Lyft Inc (NASDAQ: LYFT) was one of the biggest high-profile IPO flops of 2019, but one analyst said Monday 2020 is shaping up to be a much better year for Lyft investors.
The Lyft Analyst
Northcoast Research analyst John Healy upgraded Lyft from Neutral to Buy and set a $60 price target.
The Lyft Thesis
Healy said there are three reasons why he thinks Lyft will outperform in coming quarters:
- The blowout quarter by competitor Uber Technologies Inc (NYSE: UBER) helps demonstrate the ridesharing market is healthy.
- His survey work suggests Lyft is still gaining market share.
- Lyft is a pure-play network company, which could make it a strategic buyout target for autonomous vehicle developers.
Healy said the AV race is heating up, and Lyft is in the very middle. He said a network or public transportation model may be the first version of AV that is widely available to the public due to concerns over insurance, compliance and security.
Healy said Lyft doesn’t need to be profitable in 2020 to perform well in the market.
“While the company has highlighted that 2019 would mark the peak investment year along with a profitability goal by the end of 2021, we believe progress and execution towards these goals will make the shares work higher,” he wrote in a note.
In the near-term at least, Healy said California’s AB5 is the biggest risk for Uber and Lyft, but the most likely outcome will be some form of compromise that's far for a worst-case scenario.
Now that the initial enthusiasm for the Uber and Lyft IPOs has down and Lyft shares are trading at roughly a 30% discount to their IPO price, investors are seemingly taking a much more realistic approach to looking at the company’s fundamentals.
Lyft is a top player in a high-growth market and has tremendous potential long-term upside, but still has a long way to go in demonstrating a viable and profitable business model at scale.
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