Lyft is Starting to Make the Right Moves Thanks to Activist Engine Capital

Lyft, the well-known transportation service provider in the U.S. and Canada, operates a digital platform that connects riders with drivers through its mobile app. It primarily functions as a ridesharing company but has diversified offerings that include bike and scooter rentals as well as the Express Drive program, which allows drivers to rent vehicles from its subsidiary, Flexdrive Services, or from third-party providers.

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Lyft also offers business solutions such as Concierge and Lyft Pass programs, which allow organizations to arrange rides for employees or clients. Currently, the company is valued at approximately $6.86 billion, trading at $16.26 per share.

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Activist investor Engine Capital recently revealed a small stake in Lyft, amounting to 0.81% ownership. Led by Arnaud Ajdler, a seasoned activist with a background in Crescendo Partners, Engine Capital is known for pushing companies to adopt shareholder-friendly policies. On March 25, Engine publicly disclosed its investment in Lyft, calling for a thorough strategic review, better capital allocation, and the end of Lyft’s dual-class share structure.

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Just a few weeks later, on April 16, Engine nominated two individuals for board seats ahead of the 2025 annual meeting but later withdrew those nominations after productive discussions with Lyft’s leadership. These talks resulted in the company pledging significant share buybacks in the near future.

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Since David Risher took over as CEO in 2023, Lyft has taken several steps to streamline operations, enhance its platform, and improve market presence. These efforts have had a tangible impact. Between 2023 and 2024, Lyft’s revenue jumped by over 31%, and the company posted a positive EBITDA of $27.3 million, a stark contrast to the previous year’s $359.1 million loss.

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Free cash flow also made a remarkable turnaround, moving from a negative $248 million to a positive $766 million. These financial improvements are notable, as it’s the first time since Lyft went public that both metrics turned positive. However, despite these advances, the stock price fell 30% over the same period.

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Lyft’s performance challenges are rooted in a few key issues. Chief among them is the competitive landscape. Lyft operates in a duopoly with Uber, which holds a dominant 75% share of the U.S. rideshare market. Lyft holds just 24%, with the remainder captured by smaller players like Curb, Alto, and Waymo.

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Uber's broader reach, both geographically and across complementary services like food and alcohol delivery, makes it difficult for Lyft to compete on pricing and promotions, a point highlighted in Lyft’s most recent earnings call. As a result, Lyft’s stock has consistently underperformed against Uber’s, trailing by 37%, 287%, and 210% over the past one, three, and five years, respectively.

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Another issue troubling Lyft is its capital allocation. The company has seen a significant increase in its shares outstanding, primarily due to high levels of stock-based compensation (SBC), which now stands at around $330 million per year—about 4.9% of its market value. Since 2019, the number of shares has nearly doubled, diluting shareholder value.

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Engine Capital has proposed several remedies. The first is conducting a strategic review that could potentially lead to a sale or merger. Given Lyft’s difficulties in scaling as rapidly as Uber, merging with a larger, more diversified entity could be a logical next step. Companies like DoorDash, which has a sizable $80 billion market cap and overlaps in delivery logistics, could be viable acquirers.

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Alternatively, autonomous vehicle developers like Google’s Waymo or Amazon’s Zoox may also see strategic value in acquiring Lyft to gain a stronger foothold in the ride-hailing industry. Lyft’s relatively low valuation, alongside its improving cash flow and operational gains, makes it an attractive acquisition target that could command a generous premium.

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Second, Engine has called for more aggressive share repurchases. While Lyft recently approved a $500 million buyback program, this is insufficient to offset the share dilution caused by ongoing SBC practices. With $2 billion in cash on hand—$700 million of which is net cash—and a strong increase in free cash flow, Lyft has the financial capacity to expand its repurchase program and deliver greater value to shareholders.

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Finally, Engine is pushing for governance reforms, specifically the removal of Lyft’s dual-class share structure. This setup was originally intended to give founders Logan Green and John Zimmer enhanced control through preferred shares that carry 20 votes each. Although the two co-founders are no longer actively involved in day-to-day operations, they still hold 30.8% of the voting power while owning just 2.3% of the company’s shares.

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Engine argues this structure is outdated and undemocratic. While it’s unlikely the founders would relinquish control voluntarily, Engine insists the board should reflect Lyft’s current needs. Most of the existing directors have experience in startups rather than public companies. Replacing some of them with individuals who understand capital markets and public company governance could better align Lyft’s leadership with its future direction.

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After launching a proxy campaign for board seats, Engine ended the fight on May 8 when Lyft increased its buyback program to $750 million and committed to repurchasing $200 million in shares within three months and $500 million within a year.

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