Lyft Stock Up 13% Today – Time to Buy LYFT Stock?

Lyft stock is surging more than 13% today in pre-market stock trading action following the release of the firm’s financial results covering the third quarter of 2021 as it posted its second consecutive quarter of positive adjusted EBITDA along with narrower than expected net losses.

Revenues for the three months ended on 30 September landed at $864.4 million for the San Francisco-based ride-hailing firm resulting in a sizable 73% increase compared to the same period a year ago – back when the pandemic was still dramatically affecting the firm’s business.

Meanwhile, the company reported a strong jump in its number of active riders, which landed at 18.9 million compared to the 12,5 million figure it reported during the same period a year ago and also up more than 10% compared to the previous quarter.

During these three months, revenues per rider experienced a mild 2% improvement compared to the previous quarter while they jumped 14.2% compared to a year ago as demand for rides continues to recover.

“We had a great quarter. Driver supply materially improved in Q3, up nearly 45% versus last year, reflecting strong new driver trends”, stated Logan Green, Lyft’s Chief Executive Officer.

He added: “In Q3 we achieved record Revenue Per Active Rider as ride frequency increased. We also hit a new all-time high Contribution Margin and posted our second consecutive quarter of Adjusted EBITDA profitability, which is a demonstration of the strong leverage in our operating model”.

The firm’s third-quarter adjusted EBITDA ended the period at $67.3 million compared to the minus $239.7 million figure Lyft reported during the same period a year ago and this resulted in the second consecutive positive quarterly adjusted EBITDA figure for the business with margins landing at 7.8% for the period.

Finally, the firm reported adjusted net profits of $17.8 million compared to a $280.4 million loss it booked a year ago. Meanwhile, GAAP losses per share landed at $0.21 – a significant improvement compared to the $1.46 loss reported a year ago and a much better figure than the $0.58 forecast analysts had set forth for the quarter.

Can these positive results lift the shares of this Uber (UBER) competitor? In this article, I’ll attempt to draft some plausible scenarios for the future upon assessing the price action and fundamentals of this ride-hailing stock.

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Lyft Stock – Technical Analysis

Prior to this earnings report, Lyft stock was on a steady downtrend as the company’s virus-sensitive business model is still being threatened by the woes caused by the Delta variant and other potentially upcoming virus mutations.

However, this quarter’s trends appear to indicate that riders are feeling increasingly safer than they did months ago to jump back on a Lyft car and that is what the market is possibly appraising after seeing these results.

That said, this pre-market jump is still not sufficient to fully reverse the downtrend unless two things happen:

1. The stock price must climb above the $51 level to finally break its short-term moving averages.
2. A move above the $60 level would also be healthy to make a first higher high after three consecutive lower highs that ended up forming the downward price channel highlighted in the chart.

Considering that momentum oscillators are neck-deep into oversold territory, a full-blown reversal for Lyft could result in sizable gains for traders in the short term as long as those two conditions are fulfilled.

Trading volumes were particularly high yesterday as they exceeded the 10-day average by more than 3 times in a session that pushed the price 2.3% lower and volumes may be quite high today as well.

A bullish gap left behind by Lyft could possibly act as support in the near future if this rally is to take place.

Lyft Stock – Fundamental Analysis

One of the factors that make Lyft a riskier bet than its rival Uber is the fact that the company has no other revenue segment that can cushion the impact of further virus waves.

Vaccinations have helped thus far to get people back on the streets but the situation is still quite uncertain and investors should proceed with caution when investing in a virus-sensitive business like this one – meaning that they should have a stop-loss order lined up in case things unexpectedly go sideways.

The fact that Lyft is turning some non-GAAP net earnings is particularly encouraging for the firm as Uber is quite far from being able to pull that off. That is probably a factor that market participants are also taking into account when valuing the firm and may justify a portion of today’s jump.

Revenues this year may still land below pre-pandemic levels but the company should have no problem to deliver the kind of growth seen in previous years once the virus situation is fully out of the picture.

If we were to assume that Lyft will be able to soon report quarterly adjusted EBITDA figures of around $100 million per quarter – somehow a plausible scenario – that would result in a forward EV/EBITDA multiple of nearly 36x based on Koyfin’s estimated enterprise value of $14.33 billion for the firm. This number excludes today’s pre-market jump.

Such a valuation metric seems stretched compared to the average 30x multiple displayed by peer software firms and may limit the extent to which Lyft stock will advance moving forward.

All things considered, the technical outlook for the firm points to a bullish scenario but fundamentals may cap the extent of that advance.

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