Why Lyft Stock Dropped Today

Shares of ride-sharing platform Lyft (NASDAQ: LYFT) dropped by more than 16% at one point on Wednesday morning after the company reported its fourth-quarter results Tuesday afternoon. Management's guidance for the current quarter has investors concerned about the competitive landscape. However the stock's declines moderated as the session progressed, and as of 12:05 p.m. ET, it was only down 3.4%.

Lyft's positive trends seem to be slowing down

Lyft's riders pay for transportation through the platform, but the company doesn't keep all of that money -- much of it goes to taxes and paying drivers, for example. The total dollar value of all the transactions is known as its gross bookings. And Lyft's Q4 bookings were within its guided range. Management had called for gross bookings of $4.28 billion to $4.35 billion and Q4 bookings came in at a record $4.3 billion, up 15% year over year.

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Lyft's bookings were boosted by an increase in active riders. It ended Q4 with 24.7 million active riders, up from 24.4 million in the previous quarter. Moreover, rides were up by a greater amount, showing that active riders are also using the platform with greater frequency, continuing a promising trend from recent quarters.

However, for the first quarter of 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. Investors 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.

Lyft is a cheap stock

I believe an under-appreciated aspect of Lyft is its free cash flow. The company booked a record $766 million in free cash flow in 2024, meaning that it trades at just 7 times its free cash flow as of this writing. That's extraordinarily cheap for a company that's still growing at a double-digit percentage rate.

Lyft's management seems to agree. It just initiated its first stock buyback program, with an authorization of $500 million. At the current share price, that equates to almost 9% of its outstanding shares. In my opinion, ongoing free-cash-flow growth and a potentially decreasing share count make this a compelling opportunity.

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Jon Quast has positions in Lyft. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.