Company Overview: LYFT, Inc. (NASDAQ: LYFT) is engaged in providing an on-demand transportation-as-a-service (TaaS). It is one of the fast-growing and top transportation systems in Canada and the United States. In 2012, the company unveiled the peer-to-peer marketplace for on-demand ridesharing, which connects drivers with riders to provide car-sharing and transportation services. The Company also has a network of shared bikes and scooters in various cities to address the needs of riders who are looking for short trips. It also offers a variety of enterprise programs, involving monthly ride credits for daily commutes, supplementing public transit and last leg of commute trips, late-night rides home and shuttle replacement rides.


LYFT Details


 
Higher Active Riders and Strategic Alliance are Key Catalysts:  Lyft, Inc. (NASDAQ: LYFT) is based in San Francisco, California, and was founded in the year 2012. The networks run by the company permit access to multiple transportation options through its platform and mobile-based applications. Notably, the company’s offerings permit entry to a network of pooled bikes and scooters for quicker and shorter rides, and first-mile and last-mile services of multimodal journeys.
 
In order to entice drivers, passengers and riders of shared bikes and scooters to use LYFT’s platform, the company provides various incentives, which include schemes like lowest secured payments, volume-based discounts, and performance-built bonus payments. At present, the company features more than 22 million riders, in over 300 markets across the US and Canada and produces almost its whole revenues from ridesharing activities that bridge the gap between drivers and passengers. The company also realizes revenues via its network of shared bikes and scooters and also from its Express Drive program from lease income under an arrangement with its third-party Express Drive partners.
 
It is worth mentioning that the company competes with Uber in the ride-hailing market and has witnessed growth in Active Riders. In FY19, revenues increased a whopping 68% year over year to ~$3.6 billion. The increase was on the back of a higher number of ActiveRiders and the revenue generated on its platform per Active Rider. The number of Active Riders rose between 23% and 44% in each of the quarters of 2019 as compared to the same periods in 2018, owing to broader market adoption of ridesharing along with the company’s schemes to attract and retain riders. Coming to the financials, the company witnessed a CAGR of 80.2% in revenue in the time period of FY16-FY19.
 

Historical Financial Performance (Source: Company Reports)
 
With each passing day, the market for driverless or self-driving cars is achieving fame. Lyft seeks to become a major player in this space. To this end, the company had revealed that it has inked a partnership deal with Waymo, a subsidiary of Alphabet. Additionally, we are optimistic about the company’s recent purchase of Halo Cars. Further, the company’s partnership with Amazon amid the rising spread of coronavirus is encouraging.
 
Additionally, the company’s investment in proprietary technologies and predictive analytics will aid it to deliver an affordable, accessible, and high-quality experience for its riders, going forward. Further higher investment in mapping, routing, payments, in-app navigation, and matching technologies is likely to increase the efficiency of its platform, thereby positively impacting revenues in the near future.
 
In order to curb the spread of coronavirus, majority of the U.S states are implementing stay-at-home orders. In such a scenario, the company also took necessary measures and put an aggressive plan in place to strengthen its financial position, going forward. In doing so, the company plans to reduce its overall cost and workforce.  Further, the company is leaving no stone unturned and expects to pull ~$300 million out of its annualized fixed costs by the end of 2020. In terms of other cash outlays, the company has also reduced its FY20 capital expenditure by $250 million.
 
1QFY20 Key Highlights: During the quarter, the company reported robust revenue of $955.7 million, which soared 23% on a year-over-year basis, courtesy of strong growth in Active Riders and Revenue per Active Rider.  The company’sActive Riders (riders who take at least one ride during a quarter on Lyft’s multimodal platform through its app) in the quarter under review increased 3% year over year to 21.2 million. This San Francisco-based company’s Revenue per Active Rider also rose 19% to $45.06 million. Adjusted net loss during the quarter stood at $97.4 million, as compared to an adjusted net loss of $211.5 million reported in the year-ago period. Contribution during the quarter came in at $547.4 million, up 42% year-over-year. Contribution Margin increased 7 percentage points year over year and came in at 57.3%. 
 

Top-line Highlights (Source: Company Reports)
 
Operating Highlights: During the quarter,adjusted net loss during the quarter stood at $97.4 million, as compared to an adjusted net loss of $211.5 million reported in the year-ago period. Adjusted EBITDA loss for the first quarter was $85.2 million compared with $216 million EBITDA loss incurred a year ago. The adjusted EBITDA margin came in at -8.9% in the reported quarter compared with -27.8% in the year-ago period.
 
Balance Sheet & Cash Flow Details:  The company exited the period with cash & cash equivalents and short-term investments balance of ~$2.66 billion. Long term debt at the end of the period stood at $82.1 million. Operating cash outflow for the first quarter came in at $206.9 million, as compared to the year-ago cash outflow figure of $84.8 million. The company has a strong balance sheet and remains confident to navigate the economic turbulence ahead.
 

Cash Balance Highlights (Source: Company Reports)
 
Key Developments:  The company recently partnered with Mastercard and Citi to provide a free 12-month Citi Bike membership to eligible critical workers. In April-mid the company also unveiled Essential Deliveries, which connects drivers to LYFT’s platform with government agencies, local non-profits and businesses and health care organizations to allow on-demand delivery of meals, groceries, and other essentials.
 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 53.6% of the total shareholding. Fidelity Management & Research Company and Rakuten Inc. hold maximum interests in the company at 13.54% and 10.54%, respectively.
 
 
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
 
Key Metrics: The Company reported 1QFY20 gross margin at 22.2%, higher than the Q1FY19 gross margin of 16.2%. The company’s debt to equity ratio during the quarter stood at 0.03x, as compared to the industry median of 0.67x, depicting a healthy balance sheet.
 

Key Metrics (Source: Refinitiv, Thomson Reuters)
 
Outlook: The rising COVID-19 pandemic poses a formidable challenge to LYFT’s business, in lieu of which it withdrew its FY20 outlook. However, the company is well-positioned to weather this coronavirus-led, with an aggressive cost reduction plan, which, in the future, will narrow down the expenditure and aid the company to come out stronger. Further, the company opines that it’s competitive strength and commitment towards its culture and values will aid the company to deliver its mission of enhancing people’s lives with the world’s best transportation. The company predicts to eliminate around $300 million from its annual expense run rate by 4QFY20.
 
Going forward, the company’s strong performance on the back of product innovation, market growth, and focused execution are likely to be a key growth driver. The intensity of technology adoption by businesses and the rise of connected consumer devices which aids people connect and do business online is witnessing impetus growth. Consequently, the rise of mobile devices among users has compelled businesses to adopt technology that they earlier stayed away from because of the cost involved. LYFT’s initiatives to invest in technology know-how will result in the further generation of top-line and improvement of margins.
 
 
Key Valuation Metrics (Source: Thomson Reuters)
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method (Illustrative) 

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of LYFT closed at $26.12 with a market capitalization of ~$8 billion. The stock made a 52-week low and high of $14.56 and $68.33 and is currently trading at the lower band of the range. The stock witnessed a sharp correction amid the ongoing panic related to coronavirus and fell 44.49% and 37.98% in the three months and one year, respectively. However, in the last one month, the stock went up by 21.27%. The business witnessed decent first-quarter results with top-line increasing on a year over year basis. The company has a debt to equity ratio of 0.00x in FY19, as compared to the industry average of 0.66x. Considering the operational excellence, focused execution, 1QFY20 earnings and current trading levels, we have valued the stocks using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). In view of a long-term purview, we give a “Buy” recommendation on the stock at the current market price of $26.12, down 2.1% as on 6 May 2020.
 
 
 
LYFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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