Lyft Stock Has Been on a Roll. Why One Analyst Advises Taking Profits.


Eric J. SavitzFollow

Feb 06, 2023

It’s time to take profits in Lyft shares.

That’s the advice Monday from Gordon Haskett analyst Robert Mollins. The analyst had turned bullish on the ride-sharing company’s stock in October, in what was a prescient call. Lyft (ticker: LYFT) subsequently rallied 54%.

But now Mollins is shifting back to a Hold rating from Buy, while lowering his target for the stock price to $19, from $24. On Monday, Lyft shares were 0.6% lower at $17.27

This is more than simply a valuation call. Mollins says data on app downloads suggest the number of active riders in the fourth quarter will fall short of Wall Street’s estimates, fueling concern about top-line growth. His forecast calls for 19.5 million active riders in the quarter, about one million short of expectations.

He also thinks Wall Street is likely to reduce its forecasts for revenue and profits for both 2023 and 2024. Investors who want exposure to the ride-sharing sector should choose Uber Technologies ( UBER ), which Mollins rates at Buy, because its more geographically diverse business model should partially shield the business from continuing regulatory risk in the U.S., he says.

Mollins notes that Lyft is “making meaningful progress” on reducing wait times for rides, but he thinks that stems in part from leveraging higher prices to attract drivers, and potentially giving up market share by charging more per ride. He estimates that Lyft has on average been charging 10% more than Uber over the past three months.

“We see this as an unsustainable dynamic as we believe consumers will favor Uber over Lyft, which will in turn lead to incremental share gains for Uber,” he writes.

Meanwhile, Mollins points to regulatory risks. Before the end of the first quarter, a California appeals court is expected to rule on a case involving Proposition 22, a voter-approved measure that would shield gig-economy companies from a California law intended to reclassify many contract workers as employees. A lower California court had declared Prop 22 unconstitutional. He also sees risks from recent efforts in New York to raise pay for gig drivers.

Lyft will report its fourth-quarter earnings on Thursday. Management has projected revenue of $1.145 billion to $1.165 billion, for a gain of between 18% and 20% from the year-earlier result. The company’s forecast is for between $80 million and $100 million in adjusted earnings before interest, taxes, depreciation, and amortization.

The Street consensus calls are for revenue of $1.16 billion and profits of 13 cents a share.