Summary
- Lyft shares look priced at bargain levels near $11 following a 36% plunge following Q4's report and Q1's weaker-than-expected guidance.
- Although the guidance raises questions about Lyft's turnaround plan, the ride-hailer trades at a steep discount to Uber.
- Even with the assumption Lyft falls short of FY24 EBITDA and FCF estimates and still trades at a discount to Uber, shares could see meaningful upside.
After shares in Lyft ( LYFT ) plunged over 36% following a weaker-than-expected Q1 guide that raised concerns about the company falling further behind in an uphill race against Uber ( UBER ). There's little debate that Q1's guidance was underwhelming, with Lyft forecasting revenues over 10% below consensus and predicting a -94% q/q decline in EBITDA from Q4's $126.7M adjusted figure to ~$5M to $15M. After digging into the details of Lyft's and Uber's Q4 reports, Lyft looks like a bargain buy at $11, given the company can come within 25% of reaching its CY24 targets.
Lyft Q4 Earnings Breakdown -- Between The Lines
Lyft recorded +21% revenue growth to $1.18 billion for FQ4 , capping the year off with $4.2 billion in revenues, +28% y/y. Lyft also recorded adjusted EBITDA of $126.7 million, ahead of guidance and excluding $375 million in impacts from increased insurance reserves and accrued liabilities.
Lyft's Q1 guidance led to the sharp decline in shares and a wall of worry from analysts -- BTIG's Jake Fuller says it is " difficult to see how LYFT can be competitive on price AND ramp margin towards levels contemplated in prior 2024 objectives without further and substantial cost cuts." KeyBanc's Justin Patterson said the firm has "more questions on whether revenue can achieve mid-to-high teens growth" in 2023. Valid points here, but irregardless, a deep dive into Lyft's Q4 earnings shows that shares are priced near bargain levels for a risk-on approach in the low $11s.
Some of the key highlights gleamed from the report include:
- Q4 active riders show minimal q/q growth to 20.35M, but recorded +8.7% y/y growth from 18.7M
- projections for -91% q/q decline in adjusted EBITDA to $5M to $15M
- revenue per active rider +11.5% to a record $57.72
- Q4 EBITDA margin of ~7%
- operating expenses as a % of revenue continue to fall
Overall, Lyft's results reinforce the view that the ride-hailer is not the two-headed giant that Uber is within mobility and delivery, but suggests that underlying trends are in place to drive a meaningful recovery in the back half of 2023 and CY24.
Active riders remain just shy of a high reached in Q1 '20 prior to the pandemic, with major West Coast markets -- Los Angeles and San Francisco -- as well as Washington DC, less than two-thirds recovered. Since then, however, revenue per active rider has surged +28.1% to $57.72.
So over the course of the 2.5 year pandemic recovery, Lyft has driven revenues to a record level by Q4 '22 by driving revenue per user higher, rather than by adding more users.
The question for 2023 -- can Lyft drive both revenue per user and riders to new highs following seasonal (and guided) weakness for Q1? Lyft's weaker revenue guide reflects the combination of seasonal declines in ride volumes along with less Prime Time (similar to Uber's surge pricing), and a likely 0.5M to 0.7M decline in active riders .
Taking a look at Lyft's key market recovery metrics, the company is missing major volumes in key markets -- Los Angeles and San Francisco, two of the largest ride-hailing markets, have only reached ~50% of Q4 '19's levels. With LA projected to have a $2B ride-hail opportunity with over 13 million metro residents, per Waymo , the lack of recovery in over three years is likely stalling ridership numbers and revenue growth.
Now back to Q1's guidance, as that is the main story and catalyst at play:
The major expected decline in EBITDA for Q1 raises some red flags about Lyft's cost cutting plan and execution of a turnaround story, given that the projected $5M to $10M figure would be the lowest adjusted amount since Lyft broke into adjusted EBITDA profitability in Q1 '21.
Lyft is showing progress in improving operating metrics -- operating expenses as a % of revenues continue to decline, while contribution margin continues to increase. Excluding impacts related to the insurance readjustment, Lyft recorded its highest contribution of $640M at a 54.5% contribution margin, 3 percentage points above its guidance range. With no insurance adjustments and Lyft's cost cutting plan taking place alongside declining SBC, opex is expected to further come down in Q1.
In terms of EBITDA, Lyft recorded an adjusted EBITDA margin of ~7% from Q4; prior to non-GAAP changes regarding insurance readjustments, full-year EBITDA was $326.8M, or a margin of nearly 8%. Q1's projected EBITDA of $10M at midpoint would represent a razor thin ~1% margin, which Lyft CEO Logan Green says "is obviously not the level of growth or profitability we are aiming for or capable of." Declines in Prime Time (periods where rider demand outstrips driver supply) and lower pricing are factors behind this weak projection.
