In its earliest days of trading, Lyft (NASDAQ:LYFT) stock was often considered part of IPO mania. As the mania wore off, the share price fell. Then it settled within a range, but the coronavirus from China has pushed the share price below that range.
Some enterprising traders might view this as a buying opportunity. But timing is crucial in the investing game. Just because Lyft stock is down, doesn’t mean it can’t keep falling. Changes in consumers’ habits could easily put more pressure on the company and the share price.
An Optimistic Outlook
A month ago, Lyft reported its fourth-quarter earnings results. It also released its outlook for the first quarter of 2020 and for the full year. The fourth-quarter numbers looked impressive. Based on the information Lyft had at the time, its ambitious outlook for 2020’s first quarter and full year would have been fairly plausible.
For 2019’s fourth quarter, Lyft’s revenues were $1,017.1 million. That represents a year-over-year increase of 51.9%, which is certainly encouraging. Moreover, Lyft’s fourth-quarter adjusted EBITDA loss was $130.7 million. That represents a marked improvement over the same quarter of the previous year, which showed a $251.1 million loss in adjusted EBITDA.
Those figures might have instilled hope in investors who were facing a loss on their Lyft stock holdings. But we shouldn’t ignore the fact that Lyft posted a multimillion-dollar adjusted EBITDA loss for the fourth quarter. Moreover, the company revealed a loss of 41 cents per share for that quarter.
Based on the data Lyft had at the time, the company announced a highly ambitious outlook. Lyft projected $1,055 million to $1,060 million in revenues for this year’s first quarter. That suggests a year-over-year increase of 36% to 37%.
For the full year of 2020, Lyft anticipated that its revenues would be in the range of $4,575 million to $4,650 million. This implies an increase of 27% to 29% compared to the previous year.
Dampening the Optimism
Things can change quickly in the markets. Recently the World Health Organization officially determined that the coronavirus is a global pandemic. Furthermore, the President of the United States declared a national emergency due to the coronavirus.
The President is reportedly considering travel restrictions to California as well as Washington. “Is it a possibility? Yes, if somebody gets a little bit out of control, if an area gets too hot,” President Trump responded to a reporter’s question. The President has already imposed a restriction on travel to the United States from parts of Europe.
Within the past few weeks, there have been schools moving from in-person classes to fully online curricula. Some schools have even closed their operations altogether, at least for the time being.
Some businesses have sent their on-site employees home because of the coronavirus. In-person meetings have been moved online or canceled altogether. Additionally, some sports and other recreational events have been canceled.
These factors all point to a likely drop in revenues for Lyft. Perhaps the biggest drop will be in the area of rides to and from airports. If people are hesitant to take airplane trips, or if they’re restricted from flying, then they won’t need airport rides from Lyft.
With all of that in mind, Lyft’s first-quarter and full-year outlooks will likely need revision. That revision will very likely be to the downside.
The Takeaway on Lyft Stock
It would be a gutsy move to buy Lyft stock now. It’s trading at a reduced price point, so it might be tempting to buy some shares. But it’s best to resist that temptation. Travel restrictions and shifts in people’s habits are likely to take a toll on Lyft’s revenues. It’s better to just wait and see how the viral outbreak develops before considering a position in Lyft.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.