Dropping by 77%, this Growth Stock Currently Offers an Attractive Purchase Opportunity.
Lyft (LYFT losing 0.07%) has been a letdown for most investors since its public debut in 2019.
The shares plummeted just after launch due to fierce competition with Uber (NYSE: UBER) and mounting financial losses at both companies. The situation worsened during the height of the pandemic, as restrictions on commuting, nightlife, and travel limited the use of Lyft's services.
However, the stock has shown signs of improvement recently, despite its 77% fall from its peak five years ago. Lyft reported its first quarterly profit on a generally accepted accounting principles (GAAP) basis this year, a result of a truce with Uber, which saw both companies scale back on incentives for drivers and riders. The company has also introduced new features and improvements under fresh leadership.
Despite its struggle, Lyft's share price spiked following its latest earnings report, with revenue surging 32% to $1.5 billion and gross bookings increasing by 16%. This was in stark contrast to Uber, which suffered a slump in its earnings report.
Let's explore what's driving Lyft's turnaround.
Innovative product developments drive success
Lyft's transformation has chiefly been driven by innovative product developments and updates that have boosted customer and driver loyalty.
For instance, the platform introduced Women+ Connect, a program linking female riders and drivers, following customer requests and garnering positive responses. The company also rolled out a price lock feature allowing riders to lock in lower prices for regular commutes for $2.99 a month.
Moreover, Lyft has made efforts to improve driver retention and satisfaction, including remunerating drivers for time stuck in traffic and offering rides to electric vehicle drivers within their battery range. The company has also introduced a feature that enables riders and drivers to view the estimated hourly rate of a ride before acceptance.
Finally, Lyft is phasing out its surge pricing, known as Prime Time, as management discerns that riders dislike surprise price surges. This move has enhanced market share and customer satisfaction.
Beyond ride-sharing, Lyft has ventured into advertising, launching Lyft Media, selling ads within its app. This venture has contributed to Lyft's improved revenue margin and driver loyalty, with Lyft now boasting a 12-point preference edge over Uber among drivers.
In all, Lyft launched 33 products and features this year, signifying a productive year for the company.
Why Lyft is a worthwhile investment
The ride-sharing market is expected to expand, and Lyft is capitalizing on this growth in various ways. Rides increased by 16% to 217 million in the quarter, with a 9% growth in active riders to 24.4 million.
Lyft is also exploring new avenues of growth, such as partnerships with delivery services like DoorDash and autonomous vehicle companies like Mobileye, May Mobility, and Nexar. Lyft riders in Atlanta will be able to hail autonomous rides by 2025.
Lyft aims for 15% annual gross bookings growth until 2027 and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 4%, indicating steady growth on both revenue and profitability fronts.
Overall, with a massive market to explore and healthy growth prospects, both Lyft and Uber are seeing double-digit growth in gross bookings. The company is executing well and introducing new products, and there's significant potential for growth in its share price given its market cap of $7.3 billion, leaving much room for expansion if its performance continues.
In light of Lyft's recent improvements, investors might consider the potential for financial gains from investing in the company. With innovative product developments like Women+ Connect and price lock features, Lyft is boosting customer and driver loyalty, leading to increased revenue and a strong preference among drivers.
As Lyft diversifies its services, such as launching Lyft Media and exploring partnerships with delivery services and autonomous vehicle companies, the company is expanding its revenue streams and market potential. This strategic approach to finance and investing could make Lyft an attractive prospect for those interested in the ride-sharing market's growth.
