It’s not clear how things can really get any worse for Lyft.
For one thing, the ride-sharing service has been crushed by the Covid-19 pandemic. In the June quarter, revenues were down 61%, while active riders were off 60%. On an adjusted Ebitda basis (earnings before interest, taxes, depreciation, and amortization), the company lost $265.8 million in the quarter—and that was actually better than expected.
Meanwhile, the company is engaged in a fierce legal and political battle with the state of California, trying to avoid compliance with AB5, the law that went into effect earlier this year that requires Lyft (ticker: LYFT) and rival Uber Technologies (UBER) to classify their drivers as employees rather than contractors. Earlier this week, a California Superior Court judge issued a temporary injunction barring the two companies from continuing to classify drivers as contractors. The injunction was stayed pending appeal—but unless the court changes its position or extends the stay, both companies are likely to suspend their operations in California.
That is a particular issue for Lyft, which generates about 16% of its bookings in the Golden State. The sector’s best hope is likely Proposition 22, a ballot measure backed by Uber, Lyft, DoorDash, and Instacart to be considered by California voters in November that would effectively exempt gig-economy companies from complying with AB5.
Lyft shares, down more than 5% on Thursday, have declined 32.7% year to date, reflecting the toxic combination of the effects of the economic shutdown and the threats that increased regulation will damage the company’s business in California. The question analysts are grappling with is whether investors should be inching into the stock to await an eventual rebound in demand.
“In our coverage, Lyft has experienced the most pronounced impact from the U.S. lockdown but should be the biggest beneficiary as the economy reopens,” Monness Crespi Hardt’s Brian White writes in a research note, adding that the company “provided some light at the end of the tunnel” on reaching profitability. But he keeps his Neutral rating on the stock.
Canaccord Genuity’s Michael Graham suggests bottom-fishing. “We see Lyft shares embarking on a steady recovery in coming months as demand is likely to return and investors should look forward to growth and improving profitability next year,” he writes in a research note. Graham keeps his Buy rating and $50 target price.
Wedbush analyst Daniel Ives stays bullish as well. “In our view, the most important takeaway from the quarter is Lyft’s improved positioning towards reaching profitability,” he writes. “Even if the pandemic environment now lasts longer than we initially expected, we continue to believe Lyft will be a net beneficiary and come out stronger in terms of share gains, a more efficient cost structure, and a well-capitalized balance sheet.” He sticks to his Outperform rating, though he trims his target price to $37 from $48.
Ives floats the idea that shutting down in California could actually drive support for Proposition 22, “as consumers would likely feel frustrated if ridesharing all of a sudden exited the state, in our view.”
Needham’s Brad Erickson is sticking with his Buy rating and $41 price target. He advises investors to be patient, citing three reasons to stay bullish. “We remain in front of any inflection to fundamentals that would dramatically improve sentiment,” he says. “Investors remain skeptical that the model can work, which we think can be overcome inside of the next 12 months. And we believe legislative challenges would serve to create only temporary dislocations, if any.”
Lyft shares were down 5.1%, at $28.97, in recent trading.
Write to Eric J. Savitz at eric.savitz@barrons.com
August 14, 2020 at 02:29AM
https://www.barrons.com/articles/after-a-rotten-quarter-and-negative-court-decision-bulls-still-like-lyft-stock-51597346963
Bulls Still Like Lyft Stock After a Rotten Quarter and Negative Court Ruling - Barron's
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