- Lyft’s stock price dropped despite announcing record revenue as investors continue to sell off companies that even slightly miss earnings.
- Lyft has announced that it will cut 13% of its workforce to prepare for economic uncertainty, saving about $350 million annually.
- Investors were concerned because of a slowdown in active rider growth. ***
Lyft recently announced its earnings for the third quarter, and investors quickly rode away from the stock. Rideshare companies have struggled over the past few years due to pandemic restrictions, rising fuel costs, and concern about a possible recession still looming over us. There was hope that Lyft would bounce back with stronger earnings this quarter.
Lyft has been running one of the largest transportation networks in North America since 2012. While the ride-booking business took a hit during the pandemic, folks are going out again, with the number of active users jumping up to 20.3 million. However, the Lyft earnings call led to the stock plummeting as much as 22% in the days that followed the news.
How did Lyft’s earnings do?
Lyft reported its financial results for the period ending September 30 on November 7, 2022.
Here are some of the key financial highlights:
- Lyft reported earnings per share of $0.10.
- The quarter’s revenue was $1.05 billion compared to analyst predictions of $1.051 billion. The revenue growth was 22% year-over-year.
- The company had 20.3 million active riders in the quarter.
- Adjusted EBITDA during the quarter was $66.2 million.
- Adjusted net income was $36.7 million versus an adjusted net income of $17.8 million in the third quarter of 2021.
- Net loss for the quarter was $422.2 million. This figure includes $224.1 million of stock-based compensation and related payroll tax expenses.
It’s worth mentioning that Lyft had 22.9 million active riders in the last quarter of 2019, so it’s clear that demand has not fully returned to the pre-pandemic level just yet. We’re unsure if this is because consumer spending habits have shifted or if competitors have gained a substantial market share.
Lyft reported a record revenue per active rider of $51.88, up 4% from the previous quarter. This increase in revenue per rider was attributed to airport rides now that travel has returned. It’s worth noting that Uber announced 72% revenue growth year-over-year to $8.3 billion for the same quarter. Uber also announced that gross bookings went up 26% year-over-year while trips during the quarter shot up 19% to 1.95 billion, which is about 21 million trips per day.
However, investors were worried about the slowing active rider growth. The company has struggled to return to the number of active riders they had in 2019. The growth rate was at 31.9% for the first quarter, then 15.9% for the second quarter, and now the most recent rate is at 7.2%. At the same time this year, the growth rate was 13.7%. While it’s difficult to compare numbers directly since much of the growth has been impacted by the pandemic restrictions loosening up. It’s still clear that investors were hoping for a higher growth rate.
This figure is important to investors because for revenue to increase, the company needs more users on the app. There are fears that users won’t be using ride-hailing apps if they fear that a recession is on the horizon.
Why did Lyft shares drop after the positive report?
You would think that reporting record revenue would be a positive sign, but the Lyft share price dropped almost 23% in the days following the report. Here are some of the possible reasons for why Lyft stock sank even further.
Results were below analyst estimates
The main reason for the drop in share price was that the markets aren’t rewarding slow growth, as some companies have struggled to beat analyst estimates. Even though Lyft generated $1.05 billion in revenue, this was a slight miss from the estimates of $1.05 billion. One would think such a tiny miss wouldn’t make such an impact, but the markets have been highly volatile in 2022, with wild fluctuations on any news. It also seems like investors are quicker to sell stocks tied to consumer spending with the fears that high inflation is leading to a recession.
The competition is performing better
The results from Lyft didn’t look so strong compared to Uber’s recent earnings report. Uber announced that sales for the third quarter went up 72% to $8.34 billion, which exceeded analyst expectations of $8.1 billion. Uber’s monthly active users also rose to a new high of 124 million, with 22% more people taking ride-hailing trips for the quarter. It’s worth noting that Uber also offers food delivery services that help contribute to its revenue.
Rising fuel costs are impacting profits
It’s impossible to assess the ridesharing industry without discussing increased gas prices due to global supply issues. It was announced back in March that both Uber and Lyft were adding a fuel surcharge. The Russian invasion of Ukraine impacted gas prices and Lyft added a 55 cent surcharge to all rides for the 60 days. Gas prices have been fluctuating since and we can’t ignore the importance of fuel prices on ridesharing profits.
What’s next for Lyft?
Lyft was one of the businesses most impacted by pandemic restrictions because people were essentially ordered to stay home, which significantly dropped the demand. With restrictions loosening up, people are attending more events and using ride-booking services to get around.
Here’s what the company expects to report for the fourth quarter of 2022.
- Revenue between $1.145 billion and $1.165 billion
- Revenue growth of 9-11% quarter over quarter and 18-20% growth year over year
- Adjusted EBITDA between $80 million and $100 million
The company is expected to cut about $350 million from annual spending. Here are a few considerations for Lyft moving forward.
Is Lyft recession-proof?
When we looked at recession-proof industries in the past, it was clear that transportation companies are essential because consumer goods still need to be delivered. However, there’s uncertainty regarding how a ride-hailing company would perform during a recession because people may think twice about going out for social reasons. We can only speculate that any company relying on consumers spending their discretionary income would suffer during a recession.
Lyft is laying off staff
In an attempt to improve its profitability, Lyft is laying off 13% of its workforce. The company announced that it would be slashing about 700 people from the workforce. The company has cited economic uncertainty as the main reason behind these cuts. This has led to concerns over if the company sees business slowing down. Lyft executives responded by stating that the cost-cutting measures were being done in order to put the company in a position of maximum flexibility so that they can handle whatever may happen in 2023.
Unfortunately, Lyft isn’t the only company that has announced significant job cuts. Many giant tech companies have announced layoffs as we brace for a possible recession to hit in 2023. We will see if more layoffs are to come.
What’s happening with Lyft’s stock?
Lyft stock is down 75% for the year, closing last week at $11.14. While many other tech companies have experienced steep share price declines, this isn’t something we can ignore. It’s evident that investors will be reacting unfavorably to any earnings misses, as slow growth isn’t good enough.
Many analysts are considering this stock a hold for now. There’s too much uncertainty regarding the future of this industry as it relies on discretionary consumer spending. We will have to stay tuned to see how the economy responds to the aggressive rate hikes that the Fed is using to cool off the economy. In positive news, Lyft stock went up by as much as 8% on November 11 as the positive CPI data came out the day before regarding the battle against inflation. It looks like inflation is finally cooling down due to the aggressive rate hikes. This news led to stocks rallying in hopes that inflation will cool down enough so the Fed will slow down the rate hikes.
How should you invest?
There’s plenty of volatility and uncertainty in the markets lately as we continue to experience persistent rate hikes from the Fed in an attempt to tame soaring inflation. So it’s a particularly difficult time for investors.
The good news is that you don’t have to invest alone. With the expertise of Q.ai’s artificial intelligence, investors can invest in trends and sectors that they think could produce long-term returns. We can help you diversify with our Active Indexer Kit, target volatility and more safely buy the dip with Bitcoin Breakout, or steady the ship with Foundational Kits. You can also activate one-click hedging with Portfolio Protection so that you can rest easy knowing that our AI is working to protect your assets.
We will have to monitor the situation to see how a company like Lyft can perform during an economic downtown. There are many factors at play here, as the company is looking to make cuts while hoping that usage increases. We have to see how consumer spending habits change and how rising fuel costs impact the company.
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