Investing in Lyft Isn’t for Everyone, Analysts Say

(Bloomberg) -- Lyft Inc.’s second-quarter results blew past market estimates and won accolades from Wall Street, as analysts said they now see a clearer path to profitability and a “more rational competitive environment.”

Lyft shares gained as much as 9.3% in New York on Thursday, while bigger rival Uber Technologies Inc. rose 7.5%. Lyft indicated that the price war with its competitor -- which reports after the market close Thursday -- was easing. Yet both stocks are still below the prices at which they went public this year, and investing in the San Francisco-based companies may still require some patience.

“Lyft may not be the right fit for all investors, given the company’s current materially unprofitable state,” Piper Jaffray analyst Michael J. Olson wrote in a note. “But for those with a long-term view, and patience, we recommend owning shares at these levels.”

Investing in Lyft Isn’t for Everyone, Analysts Say

Here’s what analysts are saying about Lyft’s earnings:

Wedbush, Daniel Ives

(Raises to outperform from neutral, PT $75 from $67)

The most impressive part of the quarter was that Lyft was able to drive strong rider and revenue per rider growth, while significantly cutting back on promotions.

While all questions are not answered yet, there is enough evidence that is positioning Lyft to be in a stronger than expected domestic position to gain share and monetize this opportunity with an improved expense trajectory sooner than expected.

The domestic-only nature of Lyft was once seen as a detractor, but now is beginning to be seen as a near-term benefit given the execution around key metrics. The competitive dynamics domestically are much stronger than they are internationally.

Cowen, John Blackledge

(Outperform, PT $84 from $78)

The healthier competitive environment is leading to reductions in both rider and driver incentives, yielding marketing efficiencies and boosting the top line.

Continues to view Lyft as well positioned to scale as secular tailwinds drive user penetration and frequency.

Evercore ISI, Benjamin Black

(Outperform, PT $81 from $74)

“We remain aggressive buyers of the stock at these levels, with the path to profitability increasingly visible, and the benefits of an increasingly rational market driving outperformance on both the top and the bottom line.”

The ability to moderate the use of volume-based incentives is another indication of a more rational marketplace, which ultimately bodes well for revenue growth and the path to profitability.

DA Davidson, Tom White

(Buy, PT $74 from $72)

An 8K announcing that Lyft’s IPO lock-up expiration will now end on August 19 may take a bit of the bloom off an otherwise positive night for Lyft in the eyes of some, but the analyst said co-founders Logan Green and John Zimmer will not be selling shares at that time.

Lyft has now exceeded expectations for its first two quarters as a public company, and the business has important tailwinds that can support its momentum in the second half of 2019.

Loop Capital, Jeffrey Kauffman and Rob Sanderson

(Hold, PT $60)

The top-line strength of the business is not a surprise but overall the results were “better than we thought and we did not anticipate the impressive display of marketing leverage.”

Still, results are unlikely to shift investor opinion as the division among analysts is not about demand but more about unit economics, the path to profitability and the long-term competitive dynamics.

Leverage and pricing power are both clear positives but profitability is “still far away” and how the long-term competitive landscape will shake out is still unknown.

Loup Ventures, Gene Munster

Most encouraging data point is that sales and marketing expenses declined as a percentage of revenue, signaling a “more rational competitive environment with Uber” and also highlighting the path to profit.

Overall a solid quarter, with the company growing revenue per ride and seemingly its market share in the ride-sharing industry.

“That said, Lyft investors need to have an appetite for volatility and a commitment to the company seeing its long-term bets in autonomy pay off.”

©2019 Bloomberg L.P.

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