When all the Hoopla dies, Lyft Stock is a buy on the dip

In one of the most anticipated IPOs of recent years, the carpool giant Lyft (NASDAQ:LYFT) went public at $ 72 per share at the end of March. Because of all this hype, the Lyft IPO started off well. So things went wrong. The LYFT action has opened 20% above its introductory price.

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This gathering failed. The stock closed up less than 10% on the first day, which is quite low for the much anticipated IPOs. Then on day 2, the LYFT action dropped by more than 10% and fell below the price of its IPO, recording a fall of more than 20% in two days compared to its price of 39; opening.

Is the LYFT stock overhyped?

The most common thesis is that the IPO has been overestimated, the company overvalued and that long-term profitability and growth concerns will ultimately limit the capacity of this stock. At present, with the LYFT stock acting as a falling knife, this thesis seems pretty compelling.

But I'm ready to play the countercurrent here. I think this thesis is exaggerated. The bear thesis has gained momentum, so the LYFT stock will continue to fall in the short term. But, the long term should be played a lot differently.

If you zoom out, the fundamentals of an overview are very healthy. I think Lyft has a reasonable opportunity to make $ 4 billion in profits over the next decade as carpooling becomes a North American standard. In this context, the current valuation of Lyft (about 20 billion dollars) looks like a volley.

As such, I think this thesis of "Lyft's IPO was too exaggerated" is actually much more exaggerated than the IPO itself. In the long term, Lyft has the unique opportunity to be a very large and very important company. That's why I'm taking advantage of this frantic sale. The fundamentals will eventually put an end to it, and will significantly increase Lyft's stock in the long run.

Lyft's growth is great

In order to remain concise, I grouped the long-term thesis of the LYFT bull in five points. These points are:

1. The sharing economy is the future, and carpooling is an important part of this movement. Perhaps the most important trend of this century is the trend of the sharing economy, which essentially consists of democratizing single-sourced ecosystems and transforming them into multi-supplier ecosystems. The goal is to match the supply to the demand and improve the results for consumers and suppliers (to learn more, click here). Carpooling is an important part of this movement because it requires driving services (formerly provided by a few), is provided by many people and, in doing so, significantly reduces costs and improves convenience. As a result, carpooling will only grow in adoption and use over the next few years.
2. Carpooling currently represents a very small part of the transport market. Despite the advantages in terms of the cost and convenience of carpooling compared to owning a car, it still represents only a tiny portion of the transportation market. According to the Lyft S-1, carpooling accounted for just 1% of the total vehicle-miles driven in the US in 2016. It's tiny and that means the scale market could / would much, much bigger than today. .
3. There are only two players in North America and Lyft is by far the fastest producer. Everyone is worried about competition in the market, but there are only two players (Uber and Lyft) in the North American carpool market. So there is not much competition and the market should be large enough to accommodate both large-scale actors (think Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in the cloud, or Walmart (NYSE:WMT) and Target (NYSE:TGT) in detail). In addition, Lyft has experienced the strongest growth and increased its market share in the United States from about 10% four years ago to 30% today.
4. All metrics at Lyft are going in the right direction with healthy dynamics. Lyft's financial results everywhere point to robust growth. The number of active runners has increased from 3.5 million passengers in early 2016 to nearly 20 million today. During the same period, revenue per active runner increased from $ 16 to $ 36 and the average number of quarterly trips per runner increased from 8 to 10. Growth in bookings is north of 75%. Revenues double from one year to the next. The contribution margin increased from 24% in 2016 to almost 43% last year. Opex rates rose from around 220% to around 90% over the same period.
5. Lyft can be extremely profitable without autonomous driving. There is this rumor circulating that Lyft can not be profitable without autonomous driving. This is not true. Lyft left 2018 with contribution margins of 45% and more. This rate increases. It should reach 50% and up scale. As such, the only way for this company to make a profit is if the exploitation rate is north of 50% scale. Lyft only touches the surface of its revenue potential today and the opex rate is already below 90%. On the scale, it will certainly be less than 50% and probably closer to 30 to 40%. Thus, Lyft without autonomous driving could still be a very profitable business.

Long-term fundamentals and LYFT shares

Summing up the five points mentioned above, Lyft is the fast-growing farmer in a very large but even larger market in North America, with exceptionally healthy operational momentum and a reasonable opportunity to have significant profit margins. in large scale. In figures, this translates as follows:

• The shareholding market in North America could reach 200 million passengers a day. Using Lyft's publicly available data and Second Measure's market share data, it can be assumed that the carpool cost share market in the United States and Canada measured 44 million passengers by the end of 2016 (penetration rate). about 12%) and more than 60 million benefits by the end of the year. 2018 (penetration of about 17%). On a large scale, this market could easily reach 50% of penetration due to the fall in the motorisation rate and the increasing dependence on car-sharing. Assuming that the combined population of the United States and Canada reaches 400 million by 2030, this implies a carpool market of some 200 million passengers.
• The number of Lyft runners could reach 70 million. Lyft's market share in the United States has tripled in the last four years and is now north of 30%. This share expansion is unlikely to continue. Uber had a public misery during this four-year period that allowed Lyft to quickly gain market share. These incidents will probably not happen again. Lyft's market share should therefore be around 35%. On the basis of 200 million runners, this represents 70 million runners by 2030.
• These 70 million passengers could represent nearly 6 billion trips per year. The average American makes about four car trips a day, or 1,460 a year. By leaving 2018, the average Lyft driver was about to make about 40 trips a year, compared to a little over 30 at the end of 2016. This number is expected to continue to increase as consumers resort to carpooling services for daily transportation more often. As such, this number could easily reach and exceed 80 by 2030, implying that 70 million passengers could account for more than 5.6 billion journeys and perhaps closer to 6 billion.
• Bookings could reach nearly $ 100 billion by 2030, while revenues could reach $ 30 billion. Bookings per trip in 2016 were less than $ 12. Since then, it has grown at an average annual rate of one digit to reach $ 13 today. This number is expected to continue to increase, thanks to inflation and stronger demand. As a result, bookings of $ 16 to $ 17 per trip seem very achievable by 2030, which means $ 90 to $ 100 billion in bookings. Assuming Lyft's participation rate increases gradually to 35%, it means revenues of less than $ 30 billion.
• Lyft could reach a net profit of $ 4 billion by 2030. The contribution margin has exceeded 45% in 2018 and management expects this rate to increase over time. Meanwhile, the exploitation rate is declining rapidly and should continue to do so alongside strong income growth. Thus, by 2030, a contribution margin of 55% and an opposition rate of 40% appear to be about right. This implies an operating margin of 15% which, after a tax rate of 20% and revenues over $ 30 billion, should generate net profits of about $ 4 billion.
• Lyft is worth 30 billion dollars today. Based on an average growth multiple of 20, Lyft's valuation by 2029 could be as high as $ 80 billion. With a 10% discount per year, this equates to a 2019 fiscal year goal of $ 30 billion.

Bottom Line on the LYFT stock

Do not be fooled. While many call Lyft's OPI overestimated and the title of LYFT overvalued, the fundamentals underpinning this company are very healthy. Multi-billion dollar profits are achievable over the next decade, and as a result, LYFT's current valuation of $ 20 billion appears to be a theft.

At the time of writing these lines, Luke Lango was a long AMZN and a TGT, and could start a long LYFT in the next 72 hours.