There are companies you buy because you can picture yourself holding them for decades, sleeping like a baby while the business quietly compounds in the background. Buffett called this punch card investing!

Then, there are companies whose stocks are interesting due to how the market has distorted their pricing in the short term. You might think of these as “special situations”; these are complex, misunderstood or neglected opportunities that emerge from extreme market discounting.

Generally, special situations investing is harder than punch card investing, in terms of the amount of research that must be done continuously to gain an edge. These are situations that are, by definition, not well understood generally, requiring a lot of manual work to achieve an understanding of the situation that’s superior to the market’s, while punch card investing is harder to do emotionally.

It’s challenging because few of us are blessed with the ability to tolerate decades of inaction, if for no reason other than sheer boredom (buying and selling stocks actively is addictively fun — just look at Robinhood’s entire business model). Punch card investing, in theory, demands us to buy no more than 20 stocks in a lifetime…to most, that is simply too boring.

Anyways, today, we’ll be reviewing a company where the investment thesis is closer to a special situation than a punch-card compounder, which is a change of pace for us.

The pitch is for Lyft as an acquisition target, and that’s funny to say, because if you’ve followed along with Daniel and me, you already know how much we like Uber (Lyft’s biggest competitor).

Yet, in a world where autonomous vehicles finally begin scaling, Lyft may go from a mediocre standalone business to a strategic asset for a Big Tech Giant, currently valued modestly at $7 billion (about 1/24th of Uber’s market cap).

More on that, below.

— Shawn

Lyft: Down, But Not Out

I don’t think Lyft is about to claw back meaningful market share from Uber; those days are long gone. Ride sharing is all about network effects and unit economics at scale, and Lyft has been too far behind for too long to meaningfully overcome its competitive disadvantages in North America. It would be like saying Reddit can overtake Facebook. It’s just not going to happen (even though we remain bullish on RDDT!).

Lyft isn’t, and never will be, a compounder. See the chart below for reference:

In public markets, Lyft has destroyed far more value than it’s ever created.

It’s nevertheless an interesting situation. Although Lyft is hardly worth much on its own, its network of tens of millions of riders, and corresponding data on their habits, plus fleet management expertise (more on that in a minute), makes the business potentially worth much, much more when plugged into an existing tech giant like Amazon, Alphabet, or DoorDash, which would all stand to benefit in different ways from partnering with Lyft.

For DoorDash, Lyft would round out its business, providing the company with a ride-sharing business that mirrors Uber’s own two business models (food delivery & ride-sharing). Where Uber is the #1 in ride sharing, DoorDash is the #1 player in food delivery, while Uber Eats is the Lyft of food delivery (structurally #2).

Yet, Uber arguably has a competitive advantage over DoorDash in bundling together perks like free delivery and discounted rides into a single membership program known as Uber One, which DoorDash can’t entirely rival, since its subscription program is limited to food-delivery benefits only. With Lyft, though, DoorDash could perfectly counterbalance Uber’s dual value proposition and assemble an aggressive bundle of perks that challenge Uber’s market share over time, in both ride-sharing and food delivery.

For Amazon or Alphabet, Lyft is primarily attractive because it gives them immediate access to 1/3 of North America’s ride-sharing market, as they build up their fleets of autonomous vehicles (Zoox and Waymo, respectively) that are incredibly impressive, technologically, but lack the scale and customer distribution to fully monetize their self-driving capabilities.

However, for what is a rounding error to these tech giants’ balance sheets, they could buy Lyft for a few billion dollars, giving them an established ride-sharing app across the U.S., with regulatory relationships in place, too.

With that backdrop, Lyft has made itself a more attractive acquisition target by finally reaching operating profitability for the first time ever this past year:

Uber, on the other hand, is of course too big to be acquired. If you’re Alphabet or Amazon, and you want to acquire a meaningful foothold in ride sharing, you can’t realistically buy Uber at a roughly $140-170 billion market cap + an acquisition premium. Even if you could, regulators would have a field day with it.

