Rideshare Will Weaken As Urban Transit Erodes Demand

Key Takeaways

• Investment in public transit, alternative mobility solutions, and autonomous vehicles threatens to erode Lyft's market share and limit future revenue growth.
  
• Increasing regulatory pressures, inflation, and labor activism risk intensifying costs, compressing margins, and delaying profitability.
  
• Expansion into new markets, partnerships, autonomous technology, and innovative services are driving diversified growth, increased profitability, and improved long-term earnings stability.

Catalysts

Operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada.

• As cities continue to prioritize large-scale investments in urban mass transit and non-car alternatives, the expansion of efficient public infrastructure threatens to reduce the long-term demand for ride-hailing services like Lyft, eroding market share and shrinking the addressable market for core rideshare revenue growth.
  
• Persistent inflation and cost-of-living increases may dampen discretionary consumer spending on non-essential travel, limiting the frequency of ride-hailing trips and stalling active rider growth, directly impacting top-line revenue and slowing earnings momentum.
  
• Increasing legislative scrutiny and labor activism could force Lyft to reclassify drivers as employees or provide expanded benefits, sharply escalating driver costs and putting sustained upward pressure on operational expenses, materially compressing net margins and delaying pathways to consistent profitability.
  
• Escalating competition from multi-modal super apps and alternative mobility solutions-including micro-mobility offerings and mass transit integration platforms-may threaten to disintermediate standalone ride-hailing providers, requiring heavier marketing investment and incentivization spend to retain customers and further pressuring earnings.
  
• The emergence of autonomous vehicle technology as a platform-agnostic disruptor risks enabling new entrants or traditional automotive players to bypass Lyft's network, leading to market share loss, decreasing rideshare volumes, and impairing long-term revenue and profit growth as AV adoption accelerates globally.

Lyft Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Lyft compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Lyft's revenue will grow by 8.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.5% today to 2.7% in 3 years time.
• The bearish analysts expect earnings to reach $207.5 million (and earnings per share of $0.16) by about August 2028, up from $92.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.7x on those 2028 earnings, down from 75.0x today. This future PE is lower than the current PE for the US Transportation industry at 26.8x.
• Analysts expect the number of shares outstanding to decline by 2.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

Lyft Future Earnings Per Share Growth

Risks

• Lyft's recent expansion into Europe through the acquisition of FREENOW significantly increases its total addressable market and diversifies its revenue streams, which could drive long-term revenue growth and improve earnings stability.
  
• The company's growing list of strategic partnerships-with major brands like United Airlines, Chase, DoorDash, and Alaska Airlines-has already resulted in a substantial percentage of rides tied to these relationships; this trend is likely to boost customer acquisition, retention, and recurring revenue, impacting overall top-line performance positively.
  
• Investments and momentum in autonomous vehicle integration, notably the Baidu partnership, position Lyft to capitalize on upcoming shifts to driverless mobility, which could reduce operating costs and materially enhance long-term profit margins.
  
• Lyft is maintaining industry-leading operational metrics such as driver preference, low cancellation rates, and strong active rider and frequency growth, which underpins accelerating gross bookings and record profitability-pointing toward sustainable net income and free cash flow improvements.
  
• The company's evolving innovation strategy, including new product offerings (such as Lyft Silver and Price Lock) and a media business on pace for a $100 million run rate, introduces incremental high-margin revenue channels beyond legacy rideshare, supporting potential margin expansion and stronger earnings over time.

Valuation

• The assumed bearish price target for Lyft is $10.18, which represents two standard deviations below the consensus price target of $17.09. This valuation is based on what can be assumed as the expectations of Lyft's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $28.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $7.7 billion, earnings will come to $207.5 million, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $17.01, the bearish analyst price target of $10.18 is 67.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.