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5 Analysts Weigh In On Lyft's Mixed Q1

May 7, 2020 1:36 pm
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5 Analysts Weigh In On Lyft's Mixed Q1

Lyft Inc (NASDAQ:LYFT)’s stock plunged Wednesday on news of job cuts and opex reductions, but the company seemed to redeem itself with a first-quarter sales beat after the close. Lyft’s $955.71 million in sales exceeded estimates of $897.86 million, even as a bottom-line loss of $1.31 missed Street forecasts for a 64-cent loss.

The earnings report also showed 19% year-over-year growth in revenue per active rider, $240 million in cash burn and an EBITDA loss ($85 million) far better than the consensus estimate ($201 million).

“As bad as it sounds (and it is), the Street was bracing for worse on 1Q, and overall cost cuts/road to profitability was some relative good news in a dark time,” Wedbush analyst Daniel Ives said in a note.

Morgan Stanley said the outcomes testify to the strength of Lyft's model.

“Lyft’s results highlight the snapback and self-help nature of ridesharing … as well as the improving labor economics and business model extension opportunities heading into ’21 that leave us bullish the industry,” said analyst Brian Nowak.

Lyft shares were ripping higher by 26.57% to $33.06 at the time of publication Thursday.

As UBS sees it, Lyft's outperformance in January and February supported better-than-expected results. MKM agreed.

Lyft had a strong Jan/Feb, hinting at rising momentum in underlying business via partnerships, product innovation, and strategic sale of insurance liabilities,” MKM analyst Rohit Kulkarni said in a note.

Morgan Stanley offered a different interpretation given Lyft's 2-million-unit sequential decline in active riders.

“We understand that March was weak but this, to us, implies that even January/February was likely relatively weak on new riders … speaking to the still-existing scale limits even before COVID,” Nowak said. 

Lyft said April rides were down 75% year-over-year despite consistent recovery, especially in cities coming out of lockdown, in the three weeks following an early April nadir.

Morgan Stanley expects Lyft to lose another 11 million active riders in the second quarter, and MKM projects four consecutive quarters of declines given Lyft’s heavy reliance on shared rides and airport business.

The coronavirus could alter consumer behavior long-term and stunt Lyft’s performance.

“We continue to expect a long unwind of the current demand headwinds as states open up their economies slowly and as other dynamics like work from home and corporate/leisure travel will likely look considerably different on the other end of this crisis,” said Wedbush's Ives. 

RBC maintains hope for a return to full growth by the first half of 2021.

“We are assuming a continued recovery and now estimate a 50% year-over-year revenue decline for Q2,” wrote analyst Mark Mahaney. "Long term, we continue to appreciate a very large Ridesharing market opportunity that is still early in its S-Curve adoption, and we continue to recognize a lot of material innovation around both the rider and driver experiences.”

Lyft's Cost Reductions

Lyft announced a number of layoffs, furloughs and pay reductions to save $300 million annually and relieve pressure caused by the coronavirus. The efforts may not be enough to keep the company on its financial plan.

“We think Lyft's EBITDA profitability has been pushed out to 1H2022,” MKM's Kulkarni wrote. “This means the company would likely continue to burn cash for another eight quarters or so.”

MKM anticipates additional cost-cutting measures in R&D and marketing, which could stunt business growth in 2021, but Wedbush is bullish in the long run.

“With some costs like higher driver incentives, marketing, and higher insurance costs likely to come back, we expect to see a balance of growth/profitability over time,” said Wedbush's Ives. 

Lyft's Safety, Competition

The pandemic has heightened caution for both consumers and regulators, and their concerns may mandate new expenditures.

“While Lyft is purchasing hand sanitizer and masks, we look for more safety investment and innovation in a post COVID world,” said Morgan Stanley's Nowak. “This is because, in our view, safety is likely to be an important competitive point for riders and drivers in a pre COVID vaccine world.”

The analyst said the new environment gives Uber Technologies Inc (NYSE:UBER) a leg up.

“Bigger picture, we expect safety to require innovation/engineering, investment, and that it could potentially increase the cost of operating in rideshare,” he said. “This, in our view, is also likely to favor the scale player (Uber) as both companies will likely look to invest and reach profitability.”

MKM added that “Lyft has fewer levers to accelerate its pathway to profitability vs. UBER,” and it is more exposed to New York City and other hard-hit cities than Uber. 

UBS analyst Eric Sheridan said projections for recovery are premature. Yet he sees vast space for secular growth in shared transportation in a post-coronavirus world.

The Lyft Ratings

  • MKM maintained a Neutral rating and cut its price target from $53 to $33;
  • Morgan Stanley maintained an Equal-weight rating and raised its target from $31 to $34;
  • RBC Capital Markets maintained an Outperform rating and raised its target from $47 to $51;
  • UBS maintained a Buy rating and raised its target from $37 to $38; and
  • Wedbush maintained an Outperform rating and raised its target from $30 to $36.

Photo courtesy of Lyft. 

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