LYFT Stock Drops 8%—Here’s Why It Might Get Worse

Although ride sharing has represented one of the most groundbreaking technological and economic innovations, not all players have benefited from the development. Take Lyft (LYFT) as an example. While the company offers a compelling alternative to sector giant Uber (UBER), the contrast in market performance couldn’t be more obvious.

Over the past five years, UBER has doubled in equity value. LYFT stock? It dropped more than 70%. And since its public market debut, it has dropped more than 83%. That’s not to say that investors have zero chance of being made whole. However, there is a cloud of skepticism surrounding the enterprise.

Overall, the latest fourth-quarter earnings report didn’t help. While the headline numbers were alright, revenue represented a slight miss. More importantly, management’s EBITDA guidance for the current quarter fell short of Wall Street’s estimates. Below is a breakdown of the positives and negatives of Lyft’s earnings print:

Positive Elements

• Full-year revenue in 2024 reached $5.8 billion, up 31% on a year-over-year basis.
• Fundamentally, growth outpaced ride volume growth suggesting higher revenue per ride.
• Lyft achieved its first full year of GAAP profitability, with Q4 net income la
• nding at $61.7 million.
• The company generated free cash flow of $766.3 million in 2024 compared to a loss of $248.1 million in the prior year.
• Management disclosed share buyback intentions, signaling confidence in future operations.
• Several metrics point to operational robustness, including 828 million rides in 2024 (an increase of 17% YOY).

Negative Elements

• The leadership team revealed weaker-than-expected guidance, including gross bookings expected between $4.05 billion to $4.2 billion (implying 10% to 14% YOY growth, slower than Q4’s 15% growth rate).
• Margin decline raises concerns about whether Lyft can sustain its profitability.
• Stock-based compensation (SBC) hit $330.9 million, well above Lyft’s net income of $22.8 million.
• Fierce competition in the ride-sharing market is the norm, imposing pricing pressure.
• Investors may grow skeptical about the buyback program, which could be seen as a means to artificially boost LYFT stock.
• Financial stability is still a concern with debt and liabilities rising, including $390 million in convertible senior notes.

Could LYFT Stock Be a Paper Tiger?

Generally speaking, the consensus within the financial publication realm as it relates to LYFT stock is the anxiety over the underlying enterprise’s forward guidance. For example, Barchart content partner Motley Fool noted that for Q1 2025, “Lyft only expects 10% to 15% bookings growth, which would be slower than both its Q4 growth and its 21% growth in the first quarter of 2024.”

Further, the resource stated that “[i]nvestors in the rideshare space are always worried about the potential impacts of competition, and they're viewing the forecast for slowing growth as confirmation that they're right to be worried.” It’s a perspective echoed by others, helping to explain why LYFT stock recently suffered a nearly 8% drop.

Still, in my opinion, the bigger issue could be the apples-to-apples comparison. If the aforementioned SBC were treated as a “real” expense, Lyft wouldn’t be profitable at all. It would instead be posting a hefty net loss.

On the other hand, the same cannot be said about Uber. True, both enterprises saw equity value losses following their earnings disclosures. However, Uber posted net income of $9.86 billion in 2024. SBC accounted for just under $1.8 billion. If this line item were treated as an expense, the company would still post $8.6 billion in net income — that’s real profitability for lack of a better word.

Unfortunately, with Lyft, the math of net income of $22.8 million against SBC of $330.9 million just doesn’t work. I’m not saying that Lyft is guilty of accounting tricks or anything of that nature. But again, when you compare apples to apples, the difference is quite stark.

Ultimately, that may be why the market responded so harshly to the guidance. At a time when Lyft still needs to marshal all available resources, it can’t afford to suffer too many sector headwinds. However, investors may have been prudent in reading between the lines.

Unusual Options Point to a Contrarian Outlook

Still, before you pull the trigger on a bearish trade, speculators should note one wrinkle: sentiment in the options market seems to align with the contrarian perspective.

Specifically, options flow — which focuses exclusively on big block transactions — showed on Wednesday that net trade sentiment hit $356,400. Overall, gross bullish dollar volume hit $918,300, while gross bearish volume landed at $561,900.

To note, the most optimistic trade was for $13.50 calls which expire Feb. 21. It’s possible that beyond this expiration date, LYFT stock could lose support.

Investors should also realize that LYFT suffers from a negative bias. Statistically, there’s less than coin-toss odds that a position entered into the equity will be positive over a one week to four-week period. For a realistic trade, I would look into the 13.50/13.00 bear put spread for the options chain expiring Feb. 28.

While it’s not the most aggressive trade available, it could take advantage of a projected slow decline in LYFT stock rather than an outright implosion.