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Why Lyft (LYFT) Shares Are Getting Obliterated Today

StockStory - Fri Dec 29, 2023

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What Happened:

Shares of ride sharing service Lyft (NASDAQ: LYFT) fell 5.4% in the morning session after Nomura downgraded the stock from neutral to reduce, stating Lyft’s growth could be limited due to its shrinking market share and low profitability compared to peers. The firm still upped its price target to $13 from $11.70, but the target remains under the current share price. Nomura also downgraded Uber, sending the stock down 2.4%.

Zooming out, 2023 has been splendid for the market, with the S&P 500 up nearly 25%. The year began with a surge in technological advancements, propelling the tech sector to new heights. Companies pioneering in artificial intelligence experienced a renaissance, capturing the attention of investors and driving substantial gains. Not all sectors, however, flourished equally. Traditional industries like consumer durables faced headwinds as consumers reeled in large expenditures, prompting a wave of restructuring and strategic realignment. More recently, the market has surged over the last two months. Inflation has come in below expectations, prompting the Federal Reserve to pivot from a hawkish to a doveish stance--it is now projecting interest rate cuts in 2024, a tailwind for stocks as it lowers the discount rate applied to future cash flows. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Lyft? Access our full analysis report here, it's free.

What is the market telling us:

Lyft's shares are quite volatile and over the last year have had 51 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The biggest move we wrote about over the last year was 8 months ago, when the company dropped 15.5% on the news that the company reported revenue and earnings per share (EPS) in the first quarter that came in ahead of analysts' estimates. Active riders was in-line while revenue per rider beat slightly. However the company still faces cash burn issues. In addition, revenue and adjusted EBITDA guidance for the next quarter missed analysts' expectations. This means the debate continues on long-term growth and margin levels. Overall, the results were poor, especially in light of Uber's strong earnings earlier this week.

Lyft is up 33.9% since the beginning of the year, but at $14.91 per share it is still trading 16.8% below its 52-week high of $17.93 from February 2023. Investors who bought $1,000 worth of Lyft's shares at the IPO in March 2019 would now be looking at an investment worth $190.19.

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