30 Million Reasons to Buy LYFT Stock

Lyft (LYFT) finally gave something to its investors: constant growth along with increasing profitability. Lyft reported another better-than-expected quarter, pushing the number of active riders above 30 million for the first time and setting a record of gross bookings at $5.5 billion.

These numbers allowed LYFT stock to reach its peak in the last six months, although still being over 30% below the 52-week high. However, the improving fundamentals of Lyft do not settle the largest debate about the stock. The analysts are divided over the question of autonomous vehicles (AVs), with one group considering Lyft's partner strategy as an advantage and the other believing that Lyft's smaller size makes it more vulnerable than Uber Technologies (UBER).

About Lyft Stock

Lyft is a ridesharing company headquartered in San Francisco which provides a platform which connects the riders with drivers across North America and also operates internationally in additional mobility solutions. These solutions include taxi, bike, scooter services and partnerships along with autonomous transportation. Lyft's current market capitalization is $6.63 billion.

Shares of Lyft have increased 39.7% since its 52-week low at $12.46 but staying approximately 31.2% below its 52-week high of $25.54. The shares increased by approximately 5.37% during the last five trading days after the recent report of the company.

However, even after the rebound, the valuation of Lyft remains quite conservative compared to many other technology growth stocks. The shares trade at approximately 0.98 times price-to-sales and 23.62 times price-to-forward-earnings. In addition, Lyft's price-to-earnings-to-growth of 0.97 indicates that the investors do not assign any aggressive multiple to the company's future growth.

Such a valuation is caused by the remaining uncertainty around the competition and autonomous vehicles. Lyft managed to improve financially, but still the investors evaluate whether the amount of such an improvement should already be reflected in the stock price before the development of the AV market.

Lyft Reports Strong Q2 Earnings

Lyft announced its gross bookings at $5.5 billion, which means 23% year-over-year (YOY) growth while revenues increased by 16% to $1.8 billion. Net income climbed to $50.3 million from $40.3 million during the same period last year.

Even better improvement could be observed in the adjusted profits. Adjusted EBITDA increased by 37% YOY to $177.2 million while the adjusted EBITDA margin as a percentage of gross bookings improved to 3.2% from 2.9%. In addition, the company managed to generate $319.6 million in free cash flow during the quarter and $1.1 billion during the last 12 months.

Operationally the quarter proved to be even more successful. Active riders increased by 17% reaching the record mark of 30.5 million for Lyft and becoming the seventh straight quarter of double-digit growth. Total rides increased by 12% to a record 262 million. Around 30% of North American rideshare rides are now associated with partnerships and it also sets an all-time high.

This partnership strategy may become more and more relevant in the process of development of autonomous driving. Lyft launched the operations of a fleet with Waymo in Nashville in June and the company plans to launch 80,000 square feet AV depot there in October. In addition, Lyft is extending the partnership with Curb into New York City.

The management expects this momentum to continue. Lyft guided its third-quarter gross bookings to be in the range between $5.50 billion and $5.67 billion, which means around 15% to 19% YOY growth. Adjusted EBITDA is expected to be in the range between $183 million and $203 million with the margin increasing to approximately 3.3% to 3.6%.

What Do Analysts Expect for Lyft Stock?

The reaction of Wall Street to the quarter proves how divided the investors are regarding the long-term prospects of Lyft. Brad Erickson from RBC Capital maintained his "Outperform" rating for Lyft but increased the price target from $18 to $20. He underlined the increasing ride mix of the company with the partner rides, airport trips, and higher value transportation. Besides, Erickson notes the negative sentiment towards the ridesharing business despite its growth.

Chad Larkin from Oppenheimer also maintained his "Outperform" rating and $20 target. With LYFT trading at around six times projected EBITDA in 2027, Larkin thinks that the better execution could cause the investors to unwind short positions. BofA Securities seems to be more conservative. The analyst Justin Post increased his target from $17 to $18 but also maintained his "Underperform" rating, believing that the AV debate will matter more for the stock price than earnings in the nearest term. BofA is favoring Uber due to its larger scale and more solid balance sheet, although Post acknowledges that Lyft could become a good AV distribution partner in the future.

Wells Fargo is also remaining neutral on Lyft with "Equal Weight" rating and a $19 target, citing the problems of higher prices and usage of consumer incentives to stimulate the demand. Among the analysts LYFT earnings a “Moderate Buy” rating consensus and a mean price target of $19.33, which indicates an 11.5% upside from here. The street-high target of $30 implies 73% upside over the next 12 months.