by After losing about three-quarters of its market value last year, Lyft LYFT 5.34%
Shares of are up nearly 47% this month. A close look at the fundamentals of the ride-hailer suggests that that kind of bounce hasn’t been earned yet.
Lyft, which has historically been dusted off by more global competitor Uber Technologies,
SUPER 1.13%
it’s not suddenly gaining ground. In an opening report in early January, Jefferies analyst John Colantuoni estimated that the ride-hailer finished last year with about 29 percent U.S. market share to Uber’s 71 percent. His estimates show Lyft exiting the pandemic arguably worse off than it entered, having lost about 3 percentage points in market share over the past three years.
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In addition, RBC’s latest analysis of driver offerings in the 10 largest US markets shows a 15% drop in Lyft’s hourly rider cost compared to a 7% increase in Uber’s rider cost in recent months for the same rides . Analyst Brad Erickson attributes this to Lyft’s attempt to regain share in some markets through discounting.
A global recession could bring more bad news. Data from Jefferies shows that airport rides are the largest use case for ride-hailing services in terms of miles travelled. Such travel is likely to decrease if companies cut business travel budgets and consumers discontinue leisure travel. Rides to and from restaurants and bars were the second most important use case for ride-hailers, another bad sign for their businesses if consumers stop hanging out.
Lyft continues to say its focus on ride-sharing will ultimately pay off compared to Uber’s more diversified business, which includes food delivery, but there are hidden costs to consider. Jefferies’ analysis shows that insurance costs alone were nearly 27% of Lyft’s revenue last year versus less than 9% for Uber. There are two reasons for this, according to the company: first, vehicle insurance costs more in the United States than internationally, where Uber does a significant portion of its business; secondly, it costs more to insure a car carrying passengers than one carrying food.
US auto insurance costs have increased due to inflation and rising interest rates. Consumer price index data shows that motor vehicle insurance premiums grew by just over 4% year-on-year in January 2022, but were more than 14% higher on the same basis in December.
For Lyft, a smaller scale could mean less money to do things like pay drivers. Gig-economy drivers may work for more than one platform at the same time, but they probably prefer rides from the platform that pays the most. RBC data shows Uber’s hourly bookings were about 17% higher than Lyft’s in the top 10 markets it analyzed, with the gap widening in recent months. The company warns that such structural disadvantage on the driver’s side could lead to a long-term stock loss for Lyft.
Most of Lyft’s stock gains this month look like traders are simply hedging their bets. Lyft’s short interest peaked in late October, FactSet shows. The subsequent drop in short-term interest suggests hedging Lyft’s fourth-quarter earnings report, due next month.
Lyft’s shares are now recovering about nine times company value to forward earnings before interest, taxes, depreciation and amortization. Uber’s stock commands 20x on that basis, so Lyft’s stock still looks relatively cheap at first glance. But add back Lyft’s high stock-based compensation expenses, higher as a percentage of revenue than nearly all of its Internet peers, and its stock is actually starting to look overheated.
Lyft has long been a game of catch-up. What if that’s as good as it’s going to get?
Email Laura Forman at [email protected]
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