Yahoo Finance Lyft earnings 'a step in the right direction,' but the existential crisis is far from over
Lyft continues to play second fiddle to Uber, leaving investors uncertain about the ride-hailing company's future.
Lyft (LYFT) is stuck in a tough spot.
On one hand, the company reported some key wins in its second quarter earnings this week, beating expectations for next quarter's revenue outlook.
On the other hand, Lyft still lurks in Uber's (UBER) shadow, slashing prices to differentiate the ride-hailing company from its much larger rival and burning cash in the process.
The markets don't quite know what to do with Lyft. On Tuesday, there was an early flush of optimism right after the bell, with Lyft stock climbing as much as 14%. However, that rise was short-lived. On Wednesday, shares traded more than 9% lower.
"All options are on the table for Lyft given the challenges in this business, but this quarter was finally a step in the right direction for Lyft, which is a miracle after years of heartache for investors," Wedbush senior analyst Dan Ives told Yahoo Finance.
The initial optimism wasn't exactly unwarranted. Lyft's results this cycle were "really strong results," Needham senior analyst Bernie McTernan told Yahoo Finance Live on Tuesday.
"The key thing here is the 3Q guidance for revenue — almost 5% better than consensus expectations — and the Q2 beat on EBITDA," he said. "The company continues to expect to expand margins in the third quarter. So, I mean, the key takeaway here is that consensus estimates need to go higher."
Lyft's cash-burn problem
It didn't take long before investors got wise to the fact that Lyft is still Lyft.
"Lyft has a very difficult problem because it's a perpetual No. 2," Interactive Brokers chief strategist Steve Sosnick said. "I get the sense that's probably their mentality. ... Think about the high-profile companies that beat their EPS number, but the market sells off anyway because when you dig a little deeper, there's a lot that's not looking so good. ... In Lyft's case, their problem is that they burn cash."
Sosnick crunched the numbers, and Lyft has only been cash flow positive from operations for three of the 17 quarters it has been on the public markets since its 2019 IPO.
What logically follows is that, at some point, Lyft is going to need to raise cash.
"You can sell shares, do a capital raise, or you go out of business," Sosnick said. "Of course, I'm not predicting the imminent demise of Lyft, but I also don't see how they can continue to burn cash and not need to raise more capital somehow."
High interest rates and an unstable macroeconomic environment don't help matters, especially if Lyft's cash flow concerns come to a head in 2024.
"Interest rates can be problematic in a sense, making it harder to raise capital," Sosnick told Yahoo Finance. "It's still not a good environment to raise capital, and that’s existential."
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
