Near-term headwinds face the company’s transportation services division.
After posting its fourth-quarter earnings report on Feb. 10, Lyft’s stock price plummeted 36%. Despite its guidance, the transportation, vehicle rental, and delivery service provider exceeded its revenue estimates of $1.2 billion by 21%.
A loss of $248 million resulted in the company’s adjusted earnings before interest, taxes, and depreciation (EBITDA). To comply with upcoming Securities and Exchange Commission (SEC) regulations, the company revised its EBITDA calculations by adding insurance reserves (cash set aside to cover insurance expenses).
Here’s Our Ride
The adjusted EBITDA of Lyft would have risen 70% under the original reporting method to $127 million, surpassing the top end of its previous guidance. The company’s net loss increased from $283 million to $588 million based on generally accepted accounting principles (GAAP).
A year-over-year increase in revenue of just 11% (and a sequential decline of 17%). Lyft’s adjusted EBITDA is expected to decline 73%-91% as its earnings are forecast to decline 73%-91%.
Those anguish-inducing predictions crushed Lyft’s stock, which now trades at 86% below its IPO price of $72.
Many people rent bikes, scooters, and cars from Lyft along with its ride-hailing passengers. However, the number of active riders and revenue per active rider declined in the second half of 2022.
A shortage of drivers contributed to the slowdown in its ride-hailing business. As a result, it added “Prime Time” (surge pricing) charges to more rides, which boosted its revenue per active rider but reduced its platform’s competitiveness against formidable rivals like Uber.
According to Lyft, the first quarter will be slower for three reasons:
1. The cold weather decreases the rental rates of bikes and scooters.
2. Since there are fewer drivers, Prime Time rates will be lower.
3. To remain competitive, it has reduced its base pricing.
According to CEO Logan Green, the forecast for the fourth quarter does not represent “the level of growth or profitability we aim to achieve or are capable of.”
To capitalize on the growth of the transportation services market, Lyft will have to “prioritize competitive service levels,” and that will “impact” its previously stated goal of generating $1 billion in adjusted EBITDA and $700 million in free cash flow by 2024. The targets will be revised in the “near future,” Logan said.
We Have Arrived
Lyft is expected to produce $355 million in adjusted EBITDA in 2023 with revenue rising 10% to $4.5 billion. As a result of its weak first-quarter forecast, those estimates could be reduced.
Uber’s adjusted EBITDA is expected to increase 89% to $3.2 billion in 2023, compared with analysts’ expectations of $16% revenue growth. Despite being the underdog, Lyft would have to grow faster than Uber to be considered an attractive investment.
Lyft does not have the following advantages over Uber:
· Unlike Lyft, which only operates in the U.S. and Canada, Uber operates globally.
· Like Lyft, it operates its food delivery service (Lyft partners with Grubhub to deliver food).
· Its larger business benefits from economies of scale.
In comparison with this year’s sales, adjusted EBITDA is less than 8 times the company’s revenue. Uber’s adjusted EBITDA is 22 times its sales this year, which makes the company’s shares worth about 2 times this year’s sales.
Uber has been streamlining its business over the past two years to become leaner and more profitable, so Lyft might seem like the cheaper ride-hailing option, but it has faced much tougher growing pains.