Lyft, the 2nd largest US ride-sharing company after Uber, did the opposite after hours when it dropped a quarter of its value in seconds after it gave an earnings outlook that significantly missed analysts’ estimates as the company shifts back into deflationary mode and prepares to sacrifice profits in a bid to attract riders with lower prices.
Cutting to the chase, the company projected Q1 1revenue of $975 million, far below the est. of $1.09 billion, and adjusted EBITDA of $5 million to $15 million, badly missing the $83.6 million average estimate in a Bloomberg survey. Lyft reported adjusted Ebitda was a loss of $248 million during the final three months of 2022. The San Francisco-based company attributed the loss to a regulatory disclosure change which requires companies to count insurance reserves, cash set aside to pay for claims and other insurance expenses, in financial measures. And since investors no longer view Lyft as a growth company but rather as a cash-flow positive cow, it was forced to resort to the oldest trick in the non-GAAP book and adjusted the already adjusted EBITDA (which it called Recast) to make it appear bigger than expectations. And here another curiosity: the company’s outlook for the fourth quarter of 2022 was reported during the third quarter 2022 Financial Results Earnings Call on Nov. 7 and did not include the $375 million insurance reserve adjustments or the update to our non-GAAP calculations. Odd how it just randomly appeared.
Here is a summary of everything LYFT reported for Q4:
- Revenue $1.18 billion, +21% y/y, beating the estimate $1.16 billion
- Adjusted Ebitda loss $248.3 million vs loss $47.6m y/y; Adjusted Adjusted EBITDA was positive $126.7 million excluding the impact from the increase to insurance reserves and accrued liabilities
- Adjusted net loss $270.8 million vs loss $90.2m y/y
- Active riders 20.36 million, +8.7% y/y, beating the estimate 20.3 million
- Revenue per active rider $57.72, +11% y/y, beating the estimate $56.75
- Cash and cash equivalents $281.1 million, -39% y/y, estimate $255.2 million
- Adjusted Ebitda margin -21.1%
- Contribution profit $414.7 million
- Contribution margin 35.3%
“We’re making sure we match competitive service levels of both price and wait time,” Lyft co-founder and President John Zimmer said in an interview. In October, Lyft increased the service fee riders pay directly to cover higher insurance costs. Those expenses are expected to continue to rise. Rather than have riders bear the burden, Lyft is willing to take the hit to profits instead, Zimmer said, adding the company expects the factors leading to the fourth-quarter earnings loss to be a one-time hit.
In other words, Lyft may be adjusting its already adjusted EBITDA, but going forward the real cash flow is only going to shrink more and more.
Adding insult to injury, revenue will also decline as the company cuts prices to pick up market share: Lyft’s projection for revenue of $975 million in the current period also fell below expectations of $1.09 billion. Zimmer said the slower growth is primarily due to seasonality and the fact that a large portion of its rider base counts bikes and scooters, which customers use less frequently in colder months. Zimmer added that the outlook also reflects Lyft generating less revenue from higher fares from surge pricing, a product of more drivers on the platform to meet rider demand.
Zimmer said driver supply in the fourth quarter was “the best in three years” but declined to say if Lyft would be paring back spending on incentives.
In other words, all those laid off tech workers found their next career.
As Bloomberg notes, Thursday’s report marks the second consecutive quarter in which Lyft lagged rival Uber in demonstrating it’s able to keep customers coming back to the platform and return ridership to pre-pandemic levels. Uber reported mobility bookings grew 31% to $14.9 billion in the fourth quarter, surpassing delivery segment bookings for the first time since the pandemic hit. Uber’s strong demand for ride-share services illustrates customers are still willing to pay more to order a ride, even as inflation pinches budgets and economic uncertainty looms.
Of course, unlike Uber, Lyft is still a simple, localized pure-play which only operates in North America and does not have a food delivery business. To increase customer retention, the company has worked to expand its subscription product, Lyft Pink, and has partnered with Grubhub to offer members a complimentary subscription to the food-delivery platform.
“I think the market is large enough, we are talking about ride sharing and mobility as a service, to support two large players,” said D.A. Davidson senior analyst Tom White. “I think Lyft can be a number two, but its increasingly looking like its a distant number two.”
It wasn’t clear if Lyft’s former employees are now working as its drivers: in November, Lyft eliminated 13% of its workforce, its second round of layoffs in 2022, to rein in costs as it tries to cope with a difficult economic backdrop. Uber said on Wednesday it expects headcount to be “flat” in 2023.
“The difference in active rider changes between the two major players will be a leading indicator of future revenue and market share changes for both Uber and Lyft,” said Nicholas Cauley, analyst at global research firm Third Bridge. Alas, considering that Lyft ridership has yet to recover pre-pandemic levels, it’s becoming clear that Lyft will not be the winner…
… and the market agreed, sending LYFT stock price some 25% lower after hours.