Lyft Stock Down Despite Q3 Earnings Beat

John Smith

SAN FRANCISCO – Lyft stock fell in after-hours trading yesterday, dropping 2.5% to $10.45 per share, despite the company reporting better-than-expected third quarter earnings results. The rideshare firm brought in adjusted earnings of 24 cents per share on revenue of $1.16 billion for the quarter ending September 30th.

Analysts had forecast Lyft to report adjusted earnings of 15 cents per share on $1.14 billion in revenue, according to data from FactSet. The earnings beat marks a strong turnaround from the same quarter last year, when Lyft earned 11 cents per share. Revenue also jumped 11% compared to Q3 2021.

Lyft Provides Upbeat Q4 Guidance

In addition to the strong Q3 results, Lyft offered an optimistic outlook for the current fourth quarter. The company expects revenue to increase in the mid-single digits sequentially, implying total revenue of approximately $1.2 billion for Q4 2022.

This would represent year-over-year growth of around 3.5% compared to Q4 2021 revenue of $1.05 billion. Lyft also projected adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) between $50 million and $60 million for the fourth quarter.

Analysts had been modeling Lyft to guide for Q4 revenue of $1.2 billion and adjusted EBITDA of $50 million, so the company’s forecast came in line with estimates. This indicates Lyft expects to maintain its growth and profitability heading into the end of the year.

Active Riders, Total Rides Increase in Q3

Lyft reported growth in key usage metrics for the third quarter. Active riders on the platform grew 10% year-over-year to 22.4 million during Q3. Although this figure fell slightly below expectations of 22.6 million active riders, it still represents robust growth compared to 2021 levels.

Total rides completed on Lyft’s platform jumped 20% to 187 million in Q3 2022. This number includes rides from the company’s core ride-hailing business as well as bike and scooter rentals. It marks the first quarter Lyft has broken out total rides as a separate metric.

Additionally, Lyft reported $3.55 billion in total bookings for the third quarter, which reflects the total dollar value of transactions. This represents 15% growth compared to Q3 2021, highlighting strong demand for Lyft’s services.

Lyft Playing Catch-Up to Rival Uber

The third quarter results from Lyft come on the heels of similarly strong Q3 earnings reported by its chief rival Uber on Tuesday morning. Uber exceeded expectations and provided an upbeat outlook, sending its stock price up nearly 4%.

Uber maintains a commanding lead in the U.S. rideshare market with an estimated 74% market share as of September 2022, according to Bloomberg Second Measure data. Lyft held 26% share.

While Uber operates internationally and has diversified into food delivery and freight, Lyft remains concentrated on ride-hailing in the North American market. This has allowed Uber to significantly outpace Lyft in terms of market cap. Uber’s share price has jumped 46% so far in 2022, whereas Lyft stock is down 4% year-to-date.

Lyft Looks To Gain Ground with Lower Prices

Under new CEO David Risher, Lyft has been cutting costs and lowering rider fares in an aggressive bid to expand market share versus Uber. The company sees opportunities to grow ridership in smaller metro areas that generate lower revenue per ride.

Lyft president John Zimmer stated on the Q3 earnings call, “We are once again leaning into price and product innovation to drive usage and gain more share of rideshare trips.” Lower prices potentially sacrifice some profitability in the near-term but could allow Lyft to attract more riders and better compete against Uber’s scale and brand dominance.

Zimmer also highlighted Lyft’s progress in product development, noting “We have maintained our cadence of shipping impactful innovations with our most recent app update now ranking as our highest ever rated release.” More frequent updates and UI improvements could help boost rider retention and engagement.

Expanded Partnerships Extend Lyft’s Reach

In addition to pricing adjustments, Lyft aims to drive growth through corporate partnerships that open the platform to new users. In Q3, the company announced an expanded agreement with Delta Air Lines that makes Lyft the exclusive rideshare partner for Delta’s U.S. corporate clients and SkyMiles members.

The deal provides Delta customers with benefits like discounted Lyft rides and bonus SkyMiles. Lyft also partners with leading organizations like Amazon, Allstate, and Chase to offer consumer discounts and incentives.

Lyft has further extended its transportation offerings through integration with public transit networks. The company’s shared Lyft Transit service now covers over 250 North American cities, allowing riders to directly book and pay for public transport through the Lyft app.

Deepening these partnerships gives Lyft access to giant corporate customer bases and makes the Lyft platform a one-stop transportation solution.

Path to Profitability Still Unclear

While Lyft delivered an earnings beat in Q3, the company still faces challenges on its path to long-term profitability. Total operating expenses rose 36% year-over-year last quarter as Lyft invested to expand its platform and customer base. R&D costs jumped 60% compared to Q3 2021.

These growth investments limited Lyft’s bottom line improvement, with net income coming in at just $61.5 million versus $240 million in Q2 2022. Lyft holds $1.5 billion in long-term debt and its interest expense grew 58% year-over-year.

Questions remain whether the company can significantly improve margins over the next year without sacrificing growth. Lyft CFO Erin Brewer noted on the earnings call, “We plan to continue balancing growth and profitability as we strive to generate meaningful shareholder value.”

Lyft Shareholders Await Progress on Profits

Lyft executives emphasized that the company delivered on execution in Q3, meeting or exceeding guidance across all metrics. The Q3 earnings beat and solid Q4 outlook underscore Lyft’s revenue growth and progress toward profit goals.

However, Lyft shareholders clearly wanted to see more bottom line improvement, as evidenced by the post-earnings stock drop. Investors are looking for firmer signs that Lyft can expand margins and become sustainably profitable, especially as rising interest rates put more pressure on unprofitable, growth-oriented companies.

If macroeconomic uncertainty causes consumers to pull back on discretionary rideshare spending, Lyft may struggle to maintain its Q4 growth trajectory. But continued strong demand along with moderating driver incentives and scaled operations could help lift Lyft’s profits.

The Q3 results indicate Lyft is headed in the right direction, but the company still has more to prove to demonstrate its long-term earnings potential in a competitive rideshare industry. Lyft’s stock valuation remains highly dependent on the company translating revenue gains into sustainable profit growth over the coming quarters.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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