Please ensure Javascript is enabled for purposes of website accessibility

Why Lyft Tanked 29.6% in March

By Andrew Tseng - Updated Apr 7, 2020 at 8:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is it an overreaction?

What happened

Shares of Lyft (LYFT -2.06%) tanked 29.6% last month, according to data from S&P Global Market Intelligence. That was enough to drive the stock from $38 per share to $27 per share.

So what

As long as so many people in cities are sheltering in place or mostly remaining housebound, they aren't using ride-hailing services like Lyft or Uber Technologies (UBER -1.85%). That's why Lyft's business has seen a substantial slowdown.

According to The Information, both ridesharing businesses are seeing demand down over 50%. That's not surprising considering the typical use cases: People use the services to get to work, to entertainment, and to other means of travel. Most of that relates to nonessential activities that are being curtailed at the moment.

A young woman hails down a ride in a city.

Image source: Getty Images.

Demand for rides is so low that Lyft came to an agreement with Amazon (AMZN 0.14%) that it would encourage its drivers to work for Amazon while the ride-hailing business is at a standstill. Amazon is seeing overwhelming demand for its online retail business as consumer buying is shifting online, so it can certainly use the help. In fact, Amazon is hiring 100,000 new workers to help meet that demand, and its Whole Foods grocery delivery business is so swamped by demand it is difficult to even get a delivery time.

On March 31, Lyft paid $465 million to assign its legacy auto insurance liabilities from the period between Oct. 1, 2015 and Sept. 30, 2018 to Clarendon National Insurance Company. Fortunately, 80% of the $465 million to be paid will come from the restricted cash held on Lyft's balance sheet as collateral against these claims. In other words, most of this payment is not coming out of Lyft's general corporate cash balances.

Lyft's CFO Brian Roberts said, "This agreement will allow our insurance risk solutions team to spend less time on legacy claims and instead focus their efforts on managing our go-forward insurance costs, which is an important contributor to our path to profitability."

Now what

Lyft's business is certainly under tremendous pressure right now, but Lyft has several things going for it. It has a highly variable cost structure -- when its revenues fall, most of its costs fall, too. It also has about $2.8 billion in cash on hand and no debt.

And finally, the company has been investing hundreds of millions of dollars in noncore activities like bike and scooter rentals and autonomous vehicle technology. That gives the company flexibility to curtail that spending if it has to. That's why investors should expect Lyft to survive this difficult period

Andrew Tseng owns shares of Lyft. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lyft, Inc. Stock Quote
Lyft, Inc.
$17.60 (-2.06%) $0.37, Inc. Stock Quote, Inc.
$142.30 (0.14%) $0.20
Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
$30.15 (-1.85%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.