By Tomi Kilgore
Shares of Lyft Inc. extended their selloff on Monday, after UBS backed away from its bullish call on the ride-hailing company, citing concerns the company won’t be able to match the revenue growth of its competition in an environment of slowing economic growth and a weaker active-rider environment.
The stock /zigman2/quotes/208999293/composite LYFT +0.56% took a 2.9% hit in morning trading toward a two-month low. It has shed 19.4% amid a four-day losing streak, and has tumbled 25.3% during a 10-day stretch in which it has declined eight times.
UBS analyst Lloyd Walmsley cut his rating to neutral from buy, and cut his stock price target by 68%, to $16 from $50.
“We see Lyft benefiting from a continued recovery coming out of COVID in the near term, but we are on the sidelines for the stock as we think the company’s [long-term] growth [algorithm] is structurally lower in the core ride-sharing business than [Wall] Street is modeling,” Walmsley wrote in a note to clients.
He believes the FactSet consensus for fourth-quarter revenue of $1.17 billion is “too high,” based on UBS’s proprietary survey and app data showing that drivers prefer rival Uber Inc. /zigman2/quotes/211348248/composite UBER 0.00% , that Lyft isn’t its drivers’ “main” app and because Uber has more app downloads and usage across drivers and consumers.
“Drivers typically multi-app, and Uber not only has a lion’s share of the market, its onboarding process is faster and it offers drivers more earnings opportunities,” Walmsley wrote.
Among other concerns, Walmsley believes Lyft’s “U.S.-centric” business exposes the company more than Uber /zigman2/quotes/211348248/composite UBER 0.00% to rising ride-share insurance costs, which could increase as third-party insurance contracts renew Oct. 1. He also sees risk that Lyft will need more reinvestment just to maintain an “attractive” revenue growth rate.
“Given the lack of these growth drivers, we think Lyft will under grow the market,” Walmsley wrote.
Walmsley currently expects Lyft to record compounded revenue growth of 18% from 2022 to 2024, below Street expectations of 20% growth, and below his estimate for Uber’s revenue growth of 21%.
Of the 40 analysts surveyed by FactSet who cover Lyft, 58% (23) are bullish, one is bearish and 40% are neutral. In comparison, 91% (41) of the 45 analysts surveyed by FactSet are bullish on Uber, while the other four are neutral.
Lyft shares have slumped 16.8% over the past three months, while Uber’s stock has run up 20.1% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.16% has declined 5.4%.