But if Lyft is acquired at, say, $10 billion, $12 billion, or even $15 billion (I don’t think the difference between those numbers is meaningful to a Big Tech buyer if they decide Lyft improves their strategic position), that would yield 30-100% returns from current prices for Lyft shareholders.

At times in the past year, betting markets actually placed 40%+ odds on Lyft being acquired specifically by Amazon, but those hopes failed to manifest:

The tricky thing with special situations is that you can be right on the economics & logic and still be wrong on the timing/outcome. If we buy Lyft shares tomorrow, banking on an acquisition, it could be two years, if ever, before a deal comes along!

So the question isn’t really, “Is Lyft intrinsically undervalued as a standalone company?” but, “How likely is it that Lyft is acquired in the next 12 to 24 months, and at what price, and what happens to me if that doesn’t happen?” To that last part of the question, what are the opportunity costs of tying up capital in a mediocre business indefinitely?

Well, the math can either be wildly complicated or pretty straightforward, depending on how much you’re willing to simplify.

I’m happily choosing to simplify: If Lyft doubles on an acquisition offer in 12 months, that’s a 100% IRR. If that same deal occurs in 24 months, then that’s a 41.42% rate of return, instead, reflecting the diminished annual return received when you delay the payout across longer periods. If it takes 36 months, well, that’s a 26% rate of return. See for yourself, assuming that Lyft shares are bought at a $7.5b valuation today and sold at a $15b valuation in three years:

It’s arbitrary, but for illustrative purposes, you could factor in probabilities, too.

Heads up, though, if numbers bore you, skip to the next section ;)

Think there’s a 50/50 chance that Lyft is acquired in the next two years at a 100% premium? Then your expected annual return would be ~22.5%.

If you think there’s a 75% chance of Lyft being acquired at twice its current value in three years from now, then the expected return is ~20.5%, and you can interpolate the expected returns between these periods — i,e. If the acquisition occurs at some time between 12 months and 24 months from now. _{(Also note: The technically correct formula is slightly different, but you can ballpark these numbers by multiplying the odds of an acquisition by the expected IRR.)}

It’s also clearly not guaranteed that Lyft would be acquired at a 100% premium to current prices. So you could come up with a complex analysis of different acquisition probabilities at various price levels, and come up with an expected value for your rate of return over different periods of time, but I’ll pause there before dragging you into this tedium.

I did, however, spare you some of the trouble in this handy graphic from my valuation model on Lyft, where the colored numbers in the box represent your expected CAGR over the time periods depicted vertically on the left-hand side:

In the scenario above, I assume that Lyft may be acquired at a 60% premium to the current stock price, and I depict the expected returns from 12 months to 60 months, assuming the odds of an acquisition occurring are between 15% and 60% during those respective periods. You can make a copy of the spreadsheet and add in your own assumptions, though! A 60% buyout premium is possible, but I only picked it specifically because it’s near the midpoint between a 30% and 100% buyout premium, which is the range I generally see as being plausible. _{Note: This assumes that if no deal happens, the stock is flat over the period (a simplifying assumption).}

This is inherently arbitrary, and I’m not a mathematician, so I’m certain this isn’t the most mathematically rigorous way to account for these dynamic return outcomes, but I am confident this is “good enough for government work,” as they say, though my father, who worked in the government for 30 years, may take offense at that statement.

In my rough thinking, just to show the point, if there’s a 50% chance of Lyft being acquired (at a 60% premium) in the next two years, the expected value of your annual rate of return is about 13.25%.

I’ll leave it up to you to ponder the time frames, prices, and likelihood with which this may or may not happen, because it’s an exercise in guessing the future — not something we can know with any real certainty.

Where Lyft Stands Against Uber

That was a bit exhausting, so I apologize. Point being, if you can effectively time the occurrence of an acquisition, then you can underwrite some fairly attractive returns.

But let’s get back to the story here: One of the reasons Lyft’s stock has felt almost permanently unloved is that, when you look at the scale differences between Lyft and Uber, it’s not subtle.

