Updates on Lyft, Match Group, and Willis Lease Finance

Today, let's check in on the latest with three stocks that I've written about previously...

1) I discussed struggling ride-sharing company Lyft (LYFT) on April 30 after my old friend Arnaud Ajdler of activist hedge fund Engine Capital Management took a 1% stake, nominated two board members, and called for big changes – including a large share buyback.

Sure enough, the stock soared more than 28% on Friday after the company reported strong first-quarter earnings (you can see the press release here and slide presentation here) and announced that it was boosting its share repurchase program from $500 million to $750 million, of which it committed to $200 million in the second quarter and $500 million in the next 12 months.

Those are big numbers given that Lyft only has a $7 billion market capitalization today. As a result, Engine Capital withdrew its board nominees.

Year over year, revenue grew 14%, adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") surged from $59.4 million to $106.5 million, and free cash flow ("FCF") soared from $127.1 million to $280.7 million.

Trailing 12-month FCF was $919.9 million, and Lyft has $2.2 billion of cash, so it has plenty of dry powder to execute on its share repurchase plans.

The stock has been a good short-term trade, but I'm not recommending it because of two threats...

The first is from Waymo and other self-driving vehicle services, which my team and I discussed when we listed Uber Technologies (UBER) and Lyft as "doomed AI victims" in a special report for Stansberry's Investment Advisory subscribers last August. (I cited some parts of the report in my February 11 e-mail.)

Investment Advisory subscribers can read the full report here: Dead Men Walking: Nine Doomed Companies in the Crosshairs of AI. (If you aren't a subscriber, you can find out how to gain access to it – along with the full archive of other Investment Advisory special reports and the entire portfolio of official recommendations – right here.)

In addition, as this article from earlier this year in the San Francisco Standard notes, Tesla's (TSLA) much-ballyhooed robotaxi service is another serious risk: Why Waymo won't kill Uber – but Elon Musk might. Excerpt:

If one person can dethrone Uber, it's Musk. He has long staked the future of Tesla on self-driving cars and posited a "glorious future" in which parking lots are replaced by parks.

Musk is coming directly for Waymo and Uber's lunch. At Tesla's "cybercab" launch last year, he said the steering-wheel-less vehicle will cost less than $30,000 and be available before 2027. Regardless of the ambitious timeline (Musk has repeatedly made predictions about autonomous vehicles that have not come to pass) – Tesla developing a low-cost, scalable car would be a serious game changer.

And as the article continues:

This future also threatens Uber. Musk has said that Tesla owners will eventually be able to rent out their self-driving vehicles and generate income as part of a Tesla robotaxi network. While questions remain about insurance and legal liability, Tesla could potentially have a huge fleet of cars able to come online when demand surges.

2) I've also written a number of times, most recently on February 7, about Match Group (MTCH). It operates popular dating sites Tinder and Hinge, among others.

The stock dropped nearly 10% on Thursday after the company reported weak first-quarter earnings (you can see the press release here, slide presentation here, and a Wall Street Journal article about it here: Match Group to Cut 13% of Workforce Amid Weak Demand From Younger Users).

Year over year, revenue declined 3% (it fell 1% on a currency-adjusted basis) on a 5% decline in the number of users. That was partially offset by a 1% increase in revenue per user, with adjusted operating income down 2%.

However, Match still generates a lot of FCF: $178 million during the quarter (although that's down from $267 million in the same period last year).

Match also continues to buy back a lot of stock: $195 million in the first quarter and another $100 million in April – reducing shares outstanding by a whopping 9%.

In addition, the company initiated a dividend. The stock now yields about 2.8%.

This remains a fascinating and fluid situation...

I worry that Match is a slowly melting ice cube – revenue has declined the past two quarters and profits the past four quarters – and I don't like the $3.1 billion in net debt.

On the other hand, Match generates a ton of FCF – which it's returning to shareholders. And I suspect that the new CEO, Spencer Rascoff, is doing the right thing in cutting the workforce by 13%.

Lastly, the stock has collapsed since its highs a few years ago – the value-investing bargain hunter in me likes to see charts like this:

If Match can start to show year-over-year growth, which isn't a high bar in light of the weak numbers over the past year, I suspect the stock could quickly double.

If my team and I decide it's a buy, Investment Advisory subscribers will be the first to know. Again, if you aren't a subscriber already, you can find out how to become one by clicking here.

3) Last up is aircraft-engine leasing company Willis Lease Finance (WLFC), which reported first-quarter earnings last Tuesday. As reader Rick C. e-mailed me to ask:

I've been following the daily e-mail for about 20 years now! I saw that WLFC reported earnings on May 6 and the stock crashed around 16% that day. I was wondering if you could reach out to your friend who had recommended it to get his thoughts on the latest earnings.

As a reminder, I first shared my banking-expert friend's thoughts on Willis in my February 8, 2024 e-mail. (I also shared updates from my friend earlier this year on January 14, February 3, and March 14.)

The stock closed on February 8, 2024 at $49.50 per share. Since then, it has nearly tripled to close Friday at $139.74 per share.

However, it's down from a high of more than $200 per share as recently as March.

So I checked in with my friend again... and here's what he e-mailed me and gave me permission to share with my readers:

The reported number of $2.21 [diluted weighted average income per common share] was optically lower than expected, but the core trends were very strong and several one-time items impacted the headline number. We wish the market had a better understanding of [Willis'] accounting nuances that masked otherwise strong numbers.

The company incurred an $11.4 million expense in Q1 related to their sustainable aviation fuel project, yet they have received a grant from the UK government to cover much of this expense and the income from the grant cannot be recognized until payment is received in the coming quarters... so that will be a nice tailwind in Q2/Q3. In addition, strong demand for replacement engines continues to drive unusually high levels of lease extensions, and given income is deferred until the engine is actually returned, the company's maintenance income continues to be significantly understated.

We estimate this was at least a $6.7 million impact this quarter, and there are now $104.5 million (nearly $15/share pre-tax) of these deferred revenues that will eventually flow through income.

And as my friend continued:

The summary of these two dynamics impacted Q1 earnings by approximately $2/share after-tax, and when combined with several other anomalies that occurred in Q1 we believe the core earnings power at WLFC remains on track to exceed $5/share per quarter in 2025 with further upside into 2026. In addition, we estimate the book value including the reported 12/31/24 engine appraisals to be around $145/share, so at the current price the stock trades at a nice discount to liquidation value and ~6X what we think is the current earnings power.

Here are a couple charts that show the revenue growth they are experiencing from the significant increase in lease rates:

Looking ahead to the second quarter, my friend notes that:

The stock is setting up for a very nice Q2 as they had new engines that went out on lease at the end of Q1 so they incurred interest expense and preparation costs for the full Q1 without the revenue. This new income combined with a press release [last week] on selling a business for $45 million (could be several dollars a share of gain), potential Russia insurance recoveries, and the reversal of other accounting nuances could lead towards incredibly strong Q2 numbers.

Finally, as he concludes:

The stock is still our highest conviction investment ever and we remain very optimistic about the outlook for both the company and the sector due to the ongoing shortage of engines caused by supply chain disruptions, inflation, and global growth in aviation.

As always, I'd like to thank my friend for his insights!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.