A recent analyst report suggests that Lyft Inc. (NASDAQ: LYFT) could turn a profit sooner than once thought, but there is a tradeoff. Lyft could achieve this but it would have to increase its prices to hit this target. This also implies that Uber Technologies Inc. (NYSE: UBER) would make a similar move as well.
Since Lyft came public back in March, along with Uber shortly after, investors’ biggest concern has been the path to profitability for each of these companies.
In a report from Guggenheim, the firm upgraded Lyft to a Buy rating with a $60 price target, implying an upside of 22% from Friday’s closing price of $49.11. Guggenheim’s Jake Fuller and Ali Faghri said in the report that It could be tough for Lyft to raise fare prices or cut driver wages in a competitive category, but the company’s pricing model over the past two quarters has been surprising.
The report also suggests that Uber’s need for cash in the Uber Eats business and its push into more international ride hailing puts Lyft in a good position to raise prices alongside Uber.
As a result, Guggenheim now expects Lyft to turn a profit in 2021 instead of 2023, mainly due to the price increases with limited impact on demand.
Fuller and Faghri detailed in the report:
Price increases should stimulate take-rate, bolster contribution margin and yield narrowing losses, with the potential for upside to consensus across key metrics.
We all underestimated how quickly the competitive mindset might shift under public ownership and how much leverage there is in the model to pricing.
Shares of Lyft traded down about 1% to $50.62 Tuesday morning, in a 52-week range of $47.17 to $88.60. The consensus price target is $74.65.
Uber shares traded up about 2%, at $33.94 in a 52-week range of $32.92 to $47.08. The consensus analyst target is $51.47.