Ride-hailing and delivery operation Lyft (LYFT) has been aggressively pursuing the same market that ride-hailing and delivery operation Uber (UBER) has been chasing for some time now. Thus, when Lyft made some key announcements about upcoming plans, they seemed to be a lot like Uber’s plans from just a few weeks prior.
I’m somewhat bullish on Lyft because Uber can’t be everywhere. If someone doesn’t turn to Uber, it’s a safe bet they’ll turn to Lyft instead. The more Lyft looks like Uber, the better the chance that it will do about as well.
The last 12 months for Lyft show the company could use some good news. Last year at this time, the company was close to $55 per share. Now, it’s under $17.
The latest news may well help. Lyft is taking almost every page from its rival’s handbook and putting the plans to work. Not only will Lyft slow its hiring pace, but also, it will reduce budgets on several fronts. While Lyft isn’t planning layoffs just yet, the company plans to not fill several open positions. Instead, the company will focus on the rides business.
Wall Street’s Take
Turning to Wall Street, Lyft has a Moderate Buy consensus rating. That’s based on 16 Buys and 10 Holds assigned in the past three months. The average Lyft price target of $41.08 implies 146.7% upside potential.
Analyst price targets range from a low of $21 per share to a high of $65 per share.
Investor Sentiment Has Its Ups and Downs
Lyft will have quite a ways to go to fully win investors’ trust. Lyft currently has a Smart Score on TipRanks of 3 out of 10, the highest level of “underperform.” That makes it more likely than not that Lyft will lag the wider market. Right now, most investors seem on the same page, though there are some bright spots here for Lyft.
One of those bright spots is not hedge fund involvement. Based on the TipRanks 13-F Tracker, hedge funds have pulled back for the first time since the April – June 2021 period. The reduction wasn’t large—a little over 72,000 shares against nearly eight million shares owned right now—but it was a reduction nonetheless.
Insider trading is an even worse picture for Lyft. The company’s insiders are heavily sell-weighted and have been for most of this year. Company insiders haven’t bought a share since February. Over the last three months, only sell transactions have been seen. Six such transactions took place in April, and March saw no activity recorded.
Going back over the full year, sell transactions lead buy transactions by a wide margin, coming in at a ratio of 37 sell transactions to 17 buy transactions.
Retail investors, meanwhile—at least, those who hold portfolios on TipRanks—are about the only real bright spot for Lyft investor sentiment. While the number of TipRanks portfolios that hold Lyft stock increased just 0.1% in the last seven days, that number is up 6.4% over the last 30 days.
Meanwhile, Lyft’s dividend history holds no bearing, as it doesn’t exist. Lyft instead seems focused on building the company’s share price instead.
You Can’t Beat Someone by Acting Just Like Them
Give Lyft some credit; it’s making moves that are likely necessary to its ongoing future. The fact that these moves are identical to its biggest competitor is at least somewhat coincidental. However, there is no way to beat an opponent when all you can do is mirror its movements.
Just because Uber did them first, however, doesn’t mean Lyft didn’t need to do them too. Lyft paring back its budget and slowing its hiring pace are sound responses to a market that’s likely to see certain reductions in its spending habits.
With the drivers Lyft currently has actively seeking pay raises to cover spiking gas prices and other inflationary demands, cutting back on hiring, in general, may be a good plan for Lyft.
There’s little sense in engaging in mass advertising campaigns to a market that isn’t buying anyway. Sure, some reminder advertising, a little “we’re-still-here” note every now and then has a salutary effect during even bad times, but big blitzes? No, that just doesn’t make sense. Neither does taking on a lot of new hires to address a dwindling crowd of users.
Lyft has made some positive moves as well. Last December, the company added food delivery services, letting Lyft drivers make extra money picking up food deliveries as well as passengers.
It’s also working with Drive Safe Hampton Roads to offer free rides for the Memorial Day holiday, a move that should offer safer roads and, ultimately, more goodwill for Lyft.
The problem in all this is that Lyft is pretty much just Uber with a different name now. Whatever move Uber makes, Lyft isn’t far behind. Lyft needs unique competitive advantages – stuff that the typical user can’t get with Uber.
After all, if there is no distinguishing feature, then Lyft becomes interchangeable with Uber and can’t poach Uber’s customer base. That limits its future potential for expansion and any hope of getting Lyft back to the $50 per share levels it saw 12 months ago.
Concluding Views
Lyft is keeping up with its competition nicely, but it’s doing so by aping the competition almost exactly. That’s not going to let it be a breakout success.
Uber may be trading below its lowest price targets right now, but even that isn’t much help. Lyft is at a decent buy-in point right now. However, its ability to achieve much beyond that will be limited for some time to come.
If you choose to regard Lyft as a long-term play, then this approach could work out well. Lyft stock likely doesn’t have much further to fall. Its plan to look a lot like Uber could at least let it weather the worst of the storm coming.
That’s particularly true given that Uber’s plan was a conservative response to declining conditions. Lyft will be impacted similarly by these conditions. Taking these steps now will help protect Lyft, and its investors, going forward.
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