To The Moon

$Lyft, Inc.(LYFT)$

Earning Overview

In the fourth quarter of 2024, Lyft reported a revenue of $1.55 billion, marking a significant increase from the previous year. The company also achieved a net profit of $61.7 million, reflecting its first full year of positive free cash flow and profitability.

Despite these gains, Lyft anticipates a slowdown in booking growth for the first quarter of 2025, projecting gross bookings between $4.05 billion and $4.20 billion, below Wall Street's expectations of $4.24 billion. This cautious outlook is attributed to competitive pricing pressures from rivals like Uber and the conclusion of a partnership with Delta Air Lines, which is expected to reduce gross bookings by 1% to 2% starting in the second quarter.

Now, let’s dive into the results and how they align with the company's long-term strategy.

Fundamental Analysis

Starting with a high-level overview, Lyft's gross bookings for 2024 surged 16%, reaching $16.1 billion, with a total of 828 million rides. Margins have been improving, which has been a key factor in Lyft’s path to profitability—similar to Uber—by increasing its take rate and leveraging operational efficiencies. Quarterly gross bookings continue to trend upward, reflecting strong business momentum.

Gross bookings represent the total money flowing through Lyft’s platform, while revenue reflects the company's share after driver payouts. Maintaining a balance between driver earnings and company margins is crucial, as happy drivers are essential to sustaining a healthy two-sided marketplace.

In Q4, gross bookings hit an all-time high, growing 15% year-over-year, with ride volume also increasing by 15%. However, the number of active riders rose modestly to 24.7 million, which is slightly disappointing given that Lyft operates solely in North America. While the rider base isn’t expanding as quickly, existing users are engaging with the platform more frequently.

On the profitability side, Lyft has made significant progress. In early 2023, the company was on the verge of losses even on an adjusted EBITDA basis. Now, it has reached a run rate of approximately $113 million in adjusted EBITDA. Free cash flow also saw a major boost, reaching $766 million. Given Lyft’s market cap of around $6 billion, this results in a price-to-free cash flow ratio of under 10—an attractive valuation.

This financial strength likely influenced management’s decision to authorize a $500 million share buyback, further signaling confidence in the company’s future.

Guidance

In response to market dynamics, Lyft has implemented competitive pricing strategies, leading to reduced base prices and discounts to attract riders. While this approach has resulted in increased ride numbers and driver hours, it has also impacted revenue.

Looking ahead, Lyft plans to introduce approximately 1,000 Mobileye-powered robotaxis in Dallas by 2026, in partnership with Marubeni. Additionally, the company has authorized a $500 million stock buyback program.

Management announced a $500 million share buyback, which, given the company’s relatively low market cap, could significantly reduce the number of outstanding shares and create additional upside potential. If the company successfully capitalizes on its vision for autonomy, this move could further enhance shareholder value.

Looking ahead to the first quarter of 2025, Lyft's projections were somewhat disappointing for investors. The company expects gross bookings to fall between $4.05 billion and $4.2 billion, reflecting only a 10% to 14% year-over-year growth. During the conference call, management highlighted that pricing pressure is a factor, as they aim to balance market share maintenance with profitability. They are targeting an adjusted EBITDA margin between 2.2% and 2.3%. However, even slight price reductions could negatively impact gross bookings.

Aside from financial metrics, management discussed several key non-financial factors. Notably, driver sentiment is improving, which is critical for attracting more drivers to the platform. This increase in supply is expected to drive higher demand for Lyft services. Additionally, the company is seeing record driver hours, which is directly correlated with the growth in bookings. All these factors are contributing to the positive momentum in Lyft’s key metrics, building on the improvements seen since the start of fiscal 2023.

Free Cash Flow

Let’s focus on Lyft’s cash flow, which is an important aspect. For the year, cash flow from operations amounted to $859 million, showing that the company is essentially breaking even, with a slight positive margin. A significant portion of this comes from non-cash expenses like depreciation and amortization ($150 million) and stock-based compensation ($331 million). While stock-based compensation doesn’t impact cash directly, it is a considerable expense for a company with a $6 billion market cap, so it’s something to watch closely.

