Lyft transport application is seen on a smartphone in New York City in this file photo taken on June 29, 2018. AFP/Angela Weiss
Lyft Inc. has a large and growing addressable market, but the company’s competitive and industry dynamics in the mid- to long term is a cause for concern, Susquehanna analyst Shyam Patil said on Wednesday.
The analyst initiated his coverage of Lyft stock with the equivalent of a hold rating, and a price target of $57. Lyft is rising as much as 1.6 percent in early Wednesday trading.
"We’re worried about the competitive dynamics of being the number 2 player in a market where scale is extremely important, and switching costs for riders and drivers are relatively low and barriers to entry - while they exist - aren’t insurmountable, especially for larger scaled U.S. and international internet companies,” Patil wrote in a note to clients.
Lyft shares had sharply risen on its trading debut late last month, but since then their performance has been sub-par. The stock is now down 21 percent from its $72 IPO price, amid questions about its growth and money-making potential, as well the pending public listing of larger rival Uber Technologies Inc.
The majority of analysts who have begun research coverage of Lyft are neutral to negative on the stock, with only four rating it a buy, against seven holds and one sell.
"While our analysis of unit economics suggests profitability is possible, the extremely competitive nature of the space and going up against an aggressive number 1 player in Uber makes it tough to predict future customer acquisition costs as well as rider and driver retention,” the analyst added.
