Management purchased shares of Lyft stock, according to its quarterly 13F filing with the SEC. During the quarter, shares traded for an average price of $46 per share. The stock is down 16% from this price level. This represented a new buy after the firm sold out of its previous investment in Lyft in the second quarter of 2019.
Here is a heat map showcasing Soros' holdings:
Ford partnership
Lyft recently scored a partnership with Ford (F, Financial), which aims to bring a fleet of self-driving vehicles to the streets of Miami. The cars will be fitted with technology from Argo, and Lyft has taken a 2.5% interest in the company as part of the deal. This has been done in exchange for ride-sharing data, which can further improve the system.
Although the vehicles will be outfitted with Argo’s self-driving technology, they will still have someone at the steering wheel for safety.
Lyft adds fuel surcharge
As a low-margin, high-volume business, any rising fixed costs can seriously impact potential profitability. Uber is reportedly making just 50 cents per trip according to an interview with the CEO at Summit. With oil prices skyrocketing to over $100 per barrel following the invasion of Ukraine by Russia, it's no wonder transportation is struggling. Lyft and Uber have handled this by adding a fuel surcharge rather than competing in a race to the bottom, since neither could survive every trip being unprofitable.
Entering food delivery
Uber's food delivery business has helped it gain ride-sharing dominance over Lyft, and Lyft is hungry for a slice of this pie. The company announced at the end of 2021 they would expand their food delivery offerings. The firm has partnered with Olo, which will use its drivers to deliver restaurant food. Now although this is a competitive space, some analysts do predict that the ride-sharing market will not return to pre-pandemic levels due to the rise of working from home.
Recent earnings
Lyft’s full-year revenue for 2021 was $3.2 billion, growing 36% year-over-year. This beat Wall Street analysts' expectations. The net loss for the company also significantly narrowed by over 40%. The resulted in the company achieving adjusted Ebitda profitability for the first time.
However, they did report fewer active riders in the quarter. Ridership was 18.73 million, which was lower than analyst expectations of 20.2 million. An even more worrying sign was the low guidance offered for the first quarter of ,2022. The company expects revenue to fall to between $800 and $850 million for the quarter.
Valuation
According to the GF Value Line, the stock is “significantly overvalued” at the time of writing. The GF Value is a unique intrinsic value measure from GuruFocus that considers historical multiples, past returns and analysts' estimates of future business performance.
Final thoughts
Lyft is one of the two main giants of the ride-hailing business. Despite not being the dominant player, they are not standing still; they are reacting fast, growing partnerships and revenue. The prospects look good for the company in the long term, but at the current valuation, I won't be following Soros on this one. In addition, I prefer to invest only in market leaders.
