Investors in the young ride-hailing company Lyft (NASDAQ:LYFT) have had a quarter to forget. So far in 2020 Lyft stock is down about 41%.
Despite the recent decline of the shares, I don’t expect to see much positive momentum in Lyft stock in the coming weeks. Rather, the shares are likely to trade in a range, possibly between $20-$30. Here’s why.
The Effect of the COVID-19 Pandemic on Lyft
The global ridesharing market is expected to grow from about $61 billion in 2018 to $218 billion by 2025. That would represent an annual growth rate of almost 20%. In the U.S. there are two major players in the market: Uber Technologies (NYSE:UBER) and Lyft.
Prior to the outbreak of the coronavirus from China that is affecting so many aspects of our daily lives, Lyft had about 20 million monthly active users. And the company claimed its share of the U.S. ridesharing market was about 33%.
According to recent research on both companies, “central to their success has been their use of platform technology to circumvent regulations and mobilize a seemingly infinite supply of independent drivers in a transportation sector that otherwise has rigid regulatory barriers to entry.”
Then came March, when the coronavirus pandemic hit our shores. A number of Lyft’s drivers are likely to self-isolate or seek medical help because of the health issues associated with the coronavirus. Those drivers, of course, will not be able to work.
A Wall Street Journal article highlighted that “U.S. consumers spent 21% less on Uber rides in the seven days through March 16 compared with the seven days prior … Spending on Lyft rides declined 19% over the same period.”
The share prices of both companies have declined sharply, showing that investors’ expectations have dropped tremendously. In March, LYFT stock and UBER stock are down about 38% and 24% respectively. As Investorplace contributor Brad Moon has recently highlighted, “the difference for Uber may be its food delivery service, Uber Eats. Demand for food delivery is expected to spike.” But investors should also remember that Uber Eats is not yet profitable.
It is still not possible to tell when life will go back to normal for consumers and many companies. But if we’re headed for an especially prolonged downturn of the economy, then Lyft stock won’t recover anytime soon.
What to Expect From Lyft’s Q1 Earnings
Lyft is expected to release its Q1 results in early May.
On Feb. 11, the company reported its Q4 and fiscal year results. Although the numbers topped the Street’s average estimates, investors were not pleased by the results. The company showed no signs that it was on the path to profitability.
Its Q4 its revenue jumped 52% year-over-year to $1.02 billion. However, the company’s losses increased by more than $100 million YOY. And its Q4 net loss was $356 million.
In other words, Lyft’s management has to increase the company’s revenue quickly or it may not be able to weather the likely recession.
When Lyft’s Q1 results are released, investors will probably pay special attention to its forecast for the rest of the year. If the company’s outlook is dire, then investors may simply decide to throw in the towel on LYFT stock.
In a conference call with analysts on Mar. 19, Uber CEO Dara Khosrowshahi highlighted that demand for the company’s ridesharing service has fallen as much as 70% in hard-hit cities like Seattle.
Lyft hasn’t provided an update on the potential effects of the pandemic on the company. However, it’s likely that the company will face similar challenges to those of Uber.
Lyft’s shares are likely to continue to be volatile heading into early May, when the company is slated to report its Q1 results. Therefore, if you don’t yet own Lyft stock, you may want to wait on the sidelines prior to the release of the company’s results.
Lyft’s Price Action Looks Worrisome
The company launched its IPO a little over a year ago at an opening price of $87.24. And it reached an all-time high of $88.60 on its first day of trading.
What a difference a year makes. Now its stock price is hovering around $25. On Mar. 18, the shares reached an all-time low of $14.56.
Meanwhile, the stock’s price action over the past year, and especially in 2020, suggests that investors should be cautious on Lyft stock.
At this point, I don’t expect the bulls to take charge in the near-term. Thus the shares will need a catalyst to make them attractive in the eyes of long-term investors.
The shares will need to build a base before a sustained rally can take place. In the next few weeks, Lyft s likely to trade between $20 and $30.
The Bottom Line on Lyft Stock
The shares of younger, rapidly growing companies tend to be far more volatile than market indices or mature companies.
Whenever investors feel the growth of these companies could be slowing, they sell the stock first and ask questions later. As a result, the volatility and even the downtrend of LYFT stock may continue in the second quarter.
If you are considering investing in the ride-hailing company, you may want to start building a position as the price nears or even dips below $20,. You should also expect to hold the stock for several years.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.