Lyft has about 25 million monthly riders, while Uber boasts more than 170 million monthly active platform users. Where Lyft handles about 220 million trips per quarter, Uber handles over 3 billion.

And with Uber Eats, Uber has diversification. When Covid hit, Uber could offset lost ride-sharing demand with food delivery. Drivers could switch from driving people to delivering food, yet Lyft didn’t have that luxury. Lyft had to fight to keep its network of drivers intact, leaning heavily on driver incentive programs (subsidies) to retain its market share.

Now, to Lyft’s credit, the company hasn’t been sitting idly while being compared unfavorably to Uber for a decade.

Lyft has stabilized its market share at around 30%, up from 26% three years ago. Lyft is, in other words, not becoming irrelevant everywhere all at once. Instead, it has found pockets where it can win.

Lyft has succeeded by focusing on underpenetrated areas like college towns and smaller U.S. cities, such as Indianapolis, where Uber hasn’t gained the same traction. These markets actually accounted for around 70% of Lyft’s growth in the second half of 2025, and by focusing on these less-dense environments, Lyft avoids some of the brutal competitive intensity of major metro hubs like New York and San Francisco, where Uber’s flywheel is so strong that it’s hard to compete without bleeding money.

Lyft is Scrappy!

Lyft is scrappy; you have to give them that. They’ve found weakspots and exploited them.

From its Women+ Connect program, allowing riders and drivers to request only to be paired with other women for safety purposes, which has led to a huge increase in female drivers on Lyft’s platform, to cracking down on surge pricing (something Uber is notorious for), and guaranteeing that drivers will earn at least 70% of total trip costs on average net of external fees, I have to admire the company’s spirit when so many have counted them out for years.

On that last point, pay transparency has been an incredibly thorny issue for the gig economy generally, but Lyft has used that to its advantage, doubling down on transparency, which has driven a 29 percentage point favorability gap toward Lyft amongst drivers who work on both Uber and Lyft’s networks.

Lyft is even paying drivers for delays. If a ride takes five minutes longer than estimated because of unexpected traffic, drivers receive automatic earnings increases, which demonstrates a degree of respect for drivers’ time that is, frankly, rare in this industry.

Lyft is also shifting, at least a bit, away from being purely North American, thanks to its acquisition of Freenow, which gives Lyft exposure to Europe.

This doesn’t suddenly make Lyft a global platform like Uber. But it does complicate the narrative that Lyft is just a stagnant, shrinking niche player.

Scrappy Only Goes So Far…

Still, the economics of ride sharing are heavily shaped by density, frequency, and the high-value urban hubs where rides are constant, short wait times matter most, and a slight advantage in supply (i.e., more drivers) can create a big advantage in demand. And Lyft has struggled in those markets.

One of the more sobering stats I came across is that Lyft’s core user base isn’t growing particularly fast, and when you look at certain granular market-level data, Lyft has lost share in places where you’d really like to be gaining it, like New York City, where Lyft’s market share has fallen by 1% a year for several years now.

This connects to what I think is Lyft’s core strategic dilemma: If the company wants to gain meaningful market share, it has to reduce pricing — Women+ Connect, and driver earnings’ guarantees only go so far. But lower pricing risks alienating supply, because drivers follow earnings, and if drivers allocate less time to Lyft, wait times go up, riders get frustrated, demand falls, and you can trigger a negative feedback loop.

Uber, because it has a larger scale, greater financial resources (Uber has more cash than Lyft’s market cap!), and more diversification, can outlast Lyft in any prolonged pricing battle.

So Lyft has to win in ways that aren’t just “be cheaper,” which, to their credit, they’ve been quite innovative at.

The most extreme of these, as mentioned, is restraining surge pricing. Surge pricing is economically rational in a supply-and-demand marketplace, as it’s the price signal that balances the system (spikes in prices encourage offline drivers to go online, adding more drivers to the network, reducing prices over time as pickups are fulfilled).

But it’s also one of the most universally hated parts of the ride-sharing experience. People order a ride, see one price, and then the price jumps, and it can feel like you’re being shaken down.

