Lyft recovers from COVID and hits record profits, but faces inflationary hurdles

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On Thursday, giant Lyft reported strong second-quarter earnings. Earlier this year, investors were skeptical about Lyft’s ability to offset the cost of increasing investment in driver acquisition and retention. However, Lyft was able to take advantage of major internal cost-cutting measures, coupled with the post-COVID travel boom, to help it reach its highest level in the quarter.

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Elevator simply beat Wall Street’s earnings expectations, delivering $990.7 million in second-quarter revenue, up from $765 million in the same quarter last year. This is also up 13% from the previous quarter, compared to Lyft’s first-quarter revenue of $875.6 million.

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Net loss for the second quarter increased compared to last year and quarter by quarter. Lyft lost $377.2 million this quarter, up from $251.9 million in the second quarter of 2021 and $196.9 million in the first quarter of this year. The additional weight comes from $179.1 million in share-based compensation and related payroll tax expense.

Although Lyft reported a loss-making quarter, in adjusted terms it shows some improvement over last year. The company’s second-quarter adjusted EBITDA was $79.1 million, up $55.3 million from the second quarter of 2021 and $24.3 million from last quarter.

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The company ended the quarter with $1.8 billion in cash.

While Lyft’s stock has traded more or less unchanged over the past month, the stock is up 16%. following favorable quarterly results from rival Uber. As of this writing, Lyft is trading at $17.39, up 4.07% after hours.

Consequences of belt-tightening

In the second quarter, Lyft restructured and shifted priorities in an attempt to cope with inflation and rising economic pressures. While this will not be reflected in the Q2 balance sheet, such belt-tightening can be seen in Lyft’s recent decision to shut down its own car rental business and consolidate some of their vehicle driver support points, resulting in dismissal of almost 60 employees.

Elaine Paul, Lyft’s chief financial officer, said during a teleconference on Thursday that Lyft has revised its operating plan, cut discretionary spending and slowed down recruitment significantly. Instead, Lyft will prioritize R&D initiatives and reorganize teams to focus on driving profitable growth.

After a brief and somewhat vague foray into the shared e-scooter industry, Lyft has also decided to end scooter production in San Diego, suggesting it may pull out of other cities in the future. Similar to Lyft’s decision to keep its third-party car-sharing program alive, Lyft has partnered with third-party micromobility company Spin to keep its toes in the choppy waters of scooter sharing.

What does Lyft have to do with it?

One of the main reasons investors were disappointed last quarter about Lyft’s results, despite a jump in revenue after COVID lows, was quarter by quarter decrease in income per passenger and active passenger traffic. From the first to the second quarter, the number of active passengers increased from 17.8 million to 19.7 million. However, revenue per rider remained relatively flat at $49.89 compared to $49.18 in the first quarter of 2022.

However, even this small increase is a record for Lyft. Part of this increase in revenue per passenger could be due to an increase in airport travel as travel returns post-COVID. In fact, Lyft said its airport use case hit an all-time high of 10.2% of total rides. The company also said bike and scooter trips more than doubled in the second quarter from the first quarter.

Lyft rideshare is still at pre-COVID levels, but the company has been steadily rolling out cheaper deals in more cities and will continue to do so to increase ride frequency and loyalty.

Nightlife represents another growth opportunity for Lyft as people begin to leave their isolated caves and rejoin the community. Not only does this increase the demand for riders, Lyft says, but it should encourage organic driver acquisition. In fact, the total number of active drivers was the highest in two years, according to the company. Of course, two years ago was the peak of the pandemic, so it’s not saying too much, but it does show a recovery.

To attract and retain more drivers, Lyft is testing new features such as prepaid, which allows drivers to see the driver’s pickup location, route details, and expected revenue before they accept a ride. It’s unclear if Lyft will take any punitive action against drivers who still refuse to ride, but Lyft says that by offering these information kicks to drivers, it can increase the number of drivers using Lyft, as well as the time they spend behind the wheel.

Updated Lyft Guide

Although Lyft experienced a 4% increase in rides in July and expects this to stabilize over the summer and September, the company has softened its outlook on the pace of the recovery, resulting in a lower guidance for Q3 and full revenue. year. growth.

“We expect Q3 income from between $1,040 billion as well as $1,060 billion, which the implies growth from between 5% as well as 7% against Q2, as well as growth from twenty% as well as 23% against Q3 last years,” Paul said.

Lyft expects revenue growth for all of 2022 to be slower than the 36% achieved in 2021. The company also expects below-cost operating expenses to ease slightly in the third quarter. As a result, Lyft expects third-quarter Adjusted EBITDA to be between $55 million and $65 million, with an Adjusted EBITDA of $1 billion in 2024.

Explaining the updated forecasts, Lyft pointed to some macroeconomic headwinds, such as rising insurance costs, which are affected by inflationary pressures. The company expects this to impact its marginal earnings in the third quarter.

“We believe that over time we will be able to offset higher insurance costs through both pricing and product and engineering developments that provide better economy per trip and continue to improve the security of our network,” said Paul.

For example, Lyft is increasingly relying on its mapping technology to offer safer and cost-optimized routes that can help save insurance costs, and it is also using its own risk models to assess behavioral and environmental risk factors, Paul continued.

Lyft will also continue to closely monitor its corporate overheads by cutting hiring, cutting travel and spending budgets, and generally scrutinizing every expense item to be as disciplined as possible. In other words, the days of overspending and do-it-yourself projects are over, and the days of working as a lean startup are back.

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