What Happened:
Shares of ride sharing service Lyft (NASDAQ: LYFT) jumped 7.2% in the pre-market session after RBC Capital upgraded the stock's rating from Sector Perform (Hold) to Outperform (Buy) and raised the price target from $17 to $23. The new price target implied a potential 30% upside from where shares traded when the upgrade was announced.
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What is the market telling us:
Lyft's shares are quite volatile and over the last year have had 51 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago, when the stock gained 37.7% on the news that the company reported fourth-quarter results indicating growing users, enabling it to beat Wall Street's revenue and EPS estimates. Rides growth accelerated for the fourth quarter in a row to 26% year on year in the quarter. Guidance for Q1 2024 came in ahead of expectations for gross bookings (from which the company generates revenue by taking a cut) and adjusted EBITDA, showing that both near-term growth and profits are better than expected. Lastly, the company expects to generate positive free cash flow for the full year 2024, converting roughly half its forecasted full-year EBITDA into cash. This is a nice milestone.
Interestingly, the initial company release had a typo. Instead of guiding to a 50 basis point (0.5 percentage points) increase in 2024 adjusted EBITDA, the text stated 500 basis points (5 percentage points). This caused the stock to spike up 65% in after-hours trading before settling down. Holding aside the stock move caused by the typo, it was still a very good quarter, and the stock is currently reflecting this.
Lyft is up 25% since the beginning of the year, but at $17.23 per share it is still trading 9.5% below its 52-week high of $19.03 from February 2024. Investors who bought $1,000 worth of Lyft's shares at the IPO in March 2019 would now be looking at an investment worth $220.33.
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