Lyft Inc. stock fell 26% on Tuesday after the ride-hailing company said it would have to spend more to attract drivers, and that operational profitability would be less than a quarter of Wall Street expectations due to the additional expenditures.
In an interview with Reuters, Lyft President John Zimmer stated that fully recovering driver supply from epidemic lows was taking longer than expected.
The quarterly report also frightened rival Uber Technologies Inc, which dropped 11% in after-hours trading following Lyft’s announcement. After moving its own quarterly results publication plan to Wednesday morning from Wednesday afternoon, Uber recouped some losses to a decline of 4%.
“It’ll be very interesting to see if Uber feels the need to ramp investments in a similar way… or if Lyft is unique in struggling to bring back and retain drivers for some reason,” said D.A. Davidson analyst Tom White, who attributed Lyft’s stock losses to the company’s driver costs and outlook.
Executives said the driver incentives were important to meet the expected increase in demand this year, particularly on the West Coast of the United States, which has lagged behind other U.S. regions in terms of recovery.
Lyft said it expects adjusted EBITDA of $10 million to $20 million in the second quarter, excluding stock-based compensation and some other costs. That’s down from the $54.8 million it reported for the first three months of the year on Tuesday. According to Refinitiv’s IBES statistics, analysts projected $82.5 million on average.
Lyft’s market worth was reduced by $2.8 billion as a result of the share price drop in after-hours trading. The stock had already lost roughly 60% of its value since its IPO in 2019.
Wedbush analyst Dan Ives wrote in a note that Lyft’s expenditure on drivers was large and “crushed” the profit forecast.
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In response to questions from analysts on a conference call following the results, Lyft executives declined to provide cost details for driver incentives. One executive said Lyft would use higher prices to help finance some spending on drivers.
According to Zimmer, the number of drivers remained below pre-pandemic levels as demand dwindled during the pandemic.
In recent quarters, Lyft and Uber have attempted to entice drivers back by offering additional incentives.
According to IBES statistics from Refinitiv, Lyft also expects sales of $950 million to $1 billion in the second quarter, falling short of the average analyst estimate of $1.02 billion.
In the first three months of the year, active ridership fell 4.8 percent from the previous quarter.
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Riders were 17.8 million in the third quarter, down from 18.7 million the previous quarter but up from 13.5 million a year before. During the winter months, demand for ride-hail, bike, and scooter journeys declines, therefore ridership is normally lower in the first quarter.
According to Zimmer, who spoke to Reuters, buyers anxious for post-pandemic normalcy shrugged off higher pricing.
“The impact of the pandemic tailwind is significantly more significant to our business… than the impact of inflation,” Zimmer added.
Drivers have also been hit by rising fuel costs as a result of Russia’s invasion of Ukraine, causing some to cease or reduce their driving.
In order to assist drivers, Lyft and Uber have implemented a temporary fuel premium.
BEAT IN THE FIRST QUARTER
According to Refinitiv statistics, Lyft reported first-quarter revenue of $875.6 million, exceeding analyst projections of $846 million.
Adjusted EBITDA of $54.8 million far exceeded the company’s own guidance and analyst expectations. After Lyft guided for a top range of $15 million, analysts predicted $17.8 million in adjusted EBITDA.
Lyft officials have talked about the company’s pricing power on numerous occasions, a trend Zimmer expects to continue even as consumers confront broader price rises across the economy.
Elaine Paul, Lyft’s chief financial officer, said on Tuesday that concerns about inflation aren’t affecting the company’s revenue forecast.
According to research firm YipitData, average per-ride pricing for Lyft and Uber in the United States were 37 percent higher in March than in the same month last year.
In the fourth quarter of 2019, Zimmer stated demand was still 30% below pre-pandemic levels, providing the company “quite a bit of space.”
(Tina Bellon contributed reporting from Austin, Texas; Peter Henderson, Bernard Orr, and Richard Pullin edited the piece.)
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