Is Lyft Stock Worth Investing Your Hard-Earned Capital?

Lyft Stock

Lyft (NASDAQ:LYFT) released its Q4 2023 results following Tuesday’s market close, accompanied by an earnings report featuring an unusual typo. In the report, Lyft stated that its EBITDA (earnings before interest, taxes, depreciation, and amortization) margin would surge by 500 basis points in 2024, projecting a significant year-over-year improvement from 1.6% in 2023 to 6.6%. However, during the conference call with analysts, CFO Erin Brewer clarified the discrepancy, indicating that the actual projection was for a 50 basis points margin expansion, significantly reducing the target to 2.1%.

Despite the correction, Lyft’s stock initially soared by up to 60% in after-hours trading, though some of these gains were later pared back in early Wednesday trading, leaving it still up by over 32% at the time of writing. Investors seem bullish on Lyft regardless of the typo, but there are reasons for caution.

Reflecting on Lyft’s performance in 2023, the company achieved record-high metrics, including over 709 million rides, generating gross bookings of $13.8 billion, $4.4 billion in revenue, and a significant increase in adjusted EBITDA to $222.4 million, representing a margin of 1.6%. Brewer’s optimistic remarks in the press release highlighted the company’s momentum and focus on operational excellence, aiming for meaningful margin expansion and its first full year of positive free cash flow in 2024.

Looking ahead, Lyft forecasts $4.7 billion in revenue for 2024, based on a projected 6-7% growth in gross bookings. With an anticipated EBITDA margin of 2.1%, Lyft expects to generate $309 million in EBITDA, translating to an estimated $154.5 million in free cash flow, assuming a 50% conversion rate.

While Lyft’s Q4 2023 and full-year results appear robust, comparisons with Uber’s performance raise questions. Uber, which reported its Q4 results earlier, saw a modest investor response initially, but its shares surged over 20% in sympathy with Lyft’s performance. In 2023, Uber significantly outperformed Lyft in key metrics, including the number of trips, gross bookings, revenue, and adjusted EBITDA.

In terms of free cash flow projections for 2024, Lyft’s positive trajectory from negative figures in previous years suggests a potential turnaround, but uncertainty remains. In contrast, Uber’s demonstrated ability to generate free cash flow presents a more concrete investment proposition.

Investors considering buying Lyft shares following the recent surge may want to explore options to limit exposure. One potential strategy is to consider call options, such as the June 21 $19 call, offering an opportunity to capitalize on potential gains while managing risk.

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