While it is weak on the surface, it's a necessary step taken to increase rider conversion rates and improve service levels in a quarter with "real softening" seen so far. Q1's weak revenue growth still represents +11% y/y growth, suggesting that if Lyft can hit its strides with realigning driver supply and rider demand, followed by increasing prices through the remainder of CY23, it could see revenue growth of +9% to +11% to $4.55B to $4.65B.
A Bargain At $11
Following Lyft's 36% plunge, shares look like a bargain around $11 even with the below-expected forecast for Q1. At projected sales of $4.6 billion and adjusted EBITDA of $250 million (a ~5.5% margin), Lyft is valued at just 0.74x EV/revenue and ~13.4x EV/EBITDA, far below Uber's ~2x EV/revenue and ~22.7x EV/EBITDA.
After commanding similar multiples through FY21, where business recovered following lockdowns, Lyft is now trading at a substantial discount to Uber. Arguably, Uber deserves a premium due to holding a commanding position in both mobility and delivery, with profitability and strong free cash flow growth in sight.
For Lyft, valuing the company at a discount to Uber based on CY24 EBITDA and FCF metrics, while assuming Lyft falls ~25% short of prior targets, shows that shares could still find meaningful upside ahead.
Uber is projected to generate about $5.1B in EBITDA and $4.2B in FCF during FY24, valuing the company at about 15.7x EV/EBITDA and 19x EV/FCF.
Lyft had laid out internal targets to generate $1B in EBITDA and over $700M in FCF in CY24 in November, but noted after Q4's release that Q1's EBITDA weakness "will impact" those targets -- to what degree is not known yet, but we're modeling on a 25% miss. Currently, Lyft is valued at about 3.4x FY24 EV/EBITDA and 4.5x EV/FCF -- again, a huge discount to Uber.
With that 25% cut, Lyft would be projected to earn about $750M in EBITDA and about $560M in FCF, which we believe is more reasonable following a 'recalibration' period in 1H '23 with driver supply levels, setting up for a stronger marketplace moving through 2024.
Here's why we see Lyft as a strong bargain:
Stripping down Uber to its core mobility business -- that is, excluding the $1.2B benefit from the UK business model change ( booking entirety of fare/incentives as revenue instead of simply taking a cut) -- shows just $2.9B in revenue, or approximately +30% y/y growth for Q4. Uber's take rate would decline from 20.1% to 19.8% here. Mobility EBITDA also came in at $1.0B for Q4.
For FY22 , Uber's mobility revenue was approximately $10.5B, up +41% y/y, again excluding UK business model change/accrual benefits. Segment EBITDA was $3.3B, up +107% y/y.
With the segment's status as a primary contributor to EBITDA and a significant driver of revenues, in a brief sum-of-the-parts valuation given Uber's $80B EV, mobility could drive about 50% of that value, with delivery contributing about 40% and freight 10%. Thus, Uber's mobility segment would be valued accordingly at ~13x EV/EBITDA and ~3.8x EV/revenue.
Now to Lyft -- for operating in just the US and Canada, Lyft is operating similarly to Uber from a pure mobility standpoint -- about +21% growth in Q4 compared to Uber's +30%. Given Uber's much broader geographic presence, that's to be expected.
For FY24, initial projections for Uber's mobility segment place revenues at ~$17.2B, growing around ~28% on average, with EBITDA projected around $5B. Assuming a ~$40B EV contribution, the segment would be valued at about 8x FY24 EBITDA. Valuing Lyft at a 25% discount to Uber's EBITDA multiple, at ~6x -- taking into account a lower segment EBITDA margin -- still would see Lyft valued at a $6B EV, or ~76% upside to current levels.
On a FCF basis, valuing Lyft again at a 25% discount to Uber's 19x FY24 EV/FCF multiple on a $560M forecast, below prior targets for $700M FCF, would value the company at ~$7.8B, or ~130% upside to current levels.
Overall, Lyft is facing a challenging year -- the company is already struggling to show progress and has cast doubts over its turnaround plan, with Q1's weak guidance already impacting CY24 financial targets, according to management. However, for investors willing to take a risk-on approach, Lyft's shares look to be priced at bargain levels -- even valuing the company at discounts to rival Uber for relatively similar performance on a strict mobility segment comparison could drive meaningful upside in shares.
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Lyft: A Bargain At $11