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Typos Aside, Is Lyft Worthy of Your Hard-Earned Capital?

Barchart - Wed Feb 14, 10:08AM CST

Lyft (LYFT)reported its Q4 2023 results after Tuesday’s close. The press release included one of the most unusual typos seen in an earnings report in quite some time.

The company stated that its EBITDA (earnings before interest, taxes, depreciation and amortization) margin would increase by 500 basis points in 2024. Based on 1.6% in 2023, that would equate to 6.6%, an astronomical improvement year-over-year. 

Alas, it wasn’t to be. CFO Erin Brewer was the bearer of bad news in the company’s conference call with analysts. 

“This is actually a correction for the press release,” MarketWatch reported the CFO’s comments during the call while answering an analyst’s question about the discrepancy between the two figures. “You’re correct in my prepared remarks, I referenced 50 basis points of margin expansion.”

And, in a flash, the 6.6% target was reduced by 68% to 2.1%.

Unfortunately, not everyone got the news. LYFT stock was up by as much as 60% in the extended session. Early in Wednesday trading, some of those gains have been erased, but it’s still up more than 32% as I write this. 

Investors are saying with or without the typo, Lyft is a buy. I’m not so sure. Here’s why.

The Year That Was 

Regarding ride-hailing, I've always felt that Uber Technologies (UBER) was the better company. However, one can't dismiss the big move LYFT stock is experiencing today. There has to be something to it.
For starters, the company delivered more than 709 million rides in 2023, the highest annual level in the company's history. That led to gross bookings of $13.8 billion (14% growth), generating $4.4 billion in revenue (8%) and a 153% increase in adjusted EBITDA to $222.4 million. That last figure is a margin of 1.6%, which I mentioned earlier, up 510 basis points from -3.5% in 2022.

That’s all good. Hence, Brewer’s positive comments in the press release.

“We’ve entered 2024 with a lot of momentum and a clear focus on operational excellence, which positions the company to drive meaningful margin expansion and our first full-year of positive free cash flow.”

Ah, there are three of the most lovely words in the English language. Free. Cash. Flow.

How much free cash flow in 2024?

Its revenue is expected to be $4.7 billion in 2024, based on 32% of its $14.7 billion in gross bookings, which the company projects to grow 6-7% over 2023. With an EBITDA margin of 2.1%, its EBITDA should be $309 million. Lyft believes it will convert 50% of its EBITDA to free cash flow, which is $154.5 million. 


Is Lyft the Best Buy?

There is no question that Lyft’s Q4 2023 and full-year results were extremely healthy. As I said earlier, you don’t get a 30%+ jump in its stock price if investors are disappointed. 

So, how does it compare to Uber?

Uber reported its Q4 results on Feb 7. The investor response was minimal. However, today, UBER shares are up more than 20% in sympathy with Lyft. 

In 2023, Uber had 9.45 billion trips in 2023, up 24% from a year earlier. That’s 13.3x Lyft. Its gross bookings, excluding currency, rose 20% year over year to $137.87 billion. That translated into $37.28 billion in revenue, a margin of 27%, 500 basis points less than Lyft’s.

Uber’s adjusted EBITDA in 2023 was $4.05 billion, or 2.9% of its gross bookings, 130 basis points higher than Lyft's. It converted 83% of its EBITDA into free cash flow, 33 percentage points higher than Lyft’s approximate conversion rate for 2024. 

Let’s assume that Lyft will generate $155 million in free cash flow in 2024. Based on its enterprise value of $5.7 billion, it has a free cash flow yield of 2.7%. Anything below 4% is considered expensive. 

Turning to Uber, let’s assume that its free cash flow in 2024 increases by 25%. That would be $4.2 billion. Based on an enterprise value of $165.5 billion, its free cash flow yield is 2.5%.

That’s pretty darn close. It's a lot closer than I thought it would be. 

Should You Buy Lyft After a 30%+ Gain?

The difference between buying UBER stock and LYFT is that you know the former can deliver free cash flow. The latter is merely a promise that it will be free cash flow positive in 2024. That’s a big difference. 

However, in 2022, Lyft’s FCF was -$352.3 million. In 2023, it cut that to -$248.1 million and a positive FCF of $14.9 million in Q4 2023, which suggests it's very likely to generate positive free cash flow in 2024.

How much is the question?

While I still prefer Uber’s overall business to Lyft, investors interested in buying after today's gains might want to explore options as a way to limit your exposure. 

I like the June 21 $19 call. Its Vol/OI ratio is 50.42 with an ask price of $1.80, a 9.5% down payment on LYFT shares. With 128 days to expiration, you’ve got nearly five months to either make money selling the call before expiration or exercising your right to buy 100 shares for $2,080.

If it comes back down to earth, you’re out $180.



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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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