Analyst slaps $42 target on Lyft — 42% below its IPO price — says buying it is a 'leap of faith'

  • Seaport Global Securities analyst Michael Ward initiates coverage of Lyft with a sell rating and a 12-month price target of $42 a share.
  • "In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service," he says.
Technology - Lyft Car Services
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Shares of Lyft fell for a second straight day, this time after an analyst raised concern over the ride-hailing company's valuation.

Michael Ward, an analyst at Seaport Global Securities, initiated coverage of the stock with a sell rating and a 12-month price target of $42 a share. Ward's price target implies a 39.1 percent downside from Monday's close of $69.01. Lyft shares fell as much as 4.2 percent before ending the day down 0.1 percent at $68.67. It priced its IPO Thursday evening at $72.

For Ward, the wildcard surrounding Lyft is its valuation. "In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service," he said in a note, adding he believes people will continue to own cars and use ride-sharing services as a "convenient supplement."

"While we believe the ridesharing market will continue to grow and expect LYFT to be a prime competitor, in our view, current valuations reflect an overly optimistic view of consumer behavior in the US," Ward said.

Lyft sees the "transportation as a service" market being worth $1.2 trillion in the U.S., according to the analyst. However, Seaport sees the "the addressable market is much smaller, looking instead at the $70 billion ground transportation market."

Lyft was valued at more than $22 billion when it went public last week. However, the company posted a net loss of nearly $1 billion in 2018 and has presented no clear strategy to become profitable in the near future.

Ward's sell rating and Lyft's decline come a day after the company's stock dropped nearly 12 percent, its second day trading in the public market. Lyft celebrated its initial public offering on Friday, as the stock surged 8.3 percent.

Ward is also not the only analyst worried about Lyft. Guggenheim initiated coverage of the stock with a neutral rating, noting "too many big assumptions" are required to "make a case for the stock."

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