Profit companies

Lyft shares fall as company spends more on wooing drivers

Shares of Lyft Inc. plunged after a weaker-than-expected outlook sparked investor concerns that a planned increase in spending on driver incentives could weigh on its earnings.

The San Francisco-based company sees earnings before interest, taxes, depreciation and amortization of $10 million to $20 million for the current period, substantially missing the $81 million forecast by Wall Street. Shares fell as much as 27% in extended trading to the lowest level since November 2020.

The disappointing outlook underscores Lyft’s struggle to emerge from the pandemic without eroding profitability. Although ride-sharing giant and rival Uber Technologies Inc. have seen an upsurge in customer demand, attracting drivers has been a persistent challenge and companies have spent millions on bonuses and other incentives to lure drivers. The imbalance has resulted in longer wait times and higher fares for passengers.

Meanwhile, a dramatic spike in gas prices in March slashed drivers’ incomes, casting further doubt on ride-hailing platforms’ ability to retain them. Lyft and Uber have already introduced a fuel surcharge for rides in an effort to help drivers. Although Lyft saw a 40% increase in the number of drivers in the first quarter compared to the previous year, the company plans to invest more to increase the number of drivers in the second quarter, chief financial officer Elaine Paul said during a call with analysts. Paul said Lyft “remains committed” to being profitable on an adjusted basis for the year.

The outlook suggests “that the company’s investments to increase the supply of drivers, coupled with rising gasoline prices, may continue to slow the frequency of trips throughout the year,” the company wrote. Bloomberg Intelligence analyst Mandeep Singh. The drop in active passengers and revenue per active passenger was “unexpected”, Singh said. “This could be a signal that Lyft is ceding market share to Uber.”

The average carpool ride in the United States cost about $20 in the first quarter, up about 45% from the same period in 2019, according to market research firm YipitData. Lyft President John Zimmer said in an interview that the company “has room to improve” on service levels, or wait times, which were down about 30% in the first quarter.

Lyft reported first-quarter revenue of $875.6 million on Tuesday, up 44% from a year earlier. That was more than the $844.5 million analysts expected, according to data compiled by Bloomberg. Lyft’s adjusted earnings before interest, taxes, depreciation and amortization were $54.8 million in the quarter, far exceeding the $14.4 million expected by analysts.

The increase in profits is attributed to the high volumes of rides, but also to the increase in revenue that Lyft derives from each passenger. Lyft generated $49.18 per active passenger in the first quarter, the second highest on record and 9% higher than the same period last year, in part due to higher fares.

“The first quarter had a lot of headwinds,” CFRA Research analyst Angelo Zino said before the numbers were released. “While a high revenue per passenger helps drive profitability, in the longer term we want to see this figure come down to reflect a sustainable carpooling pricing model. Maintaining a growing rider base is key.

Unlike Uber, which shifted to food delivery during the pandemic with Uber Eats, Lyft’s core business is providing rides. The company has expanded into other forms of transportation such as bicycles and scooters in some of its biggest markets such as New York, San Francisco and Chicago. Still, Lyft’s ability to grow its passenger base could be tested by Uber’s partnerships with New York and San Francisco taxi apps that would migrate taxi drivers to the platform. ‘Uber. Lyft has no plans to enter into a similar deal, chief executive Logan Green said Tuesday.

Lyft forecast revenue of up to $1 billion in the second quarter. Green said the return of shared rides, which are only in effect in Miami and Philadelphia, will accelerate Lyft’s recovery and he expects a broader rollout by the end of the year.

Lyft reported a net loss of $196.9 million, or 57 cents per share, lower than the loss of $198.4 million, or 60 cents per share, according to analysts’ forecasts.