Lyft is boldly betting that predictable pricing can become a real differentiator, even if it means sacrificing high-margin revenue in peak moments. Correspondingly, management has suggested that surge pricing rates are down 40% on average now.

As an Uber shareholder, this actually makes me a little nervous, not because I think Lyft can win the whole market with this, but because it could set a precedent. If Lyft succeeds in shaping rider expectations, Uber may feel pressured to respond, and that could become a costly shift for the whole industry.

Following the wisdom of Buffett and Munger, I’ve learned that all it takes, unfortunately, is one thrifty competitor to ruin an otherwise good business!

Lyft’s DNA is Innovative

One of the more fun parts of researching Lyft was realizing just how unique and resourceful the company has been since day one.

Lyft’s co-founders weren’t operating with the same war chest Uber had. Instead, Lyft raised a fraction of what Uber raised, but they made every dollar go further.

They leaned into gimmicks that worked, like putting pink mustaches on Lyft cars. It was a visual signal that created curiosity, helping break the discomfort of early ride sharing, when the idea of getting into a stranger’s car, that wasn’t a taxi, felt nearly insane.

Early on, Lyft pushed drivers to fist-bump every rider just to break the ice.

Uber, by contrast, positioned itself as a professional alternative, with black cars and a paid chauffeur vibe. It’s worth remembering that Uber’s early strategy wasn’t just “build a better app.” It was also to “move faster than regulation can respond,” which is partly why Uber attracted so much controversy and scrutiny.

Lyft’s culture-first approach didn’t win the war, but it helped them survive long enough to still be here.

Raising billions of dollars from public markets, at a nose-bleed valuation, to fund your business also helps. Despite being the clear #2 at the time, Lyft was the first of the major ride-sharing companies to IPO in 2019, and I actually think that was a smart move. There was pent-up demand to invest in ride-sharing, and Lyft took advantage of being the first mover.

If it had followed Uber’s IPO, you can imagine much diminished investor enthusiasm for the second-best ride-sharing company after they’ve already had the chance to invest in the market leader.

Nevertheless, Lyft’s IPO was a huge success, raising more than $2 billion in cash while attaining a $24 billion+ valuation (3.5x the company’s current market cap, seven years later).

Investors were salivating at the idea of booking seamless multi-modal transportation in the future, from car pick-ups to bikes & scooter rentals, to autonomous vehicles.

In hindsight, it’s always easy to mock the exuberance priced into the IPO of a stock that correspondingly crashes and burns, but in this case, man, the bearish arguments really were easy to make.

At the time, and for years after, Lyft was nowhere near profitability, with -80% operating margins(!). It was truly unclear whether the business model itself, whether with Uber or Lyft, could ever make money.

So what went wrong? I alluded to it earlier, but Lyft was punished by Covid, while the pandemic ended up being a blessing in disguise for Uber. Lockdowns structurally made people more inclined to order food delivery going forward once they got comfortable with the service, boosting Uber Eats’ business, as a simultaneous crackdown on overhead costs set the tone for Uber to emerge firmly profitable on the other side of the pandemic.

Lyft, on the other hand, found itself drowning, financially, and has been digging itself out of that hole ever since. See their falloff in revenues below — a 10% revenue CAGR isn’t bad over seven years, but it’s nowhere near the expectations priced into the stock at IPO; it took three years just to surpass 2019 revenues again!

An Amazon Alum Comes to Save the Day

A big part of Lyft’s recent progress is tied to its relatively new CEO, David Risher.

Risher isn’t some random executive who wandered into the job because he needed a paycheck. He built Microsoft Access from scratch, then joined Amazon early on and helped grow the business from $15 million in sales to $4 billion.

At 57, Risher is still hungry and has been on Lyft’s board since July 2021.

And that matters, because I have a hard time imagining someone with his track record would take on a low-probability turnaround bet at this stage of life unless he believed there was a real chance of success.

