With over 22 million active riders per quarter before the pandemic, Lyft (LYFT) built itself into one of the largest global ride-hailing platforms. Lyft stock, like rival Uber stock, is trying to rebound as a coronavirus recovery seems to be in sight. The long-term picture for ride-sharing and self-driving cars looks compelling. But the coronavirus lockdowns led to a collapse in consumer demand. With the stock’s big move as of late, is Lyft a buy?
Ridership is recovering somewhat as stay-at-home orders in parts of the U.S. relax. Still, Lyft and rival Uber (UBER) face an uncertain future amid the ongoing pandemic. That could mean the long path to profitability is now even further down the road.
But the ride-hailing giants scored an election night win in California, preserving app-based drivers as contract workers. Plus, the coronavirus vaccine rollout is fueling hopes that an economic recovery is in sight.
After soaring over the past few months, is Lyft stock a buy now? It’s key to analyze the fundamental and technical picture first.
Lyft Q4 Results Impress Despite Covid-19 Storm
Lyft stock surged after the company issued its Q4 earnings report on Feb. 9. The ride-hailing company posted a loss of 58 cents a share on revenue of $570 million. Wall Street analysts expected the ride-sharing firm to announce a loss of 71 cents a share on revenue of $553.85 million. Lyft jumped 10% in after-hours trading.
Though Lyft stock beat quarterly earnings expectations, ridership numbers remain a concern. The company reported an active rider base of 12.55 million users. This lags behind the 13.2 million figure expected by financial analysts.
“Despite the difficult backdrop in 2020, we continued to focus on improving our business for the long-term,” CEO Logan Green said in a Feb. 9 earnings release. The company further explained that the winter surge of Covid-19 cases negatively impacted ridership growth.
“Our Q4 results also outperformed our most recent outlook,” CFO Brian Roberts said in a prepared statement. The company did not provide formal guidance for its Q1 outlook.
“The first quarter of 2021 continues to be uncertain primarily due to Covid-19 headwinds,” Roberts said. “Based on current recovery expectations, we should experience a growth inflection beginning in the second quarter that strengthens in the second half of the year.”
Lyft Stock, Uber Stock Soar After Prop. 22 Win
Gig economy companies like Lyft and Uber face regulatory pressures. But the two ride-share giants got a huge win as California voters passed a measure known as Proposition 22 in the November elections.
Earlier this year, California enacted a labor law known as AB5 that targeted the ride-share platforms. That sparked intense backlash among the state’s freelancers — and not just Uber and Lyft drivers.
The law mandates that companies reclassify many independent contractors as full-time employees. It makes them eligible for health benefits, minimum-wage guarantees, workers’ compensation and a slew of other labor protections.
Fast-forward to Election Day, and California voters rolled back those regulations for the ride-share companies by approving Prop. 22. The state ballot measure provides wage protections and other benefits to app-based drivers while maintaining their independent contractor status.
Lyft stock and Uber stock soared on the news.
“The underlying business models for Uber and Lyft were hanging in the balance if Prop. 22 did not pass in California,” Wedbush analyst Daniel Ives wrote in a Nov. 4 note to investors.
He described the vote as a “landmark victory” for Lyft and Uber stock. The ride-share companies derive a significant portion of their revenue from California riders and delivery services.
Waymo Partnership ‘Critical’ To Lyft’s Future
Looking ahead, autonomous-vehicle technology could boost revenue and provide a pathway to profitability for the ride-hailing platform.
Lyft in 2017 announced a partnership with self-driving-car company Waymo. The subsidiary of Google parent Alphabet (GOOGL) provides a way to gain a foothold in the self-driving-car industry.
The first commercial rides of the Lyft-Waymo partnership began in 2019 in the Phoenix metro region. Lyft’s early move into self-driving-car technology spurred competitor Uber to develop its own self-driving unit that same year.
Uber sank some $7 billion in funds into the development of self-driving technology. That’s a big percentage of Uber’s $56 billion market cap.
“Our investments in AV (autonomous vehicles) are critical to Lyft’s future,” CEO Green said to investors during a presentation on Lyft earnings. “We expect that they’ll deliver strong returns in the long run despite Covid.”
Other large-cap players also invested heavily in the self-driving-car space. E-commerce giant Amazon (AMZN) acquired Zoox, a company that specializes in self-driving robotaxis.
Additionally, Tesla (TSLA) founder Elon Musk says his electric-vehicle company is close to achieving Level 5 — or complete — self-driving-car capabilities.
But most autonomous driving experts have pushed back their timeline for when Level 5 self-driving will be reached.
Lyft Stock Fundamental Analysis
To determine whether Lyft stock is a buy now, fundamental and technical analysis is key.
The IBD Stock Checkup tool shows that Lyft stock has a Composite Rating of 38 out of a best-possible 99. The rating means Lyft stock ranks just below the middle of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
In comparison, Uber stock has a Composite Rating of 62.
Lyft stock also has a poor EPS Rating of 5 out of 99. The EPS Rating compares quarterly and annual earnings-per-share growth with all other stocks.
Lyft Stock Technical Analysis
Lyft stock made its Nasdaq debut in March 2019 at 72 a share. It closed its first day of trading at 78.29. Since Lyft’s 2019 IPO, Lyft stock mostly has been in a downtrend, but recent action is brightening the picture.
Take Lyft’s relative strength line. The line compares a stock’s price action with that of the S&P 500. Until recently, the RS line has been in a downtrend since the beginning of Lyft’s trading history. But the RS line has rebounded over the past two months along with Lyft stock.
Lyft stock got a boost after the success of Prop. 22 in California and positive vaccine news. Shares of Lyft gapped up more than 26% on Nov. 9 and formed a lopsided cup base with a 41.29 buy point, according to MarketSmith pattern recognition.
Then, Lyft stock started forming a handle. Shares jumped 10% on Dec. 2 after the ride-hailing platform filed an 8-K report with the SEC updating ride-share trends for the quarter. The current report points to a more positive outlook for profitability in 2021.
That move pushed shares above the handle buy point of 41.51. Volume was heavy on the breakout, which was bullish. Much of the base formed below the 200-day line, which was not a good sign. But Lyft stock kept rising, with positive headlines providing big catalysts.
Shares are now extended from the 41.51 buy point. Lyft then offered another buying opportunity with a rebound off its 10-week moving average. That gave investors the chance to build enough of a profit cushion before the quarterly results were due.
But even with the strong chart action, fundamentals remain questionable.
Lyft: Is It A Buy Right Now?
Despite good news out of California, Lyft faces headwinds from the coronavirus pandemic as it struggles to attain profitability. Even when the pandemic fades and ride hailing regains momentum, Lyft is likely to keep losing money for some time. But investors are eyeing Lyft as an economic recovery play.
Lyft stock is trying to break its downtrend since its 2019 IPO. It’s still well below its IPO price of 72. But Lyft stock has improved dramatically in the past few months.
Bottom line: Lyft stock is currently extended from a proper buy point. Investors who are bullish on Lyft could have used the stock’s recent pullback to its 10-week moving average to initiate a position — sizing their positions off the 10-week line.
If the stock continues to power higher on earnings, existing shareholders may opt to lock in some profits. Those sitting on the sidelines should wait for a new proper entry to form.
Some earnings gaps are considered buying opportunities. But that’s for stocks breaking out of bases on their quarterly results. Lyft was already extended heading into its Q4 report.
Follow Alexis Garcia on Twitter at @IBD_Alexis.
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