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11 February 2021

Lyft Revenues Improve Despite Pandemic

Lyft, the California-based ride-hailing company, displayed some signs of a pandemic recovery in its earnings report on Tuesday. The company reported figures on the top and bottom line that beat analysts’ expectations, but also reported disappointing active rider numbers. Overall, this caused the share price to increase 9% after market hours.

Not only has the company displayed improving revenues, but it is approaching profitability with a loss per share of US$0.58 compared to the US$0.72 projected by analysts. Lyft expects that it is likely to be in profitable earnings before interest, taxes, depreciation, and amortisation (EBITDA) territory by the fourth quarter of 2021, with a chance that it could reach profitability by the year’s third quarter. The company is showing gradually improving financials with this quarter’s earnings report showing considerable improvements relative to the previous quarter. In Q4 2020, the company reported revenues of US$570m with 12.55m active riders, compared with US$499.7m and 12.51m active riders in in Q3 2020. On a full-year basis, Lyft declared US$2.4bn in revenue for 2020, which is still substantially lower than the US$3.6bn generated in 2019. However, these rising metrics quarter-on-quarter show that the company is recovering from the drop in demand as a result of the pandemic. Repeated lockdown restrictions and a decline in people travelling to work in metropolitan areas has decreased the demand to travel in and out of cities via ride-hailing taxi companies, and the wider taxi industry in general.

Lyft has also displayed US$2.3bn of unrestricted cash, cash equivalents and short-term investments. This should be a more than enough to outride the forecasted losses of future periods. However, the struggle of losses for Lyft is rather self-inflicted. When comparing Lyft to Uber, the company has largely failed to capitalise on the other possible applications for its services. Uber has grown its operations in the food delivery market, via Uber Eats, which has helped mitigate the decline in demand for its taxi segment. In comparison, Lyft has barely got its food delivery service off the ground but has stated that it is in discussions with restaurant chains to provide such a service.

Overall, the future of Lyft could take one of two paths. On the one hand, the company could potentially substantially grow its food delivery services to compete against Uber Eats, Deliveroo, Doordash and Postmates. This would allow it to mitigate the losses of its core businesses and help push Lyft closer to profitability while its ride-hailing services recover as society returns back to normality and lockdowns are lifted. The alternative path is that as the company remains idle to the fact that Uber is expanding its food delivery services and other competition is entering the market, it may become too saturated for Lyft to be profitable in the same arena. Furthermore, if the effects of the pandemic last longer than expected, it could be detrimental to the company. Not only is Lyft losing out on food delivery revenues, but Uber is raising its overall brand awareness through this interaction with consumers, so that when these customers return back to work they may be more likely to use Uber than Lyft, which results in a diminishing market share for the company.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Lyft Revenues Improve Despite Pandemic
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