Since his takeover, we’ve seen initiatives like Women+ Connect, surge pricing restrictions, guaranteed driver pay, and so on, but we've also seen R&D costs as a percentage of revenue cut materially, and overhead as a share of revenue down by half. Lyft has cut costs, and it’s probably emotionally easier for a new CEO to do that than for the founders to “clean house.”

Stock-based comp, as a share of revenue, has fallen, too, from 18% to 5%:

More interesting to me, though, is that last summer, Lyft’s founders gave up their “super-voting” shares that gave them control of 30% of the company, and converted their equity into regular common shares, reducing their voting power down to ~2%.

The fact that the founders had so much power and still believed in Lyft as a standalone business was an obstacle to acquisition for years. Now, it’s hard to see that move as anything other than the company positioning itself for an acquisition at the right price, making it significantly easier for a takeover to be approved by shareholders.

The Key to AV Fleets: Flexdrive

Now we get to the heart of the acquisition thesis.

Lyft has a subsidiary called Flexdrive, which is devoted to managing fleets of vehicles. Flexdrive manages rental cars, enters into rental agreements with drivers, and collects fees by deducting them directly from earnings. It’s another great illustration of Lyft’s innovativeness in finding ways to onboard new drivers onto its platform for those who don’t own their own vehicle.

When you zoom out and imagine a world where autonomous vehicle fleets consume a growing share of our roads, the logistics of fleet management become an enormous burden.

Cars have to be cleaned, charged, maintained, and positioned to optimally meet demand. They can’t just magically teleport to where demand is highest. Even if the driving is autonomous, the operations are not.

Lyft is starting to work with Waymo in Nashville in a way that highlights this. Flexdrive will manage a shared fleet of Waymo vehicles that can be dispatched on both the Waymo and Lyft apps to maximize utilization.

If you’re a company building autonomous vehicle technology, Flexdrive could be one of the missing links for monetization. You might have the software and the sensors, but if you don’t have the operational backbone to run a consumer-facing service at scale, then monetizing those capabilities is limited.

That’s why you can imagine Flexdrive being attractive not just to tech companies like Waymo or Zoox, but even to automotive manufacturers like Ford or GM, who might have pieces of the technology puzzle but lack the marketplace operations experience.

Flexdrive has an industry-leading 90% utilization rate! They’re excellent at efficiently running fleets of vehicles, previously only for drivers who didn’t own a vehicle, but now for AVs, too.

So Could Lyft Actually Be Acquired?

With the governance barriers to a sale having fallen meaningfully, the pressure for a sale is rising. Activist investor, Engine Capital, which owns 0.8% of Lyft, has requested that the board initiate a review of strategic alternatives, including a sale or merger.

Now, who are the likely bidders if Lyft’s board follows through on that?

We talked about several. DoorDash is an interesting one, since DoorDash and Lyft already have a partnership tying DashPass to Lyft benefits.

Alphabet, through Waymo, is the most obvious “fit” in the sense that Alphabet has the resources, the strategic rationale, and the desire to monetize autonomous technology beyond just licensing it.

The strongest bear argument I always hear about Uber, actually, is that Waymo is just partnering with them now to get distribution, while building their own ride-hailing app that will one day disrupt Uber and cut them out of the business. I’m skeptical, but if that’s the plan, acquiring Lyft would accelerate those ambitions and could even start to strangle Uber, assuming Waymo and Lyft simultaneously, and in coordination, take market share from Uber.

Valuation

When I ran through Lyft as a standalone business, I came away with the same feeling as Daniel.

This is not a good business on its own, though Lyft has made progress, including returning capital via buybacks and reducing share count after years of dilution. Still, the underlying business remains highly competitive and fragile.

In a base case, if revenues grow at around 7% to 10% per year, and operating margins rise toward 8% to 10% by 2030, thanks to greater scale, advertising, and cost disciplines driven by David Risher, and Lyft continues repurchasing shares, you can get to a fair value estimate around $26 per share, using a modest exit multiple of 14.5x operating profits (for context, Uber trades at 38x operating profit).

The bull case for what’s possible with Lyft as a standalone company is certainly capped — there’s a relatively low ceiling on how optimistic I can get about their prospects, but it’s not difficult to imagine a bear case where things get really ugly.

