Jack Welch, the longtime CEO of General Electric in the late 20th century, preferred to target the No. 1 and No. 2 companies in an industry when seeking to buy businesses. He felt that approach was necessary to maximize profitability and market share.
Now, this approach might have begun to play out for the No. 2 in the rideshare industry, Lyft (LYFT 1.46%). Both Lyft and the industry leader, Uber, saw their stocks crater after launching initial public offerings (IPOs). While Uber made an eventual comeback, Lyft languished as its smaller size and scope made a potential recovery more difficult.
Still, as Lyft makes improvements to improve its platform, the company is now on the verge of profitability. This could mean a long overdue recovery of the stock may soon begin.
What has changed with Lyft
The key to Lyft’s improvements comes down to product innovation. For example, nearly half of all rides are commutes to and from work Monday through Friday. For these customers, it offers its Price Lock plan. For $2.99 per month, users secure a discounted price on regularly scheduled pick-ups for the next month.
It allows for savings of up to $40 before these customers start to pay the market rate. So far, more than 200,000 customers have signed up for this service, and the company expects that number to grow.
Lyft has also increased customer satisfaction with efforts to phase out surge pricing. It has reduced the amount of time impacted by that pricing and pays drivers more for times when they are stuck in traffic.
Moreover, the company drives customer engagement through Lyft Media, its in-app ad platform. In addition to keeping Lyft on the minds of customers, it also serves as a revenue source.
Furthermore, it partners with several companies, such as Mobileye, Nexar, and May Mobility, to become a player in the autonomous-vehicle market. This could be intriguing since a considerable portion of its revenue goes to paying drivers.
How Lyft rolls financially
The company’s various approaches could become game-changing for Lyft stock, which investors saw as a consistent money-loser for most of the stock’s history. What a difference growing to more than 24 million active riders makes.
In the first nine months of 2024, revenue totaled $4.2 billion, a yearly increase of 33%. In comparison, its costs and expenses grew by a more modest 22%. This reduced its net loss for the first three quarters of the year to $39 million, down from $314 million in the same period in 2023.
Additionally, analysts forecast revenue growth will slow to 32% in 2024 and 15% in 2025. Nonetheless, they also predict Lyft will turn profitable next year, and new investors will probably like that the stock price does not appear to reflect this potential.
Over the last year, Lyft stock fell by just over 10%, which is still more than 80% below the all-time high from its 2019 IPO. That takes its price-to-sales (P/S) ratio to about 1. And amid the anticipated profit, its forward price-to-earnings (P/E) ratio is just 16. If the company’s performance matches the forecasts, investors may have a potentially lucrative bargain in Lyft stock.
Prepare for Lyft to shift into high gear
Given its growth potential, Lyft stock appears set to grow in 2025. Investors seem to have written off the rideshare stock amid years of losses and a strong performance by rival Uber. However, Lyft has found creative solutions to boost its ridership and revenue, so much so that it looks positioned to turn a profit beginning next year.
Moreover, its stock performance could easily turn around once investors begin to notice its dramatic improvements. As more investors see Lyft stock as a possible second chance for those who missed Uber’s gains, it is unlikely to stay at its low valuation for long.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool recommends GE Aerospace and Mobileye Global. The Motley Fool has a disclosure policy.
