Lyft's (LYFT +0.87%) stock price plummeted 36% on Feb. 10 after it posted its fourth-quarter earnings report. The transportation, vehicle rental, and delivery service provider's revenue rose 21% year over year to $1.2 billion, which exceeded the high end of its own guidance.
However, its adjusted earnings before interest, taxes, depreciation (EBITDA) loss widened from $48 million to $248 million. That steeper loss was mainly caused by a revision to its EBITDA calculations (the addition of insurance reserves, or the cash it sets aside to pay for insurance expenses) to comply with new Securities and Exchange Commission (SEC) regulations.
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Under Lyft's original reporting method, its adjusted EBITDA would have risen 70% to $127 million and surpassed the top end of its previous guidance. But on a generally accepted accounting principles (GAAP) basis, Lyft's net loss more than doubled from $283 million to $588 million.
In the first quarter of 2023, Lyft expects its revenue to rise just 11% year over year (and fall 17% sequentially) to $975 million -- broadly missing the consensus forecast for 26% year-over-year growth -- as its adjusted EBITDA declines 73%-91%. That bleak outlook crushed Lyft's stock, which now trades at an 86% discount to its IPO price of $72. But should investors take a contrarian view and accumulate some shares while the rest of the market rushes away?
NASDAQ: LYFT
Key Data Points
What happened to Lyft?
Lyft's active rider base consists of its ride-hailing passengers along with people who rent its bikes, scooters, and cars. But in the second half of 2022, its year-over-year growth in active riders and revenue per active rider decelerated.
|
Metric |
Q4 2021 |
Q1 2022 |
Q2 2022 |
Q3 2022 |
Q4 2022 |
|---|---|---|---|---|---|
|
Active riders (millions) |
18.7 |
17.8 |
19.9 |
20.3 |
20.4 |
|
Growth (YOY) |
49% |
32% |
16% |
7% |
9% |
|
Revenue per active rider |
$51.79 |
$49.18 |
$49.89 |
$51.88 |
$57.72 |
|
Growth (YOY) |
14% |
9% |
12% |
14% |
11% |
Data source: Lyft. YOY = Year over year.
That slowdown was mainly caused by a shortage of drivers in its ride-hailing business. That imbalance forced it to add "Prime Time" (surge pricing) charges to more rides, which boosted its revenue per active rider but made its platform less competitive against formidable rivals like Uber Technologies (UBER +2.54%).
In the first quarter, Lyft expects its growth to decelerate for three reasons:
- A seasonal decline in bike and scooter rentals which was caused by cold weather.
- Lower Prime Time rates as it resolves its driver shortage.
- A reduction in its base pricing to remain competitive.
During the fourth-quarter conference call, CEO Logan Green admitted that forecast did not reflect "the level of growth or profitability we are aiming for or capable of."
Green also said Lyft would need to "prioritize competitive service levels" to capitalize on the growth of the transportation services market, and that shift would "impact" its previous targets for generating $1 billion in adjusted EBITDA and more than $700 million in free cash flow by 2024. Logan said Lyft would revise those targets in the "near future."
Lyft still can't hold a candle to Uber
For now, analysts expect Lyft's revenue to rise 10% to $4.5 billion in 2023 with a positive adjusted EBITDA of $355 million. However, those estimates could be reduced in light of its weak forecast for the first quarter.
By comparison, analysts expect Uber's revenue to increase 16% to $37 billion in 2023 as its adjusted EBITDA jumps 89% to $3.2 billion. As the underdog, Lyft should be growing faster than Uber to be considered an attractive investment -- but it isn't.
Uber has three clear advantages against Lyft:
- It's more globally diversified (Lyft only operates in the U.S. and Canada).
- It operates a dedicated food delivery segment (Lyft delivers food through a partnership with Grubhub instead).
- Economies of scale are kicking in across its larger business.
Lyft trades at less than 1 time this year's sales and 8 times its adjusted EBITDA, while Uber trades at about 2 times this year's sales and 22 times its adjusted EBITDA. Lyft might seem like the cheaper ride-hailing play, but it arguably deserves to trade at that discount because it faces much tougher growing pains than Uber, which has been streamlining its business to become a leaner and more profitable company over the past two years.
