Lyft Stock Dumps 36% After Disappointing Q4 Earnings

At first glance, the financial report for the fourth quarter is not bad, but when compared with Uber, the company's performance is relatively inferior.

The primary reason that led to Lyft stock downfall is weak guidance. Lyft expect 2023 Q1 revenue of $975 million, less than analyst expectation of $1.09b. EDBITDA guidance ranged between $5m to $15m. CFO said it was seasonal factors and low prices that affected the guidance. But if we compare Lyft’s guidance to Uber’s, it’s not what it is. According to JPM analyst, rides have been recovered in the US, but it’s recovered for Uber, not for Lyft. And at the earnings report conference, Lyft didn’t appease investors’ confidence. Based on analysts’ summary, Lyft’s ride business’s revenue has been dropping at the peak period. While lesser customers are taking Lyft for ride, Lyft meanwhile needed to lower the price to compete with its peers. This had caused analysts to question whether Lyft will be able to make a profit in the future. As a result, including JPM, eight institutions have downgraded Lyft’s ratings.

Also, the recent hype on tech-stocks also raised expectations on Lyft, and Uber’s exceptional earnings and Uber CEO’s interview, citing that consumers powers are still strong, have made higher expectations on Lyft. Unfortunately, Lyft’s earnings and guidance had those expectations disappointed, which has caused the stock price to plummet.

The ride-sharing business has a strong network effect and a natural monopoly. When there are more Uber cars in a city, the more you will use Uber to take a taxi, so the first-mover advantage in this industry is very important. For Lyft, it has used low prices to seize the market from the beginning. Although it has achieved considerable results, but it may be difficult in the current environment.

Lyft is not as good as Uber in terms of scale effect, and now it’s more difficult to borrow cheap funds to subsidize users or drivers to seize the market, these would put Lyft in a disadvantaged position. Also, there is a chance that Uber would lower its price to further expand its scale effect and further suppress Lyft’s business. So, judging from the current situation, I personally don’t feel optimistic about Lyft’s future.