Face it, sometimes, there is no way to drive and ride-hailing solutions like Lyft and Uber are the way to go. But what is Lyft up to these days?
Key takeaways on Lyft
- Lyft is a ride-hailing, rental, and delivery service company with a market capitalization of $19 billion and 33% of the US market.
- It is likely that the company will benefit from the surge in travel as a result of greater mobility, as well as the growing trend of not owning a car.
- A short-term problem is the lack of drivers, which has a direct effect on price and disincentivizes users.
- Clearbridge, an investment fund is bullish on Lyft, agreeing with many other analysts.
- Bonus point: the company is now testing its brand-new fleet of e-bikes, with a promising design.
What is Lyft?
If you have not been in the US, you might not yet know Lyft, Uber’s competitor on Uncle Sam’s territory. Lyft is a San-Francisco based ridesharing company that currently has a market capitalization of $19.2 billion. The company’s offer ranges from uber-like ride-hailing solutions to motorized scooters, car rental, bicycle-sharing and even food delivery.
So far, the company has decided to focus on the US market, operating in over 644 cities across 40 states, with a couple of cities in Canada too. For the US market, Lyft is second only to Uber, with a 33% market share.
(Shared) mobility on the rise
With restaurants, bars, offices, and many public places opening again, there is pent-up demand to move around and meet the people you have not seen much in the past year. This can be seen in Uber and Lyft rides, which grew each month since the beginning of the year.
Not only that, but both companies are banking on the new trend or ride sharing, which goes along with less interest in car ownership: it is cheaper and more convenient, especially in urban areas. However, cheapness is not a given, at least in the short term, as you will see in the next section.
Rising ride costs for both Lyft and Uber
Many riders in the US found that they recently had to wait for a very long time to get a ride-hail. Worse, the fare was much higher than at the same time a year ago, with a price increase of 37% higher for March and 40% for April.
The reason for the cost surge? A simple lack of drivers in the face of an economic recovery. When there are too few drivers, these companies pay their them more, a cost increase directly reflected in the final consumer price. At the same time, the driver shortage cannot easily be solved. Cash incentives are not as effective as they were before the pandemic, with some drivers afraid to get behind the wheel for fear of getting sick.
Additionally, while drivers should technically not receive financial aid as independent contractors, Uber and Lyft are eligible for Pandemic Unemployment Assistant funds, which means that drivers have no financial pressure to get back on the road.
In the first quarter of the year, Lyft paid no less than $100 million in driver incentives. And thankfully, with success, as the company saw drivers lead – the number of drivers interested to work on the platform – go up 25% between February and May.
According to Gridwise, these incentives have contributed to a raise in ride hailing wages from $18/hour to $25/hour between January and May. This is not a surprise: if you cannot find workers, it is likely that you do not pay enough. The remaining question is the following: to which extent can you pass on this cost to your final customers before they decide to abandon the use of your service?
Lyft stock as an investment? Clearbridge’s take on the matter
Clearbridge investment is an investment management firm, which manages the Clearbridge Mid Cap Growth Strategy, a fund which outperformed the benchmark Russell Midcap Growth Index in 2021 year to date with a 4.04% return vs 3% for the latter.
In their Q1 2021 letter to investors, they mentioned Lyft and share favourable insights on the company. Lyft managed to deliver a 24.47% return on investment since the beginning of the year, which extended its 12-months gain to 43%. With such encouraging results, the fund has decided to open a position in Lyft stock.
Clearbridge is betting on accelerated growth, thanks to not only Lyft’s ability to reach their milestones, but also because of the global economic recovery which threw people back in motion, as they state in their letter: "New purchase Lyft, the No. 2 U.S. rideshare operator, is exclusively focused on the secular growth opportunity in the rideshare market and stands to be a direct economic reopening beneficiary. The company made tremendous progress on margins during 2020 and improved its ability to meet long-term targets. Lyft is also leveraged to the eventual transition to autonomous driving."
Even if Uber has a firm grasp on the market, there is likely room for growth for both companies, with a total market of $452 billion in annual sales (ex-China).
As of June 07, 2021, the stock is trading at $58.85. Currently, Lyft trades 14% below Morningstar’s estimated fair value of $67, and J.P. Morgan analyst Anmut has a year-end price target of $72 for the stock. As a comparison, this price is only 5 times their 2022 expected sales, vs. 8 times for their internet marketplace friends, making them relatively cheap versus the rest of the technology sector.
Bonus section: launching a new e-bikes fleet
Likely preparing for the resurgence of movement and mobility in cities, Lyft is now testing its brand-new fleet of e-bikes, starting in San Fransisco, and then expanding to New York and Chicago. The company does have a history with e-bikes, but not without incidents (link -> https://www.theverge.com/2020/2/19/21142346/citi-bike-electric-ebike-nyc-return-brake-malfunction). It seems that this time, it aims to do better.
Product manager Gary Shambat explained that to make an e-bike fleet is nothing like patching up existing products and throwing them on the market. These bikes have to be designed and built to endure wear, tear, and vandalism. While they might look similar, these are designed to last.
It has a 60-mile range (96km) and is powered by a 500W motor. Its system of sensors sends out alerts to your screen in case of battery or a breaks issue. Finally, its LED-light circle that can change colour also adds options which could set it apart from other e-bikes, such as turn signals, warning lights or simply to locate the bike.
New Lyft e-bikes (source: Lyft)