- Lyft (LYFT) hasn’t lived up to its promise and prices aren’t going to improve for passengers.
- Losses are a major concern but reality suggests Lyft can’t combat the lack of profitability.
- The rideshare concept is proving to benefit neither drivers nor passengers.
Investors should be very wary of Lyft (NASDAQ:LYFT) stock as it reaches new year-to-date lows. There will be plenty of noise that this represents a buy-the-dip opportunity that’s too good to pass up. Don’t take the bait. Share prices will bounce around and volatility will remain high. Traders can seize quick returns on that volatility but that doesn’t change the notion that overall Lyft is in trouble. The business case is fundamentally poor, and that’s all investors should care about.
Promises Unkept for Lyft Stock
Life is better when you share the ride. That’s Lyft’s slogan offered on its webpage. But there’s plenty of evidence to suggest that life isn’t getting better for the many stakeholders in its business.
Especially passengers. That sentiment was echoed by Truist analyst Youssef Squali who believes “the days of rideshare being a cheaper alternative to other modes of transportation are gone.”
That simply doesn’t help Lyft. Its customer base isn’t going to reward the firm and ride Lyft ride shares if they aren’t cheaper. Lyft management can suggest that ride pooling will act to combat the problem but that’s conjecture. What isn’t conjecture is data from YipitData that customers took 35% fewer trips in the first quarter.
Fares hit record highs in April and data for May has yet to be released. Ride sharing isn’t a great solution at this rate. Lyft knows it, but the fact is that the company has to seek profitability. And in many ways, the timing couldn’t be worse.
Seeking Profits at a Terrible Time
That headline makes it seem as if I have a lot of sympathy for Lyft. I can sympathize with the company having to deal with record gas prices and the effects that has on its bottom line.
But on the other hand, I don’t have that much sympathy for Lyft in that it “suddenly” has to find profitability. The ride was good for Lyft investors when interest rates were low. Few investors cared that Lyft routinely posted quarterly losses into the hundreds of millions of dollars. As long as revenues grew no one cared.
But quantitative easing is dead, easy money has dried up, and Lyft still hasn’t proven much as a business.
Passengers aren’t winning. Fares are at all-time highs. Drivers aren’t winning. They remain in short supply. You don’t have to search very far for anecdotal evidence that becoming a Lyft driver isn’t worthwhile.
Basically, Lyft is out to find any means by which to approach profitability. It’s going to do that with higher fares that it will justify through a variety of factors. I wouldn’t buy it.
It’s not going to protect its drivers either. I tend to side with the working man. So when drivers remain in short supply I tend to think it’s due to the employer offering too little. In short, I don’t believe a word Lyft management says implying it will favor drivers.
It will favor anything that drives its massive losses nearer to zero. And that’s why I’d stay away from Lyft stock because the rideshare revolution is becoming more revelatory than revolutionary.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.