1) On April 17, I wrote about the "epic short squeeze" that sent shares of car-rental giant Avis Budget (CAR) skyrocketing from around $100 in March to a peak of $847.70 in April.
With the stock around $500 that day, I said, "I would guess that we're very close to the top and that Avis' stock will soon be back to around $100 per share."
Sure enough, it peaked three trading days later and quickly crashed to around $150. It has traded between $150 and $190 ever since.
The company reported weak second-quarter earnings after the market close on Tuesday, and the stock tumbled 7% yesterday.
Revenues fell 1% year over year to $3 billion, missing estimates of $3.1 billion. And earnings per share ("EPS") of $0.98 badly missed expectations of $1.91.
Avis crowed about "record high" total company vehicle utilization (the percentage of its fleet that's actively rented by customers). But astoundingly (especially for a heavily indebted company), it didn't report a full balance sheet or cash-flow statement.
This is a bad business with a bad balance sheet that's not releasing critical information to investors... Yet the stock is still 50% above where it was before the short squeeze.
I would continue to avoid this stock at all costs.
2) Things are going from bad to worse for ChatGPT operator OpenAI.
I've been warning my readers about OpenAI for years, calling it "a cash-burning furnace" (archive here). And as I predicted, its struggles are now affecting the entire AI sector...
The latest bombshell was this Wall Street Journal article over the weekend:
Nvidia is in talks to provide a roughly $250 billion backstop for OpenAI as part of a massive data-center project, one of the most ambitious financial transactions yet in America's artificial-intelligence boom.
The guarantees from Nvidia would help the ChatGPT maker lease a 10-gigawatt project that SoftBank's energy subsidiary is developing in southern Ohio, people familiar with the matter said. In total, the project could cost more than $500 billion, including the chips that would go inside the data centers. It would be the largest data-center project announced to date...
Nvidia's backing would allow the data-center developer, which is owned by Japanese billionaire Masayoshi Son's investment firm SoftBank, to raise debt at more favorable terms than it could if OpenAI had no financial backer, since OpenAI has no investment-grade credit rating as an unprofitable private company.
This X post is a good summary of the head-spinning, circular financing at play here:
This is the kind of nonsense that characterized the late stages of the dot-com bubble.
For more on this, see these two in-depth posts by blogger Ed Zitron, who first uncovered OpenAI's dreadful financials (which I discussed in my June 17 e-mail):
In fact, this WSJ article on June 8 was a great sign of a top for the AI bubble, as it lauds the AI-focused hedge fund of 24-year-old Leopold Aschenbrenner.
But now, after the AI rout, his hedge fund is seeking to raise capital, as this Financial Times article reports. The situation is summed up well in this X post:
I'll conclude by sharing the old Wall Street saying: "What's the definition of a stock down 80%? Answer: one that's down 60% – and then gets cut in half!"
3) Ride-hailing company Lyft (LYFT) continues to be a short-seller target, with an extremely high short interest – 23.6% of shares outstanding.
It was the target of a recent report by Bleeker Street Research entitled, "Lyft: Massive Liabilities, Limited Capacity to Pay Them, and a Deteriorating Business Outlook."
Here's the main thesis of the report:
Lyft faces an estimated $1.3 to $2.7 billion of exposure from consolidated rideshare sexual-assault litigation against only $533 million of combined legal and tax accruals, of which little, if any, appears to be set aside for such claims. In fact, no specific sexual assault-related accrual appears on Lyft's balance sheet, which has only $1.7 billion of unrestricted cash and investments.
Bleeker Street also asserts:
The business underneath the liability is structurally second-rate. Lyft holds about 24% of the U.S. market against Uber's 76%, and it has resorted to chasing "underserved markets" and inorganic growth via international acquisitions of services businesses and low-growth assets prior owners did not want to retain.
This report raises a risk factor I hadn't considered, but that doesn't mean the stock is a good short. In fact, I'm more inclined to think it's a good long...
As background, I wrote three consecutive e-mails about the stock last year:
- February 10: My "first look" analysis of Lyft
- February 11: The bull and bear cases on Lyft
- February 12: Why Lyft is tumbling today
Back then, it was trading around $15 and soon fell below $10. It spiked to $25 by the end of 2025 before dropping down to the $12-to-$16 range, closing yesterday at $15.44:
Despite the stock going nowhere for two and a half years, free cash flow ("FCF") exploded to $1.1 billion in the past 12 months. As you can see in the chart below, it was negative from 2018 to late 2023:
I rarely see such a big disconnect between a company's share price and FCF. Plus, the company has a strong balance sheet, with $308 million of net cash in the first quarter.
That brings its enterprise value down to $5.4 billion, off a market cap of $5.9 billion.
So Lyft's market cap is only 5.4 times its trailing-12-month FCF. That's cheap!
For more on the bull case, I turn to an insightful pitch posted by user "crestone" on stock-idea website Value Investors Club on March 2, when the stock was at $13.84. (Only paid subscribers can see the full post.)
Crestone's thesis is summarized as follows:
Autonomous vehicles will not destroy LYFT, but rather increase ride-sharing penetration and the addressable market
- LYFT will be a critical participant and partner in the shift to autonomy
- A hybrid model of human and autonomous vehicles is the most likely equilibrium, not a total shift to autonomy
UBER is not destroying LYFT; rather, LYFT is holding its own and making share gains
CEO David Risher is successfully executing on the company's long-term plan, with an Amazon-born focus on customer obsession
Why is the stock so cheap? Crestone answers:
Based on financial press and sellside reporting, it appears the market 1) is concerned about the threat of [autonomous vehicles], particularly with growth in Waymo and Tesla's robo-taxi operations, 2) doesn't believe the company can achieve its 2027 targets, calling it an "execution-heavy" hill to climb, and 3) likely continues to view Uber as likely to kill Lyft, and 4) may continue to hold views on Lyft's execution abilities that are shaped by its history rather than its recent reality.
Crestone then goes on to address each of these concerns and concludes that:
If we use the Street's 2027 EPS of $1.87 instead of the $2.00+ the company could earn if it hits its free cash flow target, and a long-term forward market multiple of 15x, we get a fair value of $28.10, or 103% upside from current prices.
I'm not sure if the stock is a good long, but it sure isn't a good short...
My team and I are following Lyft carefully and will be analyzing the company's next earnings report a week from today.
If we decide it's a buy, as always, Stansberry's Investment Advisory subscribers will be the first to know. You can become one by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. On Tuesday, my family and I drove from Salzburg, Austria to Munich, Germany. On the way, we spent the day in the spectacular Bavarian Alps, hiking along Lake Königssee, then taking a four-hour historical tour to Hitler's mountaintop Eagle's Nest:
