With over 22 million active riders per quarter before the pandemic, Lyft (LYFT) built itself into one of the largest global ride-hailing platforms. But Lyft stock, like rival Uber stock, has been a laggard since its public debut in March 2019. The long-term picture for ride-sharing and self-driving cars looks compelling. But the coronavirus lockdowns led to a collapse in consumer demand.
Ridership somewhat recovered in cities where stay-at-home orders have been relaxed. Still, Lyft and rival Uber (UBER) face an uncertain future amid prolonged shutdowns. That could mean the long path to profitability is now even further down the road for the two competitors.
Lyft’s reaction? To keep drivers and revenue afloat in the early months of the coronavirus stock market crash, Lyft pivoted to a temporary program focused on the delivery of essential items. The company also aggressively invested in autonomous-vehicle technology as a pathway for future revenue growth.
State labor regulatory reforms are an additional headwind. They threaten to upend the ride-sharing model and could significantly impact the future viability of the ride-hailing companies.
But is Lyft stock a buy now? It’s key to analyze the fundamental and technical picture first.
Lyft News: Regulatory Hurdles Threaten Profitability
Gig economy companies like Lyft and Uber are coming under increased regulatory pressure. This year, California enacted a labor law known as AB5 that targeted the ride-share platforms. That sparked intense backlash among the state’s freelancers.
The law mandates that companies reclassify many independent contractors as full-time employees. It makes them eligible for health benefits, minimum-wage guarantees, workers’ compensation and a slew of other labor protections.
In May, California sued the two companies for violating the controversial AB5 labor law. On Aug. 10, a California judge issued a preliminary injunction against the two ride-hailing firms. The ruling orders Lyft and Uber to immediately stop classifying drivers as independent contractors.
In reaction to the ruling, Lyft announced Aug. 20 it planned on suspending service in the state. But a California appeals court issued an emergency court order blocking the injunction later that day. The ruling averted a shutdown in service of the popular ride-share apps in the state.
Prop. 22 ‘Watershed Moment’ For Lyft Stock, Uber Stock
Amid the legal drama, Wedbush analyst Dan Ives describes AB5 as “a major gut punch to the gig economy’s future growth prospects.”
California voters will have a chance to reverse some of the negative effects of AB5 this November with Proposition 22. The ballot measure would provide wage protections and other benefits while maintaining drivers’ autonomy.
“There is a lot riding in the near-term on Proposition 22,” Ives said in a note to investors on Oct. 5. “It will be a watershed moment as it will not only be a big win in California but also will set precedent for how other states approach the issue.”
Ives says an even greater worry for investors is that legislation like AB5 will be exported to other states. High-sales regions like New York and New Jersey have similar legislation pending in their respective state houses.
Additionally, Democratic presidential nominee Joe Biden voiced his support for AB5. Going further, he supports a federal bill that would mirror California’s existing law.
“It’s not just about California,” Ives told IBD earlier this year. “It’s about setting a precedent where you could see this happen in other cities and potentially other countries.”
Lyft Earnings Amid Covid-19 Storm
Lyft’s second-quarter earnings in mid-August beat estimates. The ride-share platform reported an adjusted loss of 86 cents a share on revenue of $339.3 million. Analysts expected Lyft to lose $1.57 a share on revenue of $338.85 million.
Revenue dropped 61% from a year ago thanks to the coronavirus pandemic. CEO Logan Green told investors that while overall ridership was down significantly for the quarter, business appears to be picking back up as state restrictions relax. July’s monthly ride-share rides jumped 78% vs. April, when shutdown orders took effect in most of the country.
“Lyft’s second-quarter results reflect an operating environment that was not only challenging for our core ride-sharing business, but also for our valued riders and drivers and the communities we serve,” Green said on the earnings call.
Waymo Partnership ‘Critical’ To Lyft’s Future
Looking ahead, autonomous-vehicle technology could boost revenue and provide a pathway to profitability for the ride-hailing platform.
Lyft in 2017 announced a partnership with self-driving-car company Waymo. The subsidiary of Google parent Alphabet (GOOGL) provides a way to gain a foothold in the self-driving-car industry.
The first commercial rides of the Lyft-Waymo partnership began in 2019 in the Phoenix metro region. Lyft’s early move into self-driving-car technology spurred competitor Uber to develop its own self-driving unit that same year.
Uber sank some $7 billion in funds into the development of self-driving technology. That’s a big percentage of Uber’s $56 billion market cap.
“Our investments in AV (autonomous vehicles) are critical to Lyft’s future,” CEO Green said to investors during a presentation on Lyft earnings. “We expect that they’ll deliver strong returns in the long run despite Covid.”
Other large-cap players also invested heavily in the self-driving-car space. E-commerce giant Amazon (AMZN) acquired Zoox, a company that specializes in self-driving robotaxis.
Additionally, Tesla (TSLA) founder Elon Musk says his electric-vehicle company is close to achieving Level 5 — or complete — self-driving-car capabilities.
But most autonomous driving experts have pushed back their timeline for when Level 5 self-driving will be reached.
Lyft Stock Fundamental Analysis
To determine whether Lyft stock is a buy now, fundamental and technical analysis is key.
The IBD Stock Checkup tool shows Lyft stock has a Composite Rating of 13 out of a best-possible 99. The rating means Lyft stock ranks in the bottom 13% of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
In comparison, Uber stock has a Composite Rating of 57.
Lyft stock also has a poor EPS Rating of 29 out of 99. The EPS Rating compares quarterly and annual earnings-per-share growth with all other stocks.
Lyft Stock Technical Analysis
Lyft stock made its Nasdaq debut in March 2019 at 72 per share. It closed its first day of trading at 78.29. Since Lyft’s 2019 IPO, Lyft stock has been in a downtrend. It’s largely underperformed the overall market.
Take Lyft’s relative strength line. The line compares a stock’s price action with that of the S&P 500. Aside from brief peaks in July 2019 and late January, the RS line has been in a downtrend since the beginning of Lyft’s trading history.
Now, Lyft stock has a weak RS Rating of 6. That means some 94% of stocks outperformed Lyft stock over the past year.
Lyft stock is 55% below its 52-week high. By comparison, many growth stocks were hitting new highs months ago as they launched big runs in the post-coronavirus market rally.
The coronavirus pandemic hit Uber stock and Lyft stock particularly hard in February and March. Shares of Lyft plunged to an all-time low of 14.56 on March 18. The stock rebounded to hit a short-term high of 41.19 on June 8.
But Lyft steadily gave back a considerable portion of those gains. That June high corresponded with the stock hitting resistance at its downward-sloping 200-day line.
Plus, Lyft stock has struggled to hold above its 50-day moving average. Shares are once again back below that level. Growth investors should focus on stocks in strong uptrends that are trading above their 50-day and 200-day moving averages.
Lyft: Is It A Buy Right Now?
Lyft faces headwinds from the coronavirus pandemic and regulatory forces as it struggles to attain profitability. We saw a sharp overall rebound in the coronavirus stock market recovery. By contrast, Lyft stock has yet to break its downtrend since its 2019 IPO.
Bottom line? Lyft stock is not a buy right now, according to IBD analysis.
Follow Alexis Garcia on Twitter at @IBD_Alexis.
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