Lyft's Cash Flow Soars - But So Has the Stock - Is it Still a Buy?
LYFT closed at $17.21 on Monday, May 12, up from $12.58 on May 7 (+36.8%) before the earnings came out. It's now up to where it was before the sell-off in April, but still below its 6-month high of $18.59 on Nov. 11, 2024.
But does it still have more to go? Let's look at the results.
Strong Free Cash Flow Generation
Lyft reported that all its growth metrics were significantly higher than last year, and most were equal to or just slightly lower than last quarter. Its supplemental data deck shows these stats for gross bookings, quarterly rides, and riders.
For example, quarterly revenue at $1.45 billion was up +13.6% YoY, but down slightly from Q4 revenue of $1.55 billion (-6.45% QoQ).
Moreover, even though adjusted EBITDA (a measure of cash flow not including capex and working capital changes) was down slightly QoQ, its free cash flow (FCF), which includes these flows, was significantly higher. This can be seen in the table on page 16 of the deck:
It shows that in Q1 Lyft generated $240 million in FCF. That represents an amazing 19.4% of Lyft's Q1 revenue, vs. just 9.0% in Q4 and 9.96% in Q1 2024. In other words, its FCF has doubled, indicating the company has been squeezing more cash out of its operations. (In all fairness, the dip in Q4 FCF and FCF margins may have been an anomaly.)
In fact, over the trailing 12 months (TTM), LYFT has generated $920 million in FCF as seen on page 13 of its deck. This has been growing exponentially. It also represents 15.4% of almost $6 billion in TTM revenue.
As a result, if LYFT continues to generate between 15.4% and 19.4% FCF margins over the next year, we can expect that FCF will continue to soar. We can assume that it could come in at least 18% of the FCF of the estimated sales forecasts from analysts.
For example, Seeking Alpha shows that 40 analysts have an average revenue 2025 forecast of $6.48 billion. And for 2026, they forecast $7.20 billion in sales. As a result, FCF estimates are:
18% x $6.48 billion (2025 revenue est.) = $1.1664 billion FCF 2025
18% x $7.20 billion (2026 revenue est.) = $1.296 billion FCF 2026
This can help us set a price target, using an FCF yield metric.
LYFT Stock Price Targets
For example, LYFT now has a $7.234 billion market capitalization. That means that its TTM FCF of $920 million represents 12.7% of that market value (i.e., its FCF yield). That is the same as a multiple of 7.87x FCF (i.e., 1/0.127 = 7.874).
As a result, applying a 12.7% yield to the FCF forecasts results in a market cap forecast:
$1.1664 billion FCF (2025 est.) / 0.127 = $9.165 billion mkt cap
$1.296 billion FCF (2026 est.) / 0.127 = $10.204 billion mkt cap target
So, over the next 12 months (NTM), LYFT could be worth between $9.1 billion and $10.2 billion. That is between +26.7% and +41% higher than its present $7.2 billion mkt cap.
That implies its price target is still higher than today's price, i.e., between $21.81(i.e., 1.267 x $17.21) and$24.27 (1.41 x $17.21) per share, or $23.04 on average.
Just to be conservative, let's apply a higher FCF yield (i.e., a lower multiple). For example, using a 15% FCF yield (i.e., a 6.67x multiple):
$1.1664b x 6.667 = $7.78 billion market cap (2025 est), +7.5% over today
$1.296b x 6.667 = $8.64 billion mtk cap (2026 est.), + 19.4 % higher
The price target range for this more conservative forecast is $18.50 per share (+7.5%) to $20.55 (+19.4%), or $19.53 on average.
In other words, LYFT is worth somewhere between $19.53 and $23.04, depending on the FCF multiple used (i.e., 7.8x or 6.7x).
Analysts seem to agree. For example, 38 analysts surveyed by AnaChart.com now have an average price target of $22.00 per share.
The bottom line is that LYFT still has further to go on the upside, especially if its free cash flow and FCF margins remain strong over the next 12 months.
How to Play LYFT Stock
It's not uncommon for a stock that has risen so far so fast to take a beat. Normally, I would recommend shorting out-of-the-money (OTM) puts to set a lower buy-in target. But it may make sense to just watch things here.
For example, the June 13 expiration put option chain shows that the $16.00 strike price, 7% below Monday's closing price, has a midpoint premium of 46 cents. That represents a cash-secured short-put yield of 2.875% over the next month (i.e., $0.46 / $16.00 = 0.02875).
The problem is that Lyft stock could drop over the next month simply from profit-taking. This is even though it's worth more, as I have shown, and despite its low delta ratio of 27.5% and a $15.54 breakeven point (i.e., $16.00-$0.46). That is 9.7% below Monday's close of $17.21.
As a result, an investor might have a chance to make the same or better yield at a lower strike price. For example, if the $15.00 strike ends up with a 40 cents premium (up from 22 cents), the short-put yield is 2.667% and the breakeven point is $14.60 (i.e., -15% lower).
So, I recommend watching LYFT over the next 2 weeks and setting a buy-in target price. Over the next 12 months, there is a good likelihood of making a profit on LYFT at today's or a lower price.
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