Lyft’s Fourth Quarter Update Holds Key to Future Success, Says Bernstein
Bernstein, a leading financial firm, has reiterated its Market Perform rating on Lyft and set a steady price target of $14.00. Revealing its analysis, Bernstein suggests that the upcoming fourth quarter update will be crucial for Lyft as it presents its long-term goals for the first time under the new management team. In particular, investors are eager to learn about the company’s financial targets, which Bernstein believes are being underestimated by the consensus, especially when it comes to trip-level gross margin.
The report also highlights the competitive landscape, acknowledging that while Lyft may not be able to change investor sentiment about Uber’s dominance and platform advantages, there are opportunities for Lyft to close the valuation gap. This can be achieved by setting realistic expectations and consistently surpassing them, a strategy that has proven successful for Uber in recent years.
Bernstein cautions that the market’s expectations for Lyft’s gross margin may be too high, potentially overestimating it by around 400 basis points. This poses a risk for future EBITDA revisions. The firm points out insurance costs as an ongoing issue for Lyft and suggests that there is a limit to how much fixed costs can be reduced to compensate for this.
Lyft is urged to provide a clear strategy outline for the years 2023 to 2026, with Bernstein expecting a low-teens compound annual growth rate (CAGR) in Gross Bookings, slightly above the consensus. The company could potentially achieve mid-teens growth. Despite recent improvements in volume and supply, Lyft is advised to elaborate on the dynamics between its core service and new product offerings.
In terms of profitability, Bernstein projects a mid-single-digit incremental adjusted EBITDA margin as a percentage of Gross Bookings over a three-year period. This projection is more conservative compared to the 6.5% expectation of the Street. The analysis delves into the specifics of insurance costs per trip and proposes that Lyft offset these costs by moderating driver incentives rather than implementing price increases, given Uber’s current restraint on prices.
Analyst comment
Positive news: Bernstein believes that Lyft’s upcoming fourth quarter update will be crucial for its future success, as it presents its long-term goals under new management. Investors are eager to learn about the company’s financial targets, which Bernstein believes are being underestimated. There are opportunities for Lyft to close the valuation gap with Uber by consistently surpassing expectations. The report projects a low-teens compound annual growth rate in Gross Bookings and mid-single-digit incremental adjusted EBITDA margin.
As an analyst, it is predicted that Lyft’s market performance will improve if it meets or exceeds its long-term goals and financial targets, successfully closes the valuation gap with Uber, and demonstrates consistent growth in Gross Bookings and profitability over the next few years.
