Why Lyft is tumbling today; I'm not surprised to see more struggles at Estée Lauder; The end looks near for Nikola
1) I'm glad I followed my instincts on ride-hailing company Lyft (LYFT)...
I covered the stock in my e-mails on Monday and Tuesday, concluding that I wasn't pounding the table on buying it. As I noted, "I'm not forced to buy it or sell it short – and the threat of autonomous vehicles worries me – so I would stay on the sidelines."
Well, the company reported fourth-quarter earnings after the market close yesterday that met expectations, but weak first-quarter revenue guidance sent the shares down as much as 16% in morning trading.
Year over year, gross bookings grew 15% and revenue grew 27% on a 10% increase in active riders, all in line with expectations. And net income was $61.7 million, a reversal from the $26.3 million loss a year ago and far above analyst expectations for a loss of $3.4 million.
Lyft also announced its first share-repurchase program of $500 million, equal to nearly 10% of the shares outstanding at the current price.
Free cash flow ("FCF"), the key metric I follow, was a healthy $140 million – well above the $15 million a year ago. To see the trend over time, here's the chart I shared in Monday's e-mail of Lyft's quarterly operating cash flow, capital expenditures ("capex"), and FCF over time, updated to include the new fourth-quarter results:
We can see that while FCF dipped last quarter relative to the previous two, it was in strong positive territory.
So why is the stock tumbling today?
Here's a Wall Street Journal article with the answer: Lyft Sees Growth Slowdown in Gross Bookings. Excerpt:
Lyft on Tuesday said it expects first-quarter gross bookings to rise 10% to 14% – to between $4.05 billion and $4.20 billion – amid views for rides growth in the mid-teens percentage rate. Wall Street expected more growth, with its estimate for gross bookings coming in at $4.24 billion for the first quarter.
Finance Chief Erin Brewer said the company's outlook was affected by a decline in prices since the fourth quarter, coupled with Lyft users taking fewer and shorter rides after the holidays.
Investors were also unimpressed with Lyft's response to a major threat that I highlighted in yesterday's e-mail – as the WSJ continues:
Regarding its approach to driverless taxis, Chief Executive David Risher said the company would start with the launch of around 1,000 Mobileye-powered robotaxis in Dallas in 2026, with financing from Japanese trading and investment firm Marubeni.
In summary, investors are probably overreacting to the weak first-quarter guidance.
If you're convinced by the bull case I discussed in yesterday's e-mail, Lyft looks like a better buy today than it did yesterday. However, I'm still not pounding the table on the stock – for the reasons discussed in the bear case from that same e-mail.
2) While I'm catching up on stocks I've written about previously...
Back on September 19, I took a quick look at troubled beauty giant Estée Lauder (EL), when the stock was at $87.44 per share. (I also discussed it in my December 4 and December 5 e-mails).
Overall, considering how rapidly the company was declining and the fact that the stock had an inexplicably high valuation, I wasn't interested. As I concluded in my December 5 e-mail:
Given the many issues and uncertainties, I would only consider buying the stock if I was convinced it was a 50-cent dollar – and I don't think it's anywhere close to that today.
It was a good call, as the company reported more dismal earnings last week – causing the stock to crash 16% in a day. It closed yesterday at $70.71 per share.
Here's an insightful Fortune article from last week about the company's woes: Estée Lauder has lost $100 billion in value in the past three years. How a big bet on China dragged down a luxury legend. It quotes my September article here:
The fact that Estée Lauder had repeatedly lowered its forecasts over the prior two years only fanned the sense that executives didn't have a handle on the business. And indeed, management suggested it didn't have a sense of when its problems, led by its long, profit-decimating China sales slide, might end. "Estée Lauder was an incredible company... but given the collapse in profits, I'm not sure it still is," famed investor Whitney Tilson of Stansberry Research wrote in a subsequent paper. Yes, it has a strong brand, Tilson added, but he slammed the company as "totally mismanaged."
The numbers certainly back up critics like Tilson. In fact, the totemic beauty company is more than three years into a meltdown that has crushed both revenue and profits. It has also clobbered investors: Since hitting an all-time high of $374.20 in January 2022, shares have slid an astounding 78%.
The article also summarizes what went wrong in China:
Estée Lauder made some particularly big investments, in anticipation of a China bonanza that fell like a soufflé, and those are now coming back to bite the company. For example, Estée Lauder invested $1 billion in 2018 to set up a manufacturing facility in Japan so it could more quickly serve Chinese consumers. That facility now produces less due to weaker demand, and the overcapacity is a drain on the company's profit.
Supply-chain problems have also exacerbated the China crisis. According to a 2023 Bloomberg report, Estée Lauder had to send merchandise to duty-free shops in China months in advance so they were stocked, leaving the company with less room to react to any sudden or prolonged change in sales trends by changing up inventory. When China reopened in 2023 at long last, the company shipped a ton of merchandise – only to see those goods get stranded in stores, since their arrival coincided with a big slowdown in China's luxury market there and its economy in general.
And as it continues:
The company has been working ever since to clear out unsold inventory, at big losses, and it has taken longer than initially expected. That lingering problem is at the heart of why Wall Street is in wait-and-see mode – and there isn't really much relief in sight. According to Bain & Co., mainland China's luxury market shrank 18% to 20% in 2024, back down to 2020 levels. For this year, Bain expects sales to be flat before economic stimulus in China kicks in.
Estée Lauder is still generating decent FCF, but this figure has been in decline for four years. And with an enterprise value of $31.5 billion – more than double revenues – the stock is much too expensive to tempt me.
3) It seems like the end is (mercifully) here for hydrogen-truck maker Nikola (NKLA), as this WSJ article from last week notes: Hydrogen-Truck Maker Nikola Nears Bankruptcy Filing. Excerpt:
Nikola, the much-hyped hydrogen-truck maker that was briefly valued more than Ford Motor, is nearing a bankruptcy filing, according to people familiar with the matter...
The company's founder and former CEO, Trevor Milton, was convicted of fraud in 2022 for misrepresenting the company's business and sentenced to four years in prison. Milton, who is appealing his conviction, couldn't be reached for comment Thursday.
Milton's vision for Nikola was based around a future of hydrogen-powered heavy trucks that would be leased to companies seeking to reduce the emissions of their transportation fleets. He resigned from Nikola after a short-seller report alleged he made a litany of misrepresentations about the company's progress in creating functional vehicles and producing the hydrogen fuel needed to run them.
The short seller was Nate Anderson of Hindenburg Research, whose retirement I lamented in my January 21 e-mail. I covered his report in my September 11, 2020 e-mail, in which I concluded that "Nikola is toast."
That day, the stock closed at $963.90 (adjusted for a 1:30 split). So at yesterday's close of $0.6669, it's down a staggering 99.97%!
I've warned my readers about the stock in more than two dozen e-mails since then – and you won't be surprised to hear that I still feel the same way today. Nikola is a zero.
Best regards,
Whitney
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