Yahoo Finance Lyft earnings surprised Wall Street and the stock initially spiked, but now it's tanking
Lyft stock (LYFT) has downshifted into reverse.
Shares of the No. 2 ride sharer initially popped 14% after hours on Tuesday immediately following earnings. Investors were apparently roped into some initial headline rosiness.
Lyft's revenue figures came in line with estimates, despite immense pressure from larger rival Uber (UBER). That was seen as a key win.
The company's third quarter sales guidance caught investors' attention as well, coming in a couple million dollars ahead of estimates.
But despite the rosy third quarter outlook, Lyft shares turned lower, plunging roughly 6%. The losses have been sustained into Wednesday, with the stock off by 7%.
A quick and dirty comparison to Uber's second quarter last week may help explain the share reversal. The company's fourth quarter profit guidance is also an issue, experts say.
Though Uber missed on the top line, the company offered a more positive outlook and notched free cash flow. Uber's net income came in at $394 million, a stark win compared to the net loss of $2.6 billion at the same time last year.
Lyft's core net loss clocked in at $114 million.
Meanwhile, Uber saw its number of trips rise 22% in the quarter. Lyft's active riders improved only 8.2% from a year ago, hinting at further market share erosion to Uber.
And finally, Lyft took a cautious approach to fourth quarter guidance as it invests in lower prices and marketing.
"Softer pricing and higher marketing is a recipe for more EBITDA pressure," warned Jefferies analyst John Colantuoni in a client note.
The earnings rundown
Here are the key numbers that Lyft reported compared with Wall Street's estimates, as compiled by Bloomberg:
Revenue: $1.02 billion actual versus $1.02 billion expected
Adjusted earnings per share: $0.16 actual versus -$0.01 expected
Active riders: 21.5 million actual versus 21.1 million expected
Q3 revenue outlook: $1.13-1.15 billion actual versus $1.08 billion expected
Q3 ride-share volume growth outlook: +20%
Q4 margin commentary from earnings call: sees margins down versus Q2 levels amid insurance contract renewals and heightened competition.
What we're watching: pricing
Lyft management weighed in on its pricing efforts on the earnings call as Wall Street expected.
The company sounded like one itching for a renewed price war with Uber.
"Q2 represents a full quarter pricing ride-share competitively and roughly in line with the market. The balance in our marketplace improved, and we had strong driver growth and a strong mix of new and returning riders," Lyft's new CFO Erin Brewer told analysts.
Pricing is an area where Lyft has sought to be increasingly competitive, and Uber has publicly taken notice, with Uber CEO Dara Khosrowshahi dubbing Lyft a "tough competitor."
"They've taken some tough actions, and they are competitive in pricing now," Khosrowshahi said in the company's second quarter earnings call. "Generally, our pricing is quite comparable to Lyft and that has resulted in, I'd say, a constructive competitive marketplace."
What analysts are saying post-earnings:
"LYFT's 2Q/3Q beat/raise was overshadowed by disappointing 4Q EBITDA guidance, which suggests pricing at parity w/ UBER is constraining profitability. Guidance also appears to incorporate a material uptick in 2H23 marketing spend, an indication that growth is becoming more expensive. Softer pricing and higher marketing is a recipe for more EBITDA pressure. We are keeping our est's/PT unchanged and remaining Hold, but now have a more negative bias post results." -John Colantuoni, Jefferies
"We continue to monitor Lyft's progress as the company reaccelerates growth and implements pricing changes and new products/features to support healthier marketplace dynamics for drivers and riders. We are encouraged by growth in rideshare rides as a whole (+18% Y/Y in 2Q23; +20% Y/Y expected for 3Q23) and see a positive read through from a demand perspective for Uber, with Lyft citing tailwinds from the ongoing return to in-office work and strong travel environment which should benefit both players in 2H23. We maintain our neutral rating and our target price rises to $11 from $10 following our model changes." -Dan Ives, Wedbush
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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