Lyft Beats Wall Street Estimates But Its Stock Falls - Lyft (NASDAQ:LYFT), Uber Technologies (NYSE:UBER)

Lyft Inc LYFT has reported its fourth-quarter results after market closed on Tuesday. Investors were focused on the company's user growth and timeline for hitting profitability, after its main competitor ride-hailing giant Uber Technologies Inc UBER recently smashed expectations on its profitability timeline and delighted its investors with a quicker-than-anticipated path to (adjusted) profits.

Lyft has managed to beat expectations regarding growth, user count and health and for adjusted losses. And yet Lyft's shares dropped about 4% in after-hours trading.

Earnings Report

Lyft's top line were expected to have benefited from high customer adoption as its cheap pricing strategy was supposed to enable the company to gain market share from its peers. And Lyft did a great job. Bloomberg expected revenue of $985.8 million but Lyft's revenue came in at $1.017 billion, a gain of 52% compared to its year-ago result of $669.5 million. Loss per share: $1.19 vs. $1.39 expected, according to Refinitiv and adjusted loss per share amounted to 54 cents expected.

Going to the growth side of things, Wall Street expected active riders of 22.8 million. The company's "active rider" count rose 23 percent from 18.59 million in last year's quarter to 22.91 million. Wall Street also expected a slimmer revenue per rider of $43.16 but Lyft's active riders also spent 23% more year-over-year, reaching $44.40 in the final quarter of last year. Basically, the path to profits for both companies has been pegged to a process called rationalization: the willingness of consumers to pay higher fares for rides.

Lyft provided Q1 2020 revenue guidance between $1.055 billion and $1.060 billion but it did not address its profitability target in its earnings press release.

Competition

Lyft's earnings results come on the heels of a strong report from its main competitor which topped adjusted revenue expectations and posted a narrower-than-expected loss in the fourth quarter. To say the least, Uber upped the ante by pulling forward its expected date for hitting profitability by a whole year. On an adjusted EBITDA basis, Uber expects to become profitable by the fourth quarter of 2020. Uber reported upbeat fourth-quarter results earlier this month. If we exclude currency fluctuations, Uber's revenues grew 43% year over year. On the other hand, Lyft, previously said it expects to be profitable by the fourth quarter of 2021, on the same basis.
On a bright side, Lyft's shares had risen in sympathy after Uber's better than expected quarterly report and profitability timeline. Moreover, Wall Street took the results as a green-light for the ride-hailing industry as a whole.

Lyft's Disciplined Strategy

Lyft's initiatives and price-reducing strategies were expected to have given it a boost. The company has been constantly reducing prices and with cheaper shared rides, it has not only attracted more customers but also improved its profit margin. But costs remain a concern as intense competition does not allow the company to increase prices. Insurance costs have also affected Lyft's bottom line.

Benchmark issued a report stating that Lyft's costs of insurance are rising since 2016 and are projected to reach $600 million in 2020 so analysts surely expect this to affect the company's bottom line this year. So here is one possible reason for a lack of investors' enthusiasm.

Outlook

When it comes to the full year 2020, the company expects revenues to be in the range of $4.575 billion and $4.650 billion, in line with Refinitiv estimates of $4.59 billion. An adjusted EBITDA loss is expected to fall in the range of $490 million to $450 million as opposed to the $503 million analysts were expecting.

But shares of Lyft, like those of Uber, are still trading well below their initial public offering price, which in Lyft's case was $72 per share. However, the stock has risen by 19.6% since its prior, third-quarter, earnings report and as for the whole year to date, 23%. Lyft is trailing Uber in market capitalization and overall market share as the number 2 US ride hailing player. But Lyft operates only in the U.S. and Canada, while Uber's footprint extends across the globe. Lyft is showing its focus on acquiring quality users in a disciplined manner.

And the overall size of the ride-sharing market has increased over the past year, helping boost both Uber's and Lyft's businesses. So overall it seems it was a good year for both Uber and Lyft with somewhat positive outlook ahead. So why did Lyft's stock fall? Probably it is the lack of update on profitability that left investors unenthused.

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