IPO stock Lyft (LFYT) could turn profitable two years sooner than expected as fares rise and incentives fall — and as rival Uber (UBER) focuses on international growth, a Wall Street firm said. Lyft stock rose and Uber stock dipped.
Fare hikes will allow Lyft to “be EBITDA positive” in 2021 rather than the prior forecast for 2023, analysts Jake Fuller and Ali Faghri of Guggenheim said.
“Our perspective on the path to profitability has changed given the surprising progress shown over the last two quarters,” they wrote in a note to clients Monday.
Wall Street initially worried that the competitive ride-hailing business could make it tough for Lyft to boost fares or reduce driver pay. But the Guggenheim analysts see an improving backdrop under public ownership.
In particular, Uber is more likely to raise rather than lower fares in its core U.S. ride-hailing market, as it confronts large losses in international markets and the Uber Eats food delivery service.
That should allow Lyft to also raise prices and reach profitability quicker.
“Since Lyft only operates in the U.S. and only does ride hailing, they should be a beneficiary of this more rational competitive environment,” Faghri said in an e-mail.
Lyft Fare Hikes Buoy Optimism
The Guggenheim analysts added price increases should boost Lyft’s take-rate and yield narrowing losses. (Take-rate refers to the amount of fare Lyft keeps after paying the driver and some ride-specific incentives.)
“We assume more of price increases are retained vs. shared with drivers,” they said.
The firm upgraded Lyft shares to buy and set a price target of 60.
Lyft Stock, Uber Stock Are Depressed
Lyft stock rose 3.9% to 51.02 on the stock market today. Uber stock slipped 0.4% to 33.31. Shares of both ride-hailing companies have tumbled since their early 2019 IPOs and are near record lows.
But while Lyft reported a smaller-than-expected loss and a 72% revenue gain, Uber announced a massive loss that was far worse than views, while revenue growth slowed to a record-low 14%.
Analysts say “Fare hikes will allow Lyft to ‘be EBITDA positive’ in 2021.”
There is no evidence that the TNCs have sufficient pricing power to raise rates in 2020. Consumers check every day which TNC is offering a lower price.
For a decade, TNCs have focused on revenue growth rather than profitabilty. That ship does not turn quickly.