What's the idea?
The ride-hailing industry, valued at $158.9 billion by 2023, has become a cornerstone of modern transportation. The market has rebounded strongly from the pandemic, doubling in size from $79.6 billion in 2020 and is projected to reach $212.8 billion by 2029, growing at a compound annual growth rate (CAGR) of 4.89%.
Uber is the global leader with 25% market share, with North America contributing 61% of Uber's revenue. Lyft has 8% of the global market. The industry remains fragmented, with Uber and Lyft together accounting for 33%.
Lyft recorded 216.7 million rides in Q3 2024, up 16% compared to the same period in the previous year (YoY), and active riders increased 9% to 24.4 million. Gross bookings grew 16% YoY to $4.1 billion. Strategic partnerships, such as those with Mobileye and DoorDash, are aimed at expanding the user base and incorporating autonomous vehicle (AV) technology starting in 2025.
The company reported Q3 2024 revenue of $1.52 billion, up 32% YoY and beating analyst estimates. Despite a net loss of $12.4 million, adjusted EBITDA improved to $107.3 million. Free cash flow turned positive at $242.8 million, compared to -$30 million a year ago. The company continues to face profitability challenges, but has made significant progress in operational efficiency.
Buying a combination of shares and stock options allows an investor to increase potential returns without equally increasing potential risks.
We recommend buying CALL options on LYFT stock with a strike price of $15.00 and an expiration date of 16/01/2026. The option will cost about $3.40, while one contract will cost around $340.0, since options are traded for 100 shares.
About Company
Lyft Inc (LYFT) is a ride-hailing company that operates primarily in the US and Canada. The company offers a variety of transportation options, including traditional ride-hailing, bike-sharing, scooter rentals, and car rentals. It is currently the second largest ride-sharing service in the US, after Uber. The company was founded in 2007 and is headquartered in San Francisco, USA.
Why do we like CALL OPTION LYFT.US @15?
Lyft Inc. (LYFT) is a ride-hailing company that operates primarily in the US and Canada. The company offers a variety of transportation options, including traditional ride-hailing, bike-sharing, scooter rentals, and car rentals. It is currently the second largest ride-sharing service in the US, after Uber.
The company's operating metrics have shown impressive growth:
- In Q3 2024, Lyft facilitated 216.7 million rides, reflecting a 16% YoY increase.
- Active riders reached 24.4 million, up 9% YoY.
- Gross bookings rose 16% YoY to $4.1 billion, up from $3.5 billion in Q3 2023.
Lyft's financial results exceeded expectations in Q3 2024, with revenue of $1.52 billion, up 32% YoY from $1.16 billion in Q3 2023, and ahead of analyst expectations of $1.44 billion. Revenue growth accelerated significantly, increasing 33% YoY in the first nine months of 2024, compared to 9% YoY in the same period of 2023.
Despite the strong revenue performance, however, the company remains unprofitable. Lyft posted a net loss of $12.4 million in Q3 2024, which included a $36.4 million restructuring charge. Still, this is an improvement from Q3 2022, when the company reported a net loss of $422.2 million.
To strengthen its competitive position, Lyft is actively forming strategic partnerships. It is moving forward in the AV space by partnering with companies such as Mobileye and May Mobility, with the goal of introducing AVs to its platform. Starting in 2025, Lyft plans to offer riders in Atlanta the option to book a driverless vehicle.
The company has also partnered with DoorDash, allowing DashPass members to access monthly rideshare benefits at no additional cost, while eligible Lyft riders can try DashPass for free. These partnerships are designed to increase user retention, drive cross-platform engagement, and expand Lyft's customer base.
Looking ahead, management expects the following results in FY2024:
- YoY growth in the number of rides of approximately 15%.
- YoY gross bookings growth of approximately 17%.
- Adjusted EBITDA margin (as a percentage of gross orders) of 2.3% versus 2.1% previously expected.
- Cash flow in excess of $650 million.
It is difficult to evaluate Lyft using multiples, as the company is still unprofitable. However, based on the EV/Sales ratio, the company appears to be undervalued compared to its 5-year average: TTM EV/Sales of 0.97x vs. 5-year average EV/Sales of 2.95x. Thus, given the expected high growth rates and the prospects of achieving profitability, Lyft suggests potential upside for investors.
Lyft historical multiples
We believe that buying long-term CALL options on LYFT stock could provide an attractive investment opportunity in the current environment.
We recommend buying the stock options with the following parameters:
- Option type: CALL
- Strike: $15.00
- Expiration date: 16/01/2026
- Option cost: $3.40
- Target price: $8.00
- Potential yield: 135%
- Cost per contract: $340.0
- Breakeven point: $18.40
- From current share price to breakeven point: +28.0%
Why is investing in stock options sometimes more effective than investing in stocks? You don't need to have a lot of capital to start trading stock options. For example, at the current LYFT stock price of $14.32 per share, 100 shares would cost more than $1,432, while buying an option contract would cost only $340.0.
Moreover, stock options provide significant leverage, i.e. if the stock price rises sharply, an option position would yield a significantly higher return than a similar stock position. For example, a 70% increase in the LYFT stock price by the expiration date of 16/01/2026 would result in a 174% increase in the stock option value.
The table below summarizes the yields of various investment strategies using LYFT shares and stock options depending on the stock price performance on the expiration date.
In order not to take on too much risk, you can use a strategy of buying shares and options on the same asset at the same time, in a certain proportion. As you can see from the table above, this investment strategy allows an investor to achieve a higher return than by buying only shares, while keeping the risks lower than by buying only options.
How to use the idea
We recommend buying long-term CALL options on LYFT stock with a strike price of $15.00 and an expiration date of 16/01/2026. The option will cost about $3.40, while one contract will cost around $340.0, as options are traded for 100 shares.
The investor will profit if the underlying asset’s price is above the breakeven point** of $18.40 on the expiration date. The higher the LYFT stock price rises above this point, the greater the profit will be. We recommend closing the position when the option price reaches $8.00. In this case, the profit will be more than 135%.
The investor will incur a loss on the option if the LYFT stock price falls below the breakeven point by the expiration date. The maximum possible loss, i.e. 100% of the option contract value, will occur if the stock price falls below the strike price, or $340.0 in our case.
The chart below shows the distribution of profits and losses from the option position depending on the LYFT stock price on the expiration date.
If the stock price rises with increased volatility, the options would show significant growth in a shorter period of time before the expiration date.
Important note
Options must be purchased with a limit order. Buying an option contract with a market order can result in extremely unfavorable prices.
This is a speculative investment idea which carries increased risks. Investing in options can provide a 50%, 100%, 200%, and in some cases even higher returns, but also can lead to a complete loss of the amount invested! In cases where volatility is low, profit or loss can vary between 20% and 30%.
A prudent approach to implementing option ideas is to invest a small portion of the portfolio in many such cases. In this way, losses from unsuccessful ideas will be compensated by high returns on successful investments.
Key risks
1. There is a possibility that some negative corporate news could lead to a decline in the LYFT stock price. In this case, the CALL options would become devalued.
2. Excessively low volatility in LYFT stock may result in the options becoming devalued by the expiration date.