Lyft Overperforms, But Investors Aren’t Impressed — Is Stock Salvageable?
Lyft reported first quarter earnings on May 3, with revenue reaching $875.6 million versus $609.0 million in the first quarter of 2021 — an increase of 44% year-over-year. The worrying guidance the company provided for the second quarter about the need for additional driver incentives, however, sent the stock tumbling.
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The stock closed down 2.3% on May 3, and was down 25.7% in pre-market trading. In an investor call the same day, Lyft Chief Financial Officer Elaine Paul said that federal stimulants and other pandemic-related dynamics have served as headwinds to driver supply.
“Together, these factors create rapid shifts in demand and in supply that make it more difficult to achieve a healthy balance when compared to a more typical environment,” she said according to the transcript of the call. “Coming out of omicron, we want to invest more in driver supply in Q2 to move our marketplace further into balance. This will set us up for the long term and ensure we’re doing everything we can to take care of drivers and riders with the best possible experience. We also expect to invest in key business initiatives to support the continued growth of our company. These investments will have an impact on the leverage we are able to show in Q2.”
Wedbush Securities analyst Dan Ives wrote in a note that while the company delivered a solid quarter, it was quickly overshadowed by a large ramp in expenses in the second quarter, and likely for the rest of the year.
“Investors were hoping that spending on driver incentives was now in the past, but Lyft is continuing to invest in bringing more drivers onto the platform as it expects demand to spike as the reopening continues,” he wrote. “As a negative, Lyft is spending money like a 1980s rock star and this will have a violent negative reaction from investors in an already jittery market. Patience is wearing thin on the Lyft name and this will not sit well tomorrow morning and heavily weigh on shares.”
Ives added, however, that Wedbush views this as “a severe overreaction as very little has changed to the core story.”
Lyft’s expense guidance caused Wedbush to lower its price target to $32 from $50. Ives said that Wedbush still will maintain “our positive stance and we would be buyers on this overreaction after market.”
Wedbush maintained its “Outperform” rating.
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