My 'first look' analysis of Lyft

The latest stock to hit my radar screen is another one that gets my value-investing, bargain-hunting heart racing...

One of my former students just suggested that I take a look at ride-hailing service Lyft (LYFT). So first, I pulled a five-year performance chart for it and its larger competitor, Uber Technologies (UBER):

That's some staggering underperformance. And take a look at Lyft's share price over the past five years:

Some investors hate stock charts like Lyft's... but I don't.

A chart like this likely means that investors are beaten down and demoralized – and could be missing a turnaround. That said, this is also the stock chart of a classic value trap.

So today, I'll check out Lyft with my usual "first look" analysis...

As always, that means starting with the historical financials.

We can see that Lyft has grown revenue rapidly (it suffered a hiccup in 2020 due to the pandemic, which is no surprise), with profits improving from steep losses to almost breakeven over the last year:

With rapidly growing, money-losing tech companies, I'm more interested in the cash-flow statement because it excludes stock-based compensation, which in Lyft's case was a huge but non-cash expense in 2019, when the company went public.

In the chart below, you can see Lyft's historical operating cash flow, capital expenditures ("capex"), and free cash flow ("FCF"):

Sure enough, Lyft's cash-flow statement reveals that its cash burn was only $284 million in 2019, but then hit a staggering $1.5 billion in 2020. After that, it stabilized (but remained negative) from 2021 to 2023... and took off over the past year.

I also like the fact that Lyft is a capital-light business, with capex of only around $100 million per year.

This is important enough to take a closer look, so I broke it down by quarter...

I really like what I'm seeing, as Lyft suffered from increasingly negative FCF from the third quarter of 2021 through the second quarter of 2023, but then reversed this over the past six quarters – generating $641 million over the past year:

The rest of the cash-flow statement isn't worth showing, as Lyft hasn't made meaningful acquisitions, issued or repurchased much stock, or paid a dividend.

One thing investors should keep in mind is that Lyft, like most tech companies, issues a lot of stock options to employees – so the diluted share count has grown by 7% annually over the past four years. Take a look:

Turning to the balance sheet, Lyft's is pristine – with a solid net cash position every year:

Finally, let's consider valuation...

As of Friday's close, Lyft has a $5.9 billion market cap with $685 million of net cash, for an enterprise value of $5.2 billion. Its trailing 12-month revenue is $5.46 billion, so the stock is trading at slightly less than 1 times revenue.

That's cheap for a capital-light tech business with a strong No. 2 position in the market, and it is growing nicely and generating healthy FCF.

If we annualize the $0.5 billion of FCF in the past two quarters, that's $1 billion... meaning the stock is trading at less than 6 times this amount.

That's really cheap.

I'll take a deeper dive into Lyft tomorrow, just before it reports fourth-quarter earnings after the markets close... so stay tuned!

Best regards,

Whitney

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