In the bear case, I modeled a scenario where Lyft would need to fall by another two-thirds from its current price range of $17-18 to be fairly valued…

So, the point is that the range of outcomes is very wide, and probably skewed more downward than upward (without an acquisition occurring), and that’s what makes Lyft hard to own as a normal long-term investment.

But if Lyft is acquired, you don’t need Lyft to become a wonderful business; you just need Lyft to appear useful to a Big Tech Giant, which I’d argue it is. If there’s a bidding war, well, Lyft shareholders could be handsomely rewarded after, honestly, years of suffering.

Earlier, I shared a table depicting how the odds of an acquisition occurring within a period of time, and the expected buyout premium, shape your expected returns. If Lyft is to be acquired, I’d guess it’ll happen within the next 24 months, as AV businesses begin to scale and look to integrate what’s necessary for the next stage of their growth.

With my personal money, where I may be inclined to gamble a bit more, I could imagine rolling the dice on the chances of a Lyft acquisition with LEAPS (long-dated options), but it would be, at best, a calculated gamble, and not truly investing. I haven’t yet made any kind of investment in Lyft, though I continue to find it interesting! And, unsurprisingly, Lyft won’t be finding a home in our Intrinsic Value Portfolio.

If you have thoughts on Lyft as an acquisition target, please write us! [email protected].

More commentary on our Portfolio, below.

Weekly Update: The Intrinsic Value Portfolio

Notes

• The market kicked off this past week with a panic! Turns out AI doom fan fiction, if published by a prominent Wall St research firm, is all it takes to cause investors to lose their minds and concede any illusions of long-term thinking. Daniel and I were less impressed by the article and saw numerous glaring flaws. Essentially, it imagines an investment memo written two years from now, reflecting on what happened along the way to hypothetically drive a surge to 10% unemployment, as white-collar workers are shed in favor of AI agents, and contemplates the ripple effects of that across the economy.
  
  There are lots of excellent rebuttals to the piece floating around Twitter/X, and our general feeling is that A) the timeline for AI agent adoption & disruption is optimistic and B) the analysis completely overlooks what actually matters to the moats of companies like DoorDash, Uber, and Airbnb (their network effects, customer service experience, distribution, payments processing, etc.) in favor of the idea that simply being able to write code faster, with the help of AI, will kill these hugely valuable two-and-three way marketplaces, along with many other wonderful busnesses that are written off as “possible” collateral damage.
  

• Anyways, we saw the panic as a buying opportunity for some of our favorite portfolio holdings. On Wednesday, Daniel and I held our monthly portfolio review call, and we decided on a few changes:
  

  • RDDT: We initially made Reddit a “tracker” position at 2% that ran up to nearly 4% of the portfolio, and so now, we’re adding further to the position to make it a “full position” in our eyes (5% holding or more).

  • MELI: Same logic for Meli, we continue to be impressed by their execution and are building our conviction in the business, and as such, we’re also making it a full 5% position.
    

  • BRK.B: To fund these moves, rather than depleting a chunk of our cash buffer, we’ve opted to further trim our position in Berkshire from 7.7% position to 5%. We believe Berkshire is fairly valued and will deliver better returns than cash, hence why we don’t liquidate the position entirely, but we suspect Meli and Reddit can generate better returns looking forward.

Quote of the Day

"I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.”

— Jeff Bezos

What Else We’re Into

📺 WATCH: Nike’s CEO Elliott Hill on the company’s turnaround plan

🎧 LISTEN: OpenClaw and Self-Sovereign AI w/Alex Gladstein and Justin Moon

📖 READ: Checkout the article from Citrini Research that, in our opinion, drove an irrational selloff this week in markets

You can also read our archive of past Intrinsic Value breakdowns, in case you’ve missed any, here — we’ve covered companies ranging from Alphabet to FICO, Transdigm, Lululemon, PayPal, DoorDash, Crocs, LVMH, Uber, and more!

Your Thoughts

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