Lyft stock jumps after analyst says profitability is a matter of ‘when and not if’

Lyft Inc. is slowly changing minds after a rough start to its life as a public company.

The ride-hailing company exceeded expectations on Wednesday afternoon with a number of key metrics that are important to investors, including active ridership, revenue per active rider, and profitability. Though the company is still far from profitable, it expects to reduce its losses this year, which came as an encouraging sign to investors and analysts.

The stock is up 7.2% in Thursday trading, ahead of rival Uber Technologies Inc.’s UBER, +6.95% report, which is scheduled to be published after the closing bell.

Lyft’s LYFT, +4.76% latest numbers prompted Wedbush analysts Daniel Ives and Ygal Arounian to change their tune on the company, as they upgraded shares to outperform from neutral.

“The most impressive part of the quarter to us was that Lyft was able to drive strong rider and revenue per rider growth, while significantly cutting back on promotions,” they wrote. “Where we once viewed the domestic only nature of Lyft as a detractor, we are beginning to view it as more of a near-term benefit given the execution we are seeing from Lyft in the field around key metrics, as the competitive dynamics domestically are much stronger than they are internationally.”

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Lyft was the subject of another upgrade, according to FactSet, with analysts at Atlantic Equities ending their bearish call on the stock.

RBC Capital Markets analyst Mark Mahaney said that one crucial takeaway from Lyft’s quarter is that the company is “starting to prove out its PTP (path to profitability),” which he said constituted the “largest investor pushback” when Lyft went public.

“Robust growth rates suggest continued market demand, while matching and other algorithm optimization suggest improved execution, as seen in rising revenue per rider,” he wrote. “And perhaps most importantly, costs are coming down much quicker than investors seem to have anticipated.”

He rates the stock at outperform and raised his price target to $76 from $72. In all, 13 analysts increased their targets on the stock, according to FactSet.

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Evercore ISI analyst Benjamin Black chimed in that Lyft’s pathway to profitability “appears more of a question of WHEN and not IF” and shrugged off Lyft’s decision to move up its lock-up expiration. “The lock-up period moving up one month to 8/19 was purely mechanical (forced move up based on quiet period) – management reiterated that neither founder nor the CFO would be selling shares as they see strong fundamental momentum,” he wrote in a note to clients.

Black rates the stock at outperform and hiked his price target to $81 from $74.

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Not all were convinced that the quarter was a turning point for Lyft. “The on-demand ride-sharing market is in the nascent stages of development and, we believe, part of a strong, long-term secular trend; however, we expect the path to profitability to be volatile,” Monness, Crespi, Hardt & Co. analyst Brian White said in a research note.

Though Lyft predicted that 2018 will have been its peak year of losses, White commented that “the vicissitudes of the ride-sharing market can be unpredictable and relentless.” He continues to rate the stock at neutral.

Shares are up 22% over the past three months, as the S&P 500 SPX, +1.00% has risen 0.8%.

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