A Lyft ride-sharing car is seen on Park Avenue in New York City
Timothy A. Clary/AFP via Getty Images
Lyft stock tumbled Wednesday despite its better-than-expected June quarter results, as investors focused instead on disappointment with the third-quarter outlook and the company’s increasing costs for driver incentives.
In late trading Tuesday, Lyft shares rallied after the ride-sharing company disclosed that it reached profitability one quarter sooner than expected—as measured by adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization.
But on Wednesday, the stock dived 8.6% to $50.59. Uber Technologies (UBER), which reports results after the close on Wednesday, fell down 2.6% to $41.68.
Lyft (ticker: LYFT) posted second-quarter revenue of $765 million, up 125% from a year ago, and well ahead of the Street consensus at $696 million. Profit based on adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) was $23.8 million, including about $16 million in one-time gains.
Active riders (people who took at least one ride in the period) reached 17.1 million, up 97% from a year ago, and up 27% from the March quarter. Revenue per active rider was $44.63, up 14% from a year ago, but down slightly from $45.13 in the March quarter.
One reason for the pressure on the stock is rapid growth in Lyft’s incentive payments to drivers as a way to boost supply. On last night’s earnings conference call with the Street, Lyft said it paid more than $375 million in driver incentives in the quarter, up 92% from the March quarter. That is classified as “contra-revenue,” reducing the top line. The company said it expects that figure to be higher in the September quarter, as it pushes to increase supply to meet customer demand.
On the call, Lyft projected third-quarter revenue of $850 million to $860 million, up between 70% and 72%, but a little shy of the old Street consensus forecast of $864 million. The company sees third-quarter adjusted Ebitda in the $25 million to $35 million range, which would be up from about $8 million in the June quarter when backing out the aforementioned one-time gains. The company said the forecast reflects about a $30 million to $40 million reduction to reflect reduced ride prices.
Analyst reaction to the quarter was mixed.
Gordon Haskett analyst Robert Mollins, who has a Hold rating and $62 target on the stock, writes in a research note that Lyft is making “solid progress on the driver supply side,” but that the commentary around spending incremental dollars on driver supply “puts a damper” on the outlook. As Mollins notes, the company said it would invest any incremental revenue dollars above guidance into driver supply programs.
Needham analyst Bernie McTernan was one of several analysts who suggested that driver supply could get a boost in early September as supplemental unemployment benefits come to an end. Meanwhile, he notes, “there is still a driver supply imbalance,” with Lyft taking on the burden of investing in both sides of the market—boosting driver pay while holding the line on ride pricing. McTernan keeps his Hold rating on the stock, and finds that there are “more compelling growth opportunities elsewhere in the U.S. mobility market,” an obvious reference to Uber.
MKM Partners analyst Rohit Kulkarni makes a similar point: Lyft has become “an increasingly attractive and tactical play on mass vaccinations and summer travel,” but he prefers Uber. The latter offers both lower valuation and a more diversified bet, with a broader international exposure as well as a food delivery arm, he writes. Making the same point, Atlantic Equities analyst James Cordwell says while results and guidance topped expectations, he’s keeping a Neutral rating on Lyft shares, “given the richer valuation versus Uber.”
Evercore ISI analyst Mark Mahaney, however, away from the results incrementally more positive, repeating his Outperform rating, while adjusting his price target to $76 from $77. But he also notes that challenges remain, with ride availability, wait times, and ride pricing still not optimal.
“Lyft will have to lean aggressively into driver incentives for another quarter or two to rebalance the marketplace,” until vaccines more fully roll out, reopenings unfold, and demand normalizes for work and school commutes and airport trips, he writes. But he adds: “Lyft is proving it can do this while breaking through to sustained Ebitda profitability.”
Write to Eric J. Savitz at [email protected]