Another notable factor is the reduction in insurance reserves, which fluctuated over the past year and could lead to volatility in future periods. In fact, a large portion of the free cash flow ($500 million) isn't sustainably generated from operations, meaning that while it is still cash on the balance sheet, these elements could turn negative in the upcoming quarters.

On the balance sheet, Lyft is in a relatively strong position. The company holds $759 million in cash and equivalents, with an additional $1.2 billion in short-term assets, bringing total liquidity to around $2 billion. In addition, Lyft has $1.4 billion in restricted investments. Liabilities total $1.7 billion, including insurance reserves and accrued liabilities. Notably, Lyft carries only $566 million in long-term debt, which isn’t a cause for concern.

Overall, Lyft’s balance sheet looks solid, with manageable debt and substantial cash reserves.

As of last Wednesday, Lyft shares have dropped approximately 6.4%, which indicates the market’s disappointment with the latest results. However, I believe Lyft is moving in the right direction. As the second-largest player in the North American ride-sharing market, they remain well-positioned for future growth.

Autonomy and Future Potential

While Lyft isn’t likely to expand internationally anytime soon, they are in a strong position, especially when it comes to autonomy. They have May Mobility, which could launch later this year, and a partnership with Mobileye that could bring autonomous vehicles to the market by 2026. This gives Lyft an opportunity to enter the autonomy space.

As the number two player in the North American ride-sharing market, Lyft has the advantage of being a smaller company, which could allow it to disrupt its current business model on a city-by-city basis, something larger competitors like Uber might struggle with. Uber, with its massive fleet of drivers, would face significant challenges if it were to shift entirely to autonomous vehicles, as it would need to replace a large portion of its workforce. In contrast, Lyft may find it easier to integrate autonomy more smoothly and quickly, which presents a clearer path for future growth.

If Lyft can capture market share in the autonomy space, it could lower costs, expand its addressable market, and even increase its margins. One of Lyft's key advantages is its existing infrastructure, which could support the operation of autonomous vehicle fleets. They already have vehicle cleaning facilities, partnerships to finance fleet operators, and lots dedicated to vehicle storage—all of which are critical for scaling up in this new area.

From a valuation standpoint, Lyft shares currently look attractive. The enterprise value-to-sales ratio is about 0.9 on a forward basis, and the price-to-earnings multiple is just 13. Additionally, management has authorized a $500 million stock buyback, potentially repurchasing shares at a favorable multiple.

The core business is still growing at a healthy double-digit rate, even if it’s not expanding as rapidly as the market anticipated. This slower growth could present an excellent buying opportunity for investors looking for long-term value, especially given the upside potential in autonomy.

Valuation

As of early 2025, Lyft's valuation stands at approximately $6 billion in market capitalization. This is considered relatively low, especially compared to its competitors like Uber, which has a significantly higher valuation. Lyft’s valuation is attractive, particularly when you consider its strong cash flow and the potential upside from future growth in autonomy and ride-sharing infrastructure.

With a price-to-earnings (P/E) multiple of 13 and a forward enterprise value-to-sales ratio of about 0.9, Lyft's stock appears to be undervalued, offering potential for significant upside if the company successfully leverages its position in the market and capitalizes on new opportunities in autonomous vehicles.

The $500 million share buyback announced by management could also enhance shareholder value by reducing the number of shares outstanding, potentially boosting earnings per share (EPS).

Market sentiment

The market reacted negatively on Wednesday, with shares dropping over 10% early in the trading session. While there was some recovery throughout the day, the stock remains a high-opportunity investment with asymmetric potential. Although the company is progressing in the right direction, it may not be moving at the pace the market desires.

Conclusion

if the stock stays at its current level, I’ll likely continue to add over the next few months as part of my asymmetric investment strategy. There’s a lot to like about Lyft’s performance this quarter, with momentum moving in the right direction. However, the real asymmetric potential lies in the company’s push into autonomy. While we may not see the full impact for a few years, autonomous vehicles could provide a significant tailwind, potentially expanding the market for ride-sharing by 10x or more over the next decade. This could open the door for Lyft to capture market share while benefiting from broader industry growth.

I’d love to hear your thoughts on Lyft’s results—feel free to leave a comment below

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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