What happened

Shares of HyreCar Inc. (HYRE) are falling off a cliff this morning and are down 46.6% as of 12:55 p.m. EDT. Demand and revenues are growing faster than expected, but so are HyreCar's losses, and that's something the market and analysts don't like to see in growth stocks.

So what

HyreCar started off as a car-sharing marketplace as it spotted an opportunity within the huge addressable market for ride-hailing service providers, Uber (UBER -0.19%) and Lyft. Individuals who rent their cars on HyreCar's platform can then use them to make money by driving for Uber or Lyft. By using this business model, HyreCar is trying to plug the gap between demand and supply of drivers, which is indeed a big growth hurdle for the two ride-sharing providers.

HyreCar has also expanded its services into delivery of food, groceries, and packages. For example, during HyreCar's second-quarter earnings conference call, CEO Joe Furnari mentioned Uber Eats as a strong growth channel. Uber reported 50% organic growth for Uber Eats in Q2 and said nearly three million customers in the U.S. order groceries, alcohol, and convenience items on Uber's app every month.

A person using a ride-sharing app on phone.

Image source: Getty Images.

Investors anticipate strong top-line growth for HyreCar as the demand for ride-sharing and deliveries is picking up with the economy's reopening. The company didn't disappoint. On Aug. 10, it reported record revenue for Q2 and solid growth in key metrics. Here are some notable numbers (all changes are year over year):

  • Revenue: up 62% to $9.1 million.
  • New drivers on platform: up 49%.
  • Number of rental days: up 44%.

In Q2, more than 6,800 new drivers rented a car on HyreCar's platform, and nearly 75% of its car supply came from commercial suppliers like automobile dealers and fleet owners.

Yet HyreCar shares crashed today as the company incurred a loss of $0.45 per share, up from $0.22 a share in Q2 2020 and greater than Wall Street estimates of a $0.12 per-share loss. High insurance claims soared even as the company continued to spend on marketing, sales, and technology. (HyreCar's commercial auto insurance policies cover both drivers and owners.) 

Its big Q2 loss prompted at least two analysts to lower their expectations from the stock today: D.A. Davidson reduced its price target to $22 a share from $25 a share, and Ladenburg downgraded its rating on the stock from buy to neutral. HyreCar shares are trading at around $10.30 per share as of this writing.

Now what

HyreCar shares have had a choppy ride in the past year or so, but they're still up 175% in one year even after today's big drop. As a start-up, the company is focused on expanding its network and revenue, and aims to supply 16,000 new cars by the end of 2022 and nearly 50,000 cars by 2025. With HyreCar also striving to reduce insurance claims and costs, its prospects look bright enough for investors to want to keep an eye on this stock.