Lyft (LYFT)

Ride sharing service Lyft (NASDAQ: LYFT) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 13.5% year on year to $1.45 billion. Its GAAP profit of $0.01 per share was $0.03 above analysts’ consensus estimates.

Company Overview

Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.

The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech-enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Lyft’s 19.7% annualized revenue growth over the last three years was impressive. Its growth beat the average consumer internet company and shows its offerings resonate with customers, a helpful starting point for our analysis.

This quarter, Lyft’s revenue grew by 13.5% year on year to $1.45 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, a deceleration versus the last three years. Still, this projection is above average for the sector and indicates the market is forecasting some success for its newer products and services.

User Growth

As a gig economy marketplace, Lyft generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.

Over the last two years, Lyft’s active riders, a key performance metric for the company, increased by 10.1% annually to 24.2 million in the latest quarter. This growth rate is solid for a consumer internet business and indicates people are excited about its offerings.

In Q1, Lyft added 2.3 million active riders, leading to 10.5% year-on-year growth. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. This number also informs us about Lyft’s take rate, which represents its pricing leverage over the ecosystem, or "cut" from each transaction.

Lyft’s ARPU growth has been impressive over the last two years, averaging 8.7%. Its ability to increase monetization while quickly growing its active riders reflects the strength of its platform, as its users continue to spend more each year.

This quarter, Lyft’s ARPU clocked in at $59.92. It grew by 2.8% year on year, slower than its user growth.

For gig economy businesses like Lyft, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include server hosting, customer support, and payment processing fees. Another cost of revenue could also be insurance to protect against liabilities arising from providing transportation, housing, or freelance work services.

Lyft’s unit economics are far below other consumer internet companies, signaling it operates in a competitive market and must pay many third parties a slice of its sales to distribute its products and services. As you can see below, it averaged a 35.1% gross margin over the last two years. That means Lyft paid its providers a lot of money ($64.91 for every $100 in revenue) to run its business.

In Q1, Lyft produced a 40.5% gross profit margin, up 6.7 percentage points year on year. Lyft’s full-year margin has also been trending up over the past 12 months, increasing by 4.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Lyft grow from a combination of product virality, paid advertisement, and incentives.

Lyft is efficient at acquiring new users, spending 37.6% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates relatively solid competitive positioning, giving Lyft the freedom to invest its resources into new growth initiatives.

Lyft has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 6.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Lyft’s EBITDA margin rose by 4.4 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, Lyft generated an EBITDA profit margin of 7.3%, up 2.7 percentage points year on year. Since its gross margin expanded more than its EBITDA margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Lyft’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

In Q1, Lyft reported EPS at $0.01, up from negative $0.08 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Lyft to perform poorly. Analysts forecast its full-year EPS of $0.14 will hit $0.22.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Lyft has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.6% over the last two years, slightly better than the broader consumer internet sector.

Taking a step back, we can see that Lyft’s margin expanded by 23.3 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Lyft’s free cash flow clocked in at $280.7 million in Q1, equivalent to a 19.4% margin. This result was good as its margin was 9.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Lyft is a well-capitalized company with $2.15 billion of cash and $1.11 billion of debt on its balance sheet. This $1.04 billion net cash position is 19.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Lyft blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad it expanded its number of users. On the other hand, its revenue slightly missed. Still, we think this was a solid quarter due to the better-than-anticipated profitability. The stock traded up 7.6% to $14 immediately after reporting.

Updated: May 22, 2025 at 10:16 PM EDT

Before deciding whether to buy Lyft or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

In our opinion, Lyft is a good company. To kick things off, its revenue growth was impressive over the last three years. And while its gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses, its rising cash profitability gives it more optionality. On top of that, its EPS growth over the last three years has been fantastic.

Lyft’s EV/EBITDA ratio based on the next 12 months is 13.2x. Looking at the consumer internet space right now, Lyft trades at a compelling valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $16.87 on the company (compared to the current share price of $16.01), implying they see 5.4% upside in buying Lyft in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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