Is Lyft a Good Investment?
Lyft Incorporation is a ride-hailing company based in the United States which currently has operations in the American and some Canadian markets. Customers can use the Lyft app to hail a car to transport them. Drivers primarily use their own cars and use the Lyft app to find people who are requesting a ride. Lyft is based in the United States and was founded in 2007.
Why You Should?
- Lyft is a good recovery play in an investor’s portfolio. Lyft replaces public transportation in large and small cities. During this pandemic, Lyft has advertised itself as a safer way to travel in comparison to take public transportation. As people are uncomfortable to take public transport, they are more likely to take a Lyft to their destination.
- Due to the fall in demand because of the COVID-19 Pandemic, Lyft stock is currently trading under 30 dollars. This shows that Lyft has not rebounded as much as the broader market. If an investor believes that Lyft will see a rise in demand after the COVID-19 Pandemic, you might be able to buy this stock at a discount.
Why You Should Not?
- The COVID-19 Pandemic has decimated the demand to travel to and from work and other places as people just stay at home. Some others are not comfortable getting into a strangers car due to health concerns. All of these trends will hurt the demand for Lyft’s services until people can get vaccinated and go out again.
- Lyft Inc. faces competition from companies like Uber who have a heavy presence in the North American market that Lyft operates in. Other companies like Tesla are designing automated taxis (self-driving cars with no drivers). All of this competition might hurt Lyft’s future goals.
- Unlike Uber, Lyft only specializes in ride-sharing and the technology related to that. They operate in limited North American markets and do not have any other services like food delivery. This limited revenue stream will hurt the company in the future as Uber is expanding rapidly. Lyft should expand faster and include several other services in its portfolio.
- Lyft will be negatively impacted by government regulation. It does not consider its drivers as full-time employees but as gig-workers. Full-time employees get paid more and have better benefits than gig-workers. if courts rule that drivers are full-time employees, it will cause Lyft to abandon services in certain markets and also have wider losses and lower revenues.
- Lyft has reported rising revenues over the past couple of financial years but has also reported losses that increase as time goes by due to the reasons mentioned before. Lyft has not shown Wall Street and investors that it can ever turn a profit. Until they do, the stock is subject to volatility in trading prices. I will wait for some more time until Lyft gets close to turn a profit to invest in the stock. In the financial year of 2019, the company reported revenues of around 3.6 billion and a loss of 2.6 billion. In the financial year of 2018, the company reported less revenue at 2.16 billion but also fewer losses at around 911 million.
In my opinion, I think that if you believe that the economy will return back to normal and if the demand for ridesharing services will increase, I would recommend buying Uber instead of Lyft due to Lyft’s lack of diverse business, government regulation, and more. However, Lyft is currently trading at a discount and if you want to invest in this company, now might be the right time to do it.