After a dismal forecast fueled concerns that the company’s price reductions to avoid coming in a distant second to Uber in the North American ride-sharing market would squeeze profits, Lyft Inc. lost more than a third of its market value on Friday.
Analysts predicted that any increase in Lyft’s ride volume would not be sufficient to offset price cuts.
Following the pandemic lows, the two businesses have been engaged in a battle for market share, with the most recent earnings showing that Uber has an advantage over Lyft in this competition thanks to its global presence and more diversified business model.
“Uber benefits from having a global rideshare model, and international markets have been quicker to bounce back than the United States,” said Nikhil Devnani, analyst at Bernstein.
“As the bigger platform Uber is able to offer more volume for drivers, not only within rideshare, but also now with (food and grocery) delivery.”
After dropping 36.4%, Lyft stock experienced its worst day ever, and 13 analysts lowered their price targets for the stock. The sell-off eliminated nearly all of the company’s price gains this year and more than $2 billion in market value.
In stark contrast to Uber’s confident profit forecast and higher-than-expected earnings, Lyft on Thursday provided first-quarter profit and revenue forecasts that fell short of market expectations.
“This outlook continues the recent trend of Lyft growing slower than the broader rideshare market,” Canaccord Genuity said, adding that improving driver supply will pressure the company’s pricing.
In recent months, drivers have returned to ride-sharing companies in search of a reliable income stream in the struggling economy, allowing Uber and Lyft to reduce incentives.
In the fourth quarter, Lyft’s driver supply reached its highest point since before the pandemic in 2019, while Uber’s driver supply reached a record high.
However, because of the increased supply, Lyft will experience lower surge pricing in the first quarter, which will reduce its revenue.
Analysts claimed that Lyft’s greater presence on the American West Coast was also a drag as many technology companies there haven’t reopened for business since Uber dropped its fuel surcharge earlier that month. The company lowered prices in January after Uber dropped its fuel surcharge.
“Lyft is making the difficult trade off to lower price in order to help conversion and prevent further share loss to Uber,” brokerage Needham said.
“Despite the constructive commentary on demand, we do not assume volume will be able to offset lower prices.”
In an effort to reduce costs, Lyft announced in November that 13% of its workforce would be laid off. As of yet, Uber has refrained from doing so.
(Adapted from Latestly.com)