Lyft, Inc. (LYFT, Financial) is an American company that provides on-demand ride-hailing services, as well as motorized scooters, a bike-sharing system and food delivery. It is the second-largest ridesharing company in the United States after Uber Technologies, Inc. (UBER, Financial).
Lyft announced better-than-expected second-quarter results on Aug. 3, aided by the reopening of the economy. The company reported a loss of 5 cents per share against a loss of 24 cents per share expected by analysts. The ridesharing industry is gaining traction as travelers are once again getting outside of their homes, and Lyft’s strong performance demonstrates that the worst is over for this high-growth business sector.
Second-quarter earnings recap
The company reported revenue of $765 million, up 125% year-over-year. Lyft benefitted from lowering its cost base in 2020 when the ride-hailing industry was under pressure due to lockdowns. Last year, the company cut roughly $2.5 billion in costs and introduced several initiatives to improve the efficiency of its business model. This helped Lyft report an adjusted Ebitda of $23.8 million for the second quarter, which marked the first Ebitda profit in the company’s history.
Exhibit 1: Revenue expected vs actual (USD millions)
Source: Company presentation
Commenting on the strong quarter, Lyft CEO Logan Green said:
“We had a great quarter. We beat our outlook across every metric and we have growing momentum. Since our inception, we’ve worked hard to defy the odds with a deep belief in our mission. We’ve consistently innovated and made big bets and this is just the beginning. We want to improve people’s lives with the world’s best transportation and we will continue working to deliver on this goal.”
The revenue growth was driven by an increase in the number of riders from 13.54 million in the first quarter to 17.14 million in the second quarter.
Exhibit 2: Adjusted EBITDA and margin (USD millions and %)
Source: Company presentation
Commenting on the quarterly performance, chief financial officer Brian Roberts said:
“Q2 was truly exceptional. We grew Active Riders by more than 3.6 million from the prior quarter, generated 125% year-over-year revenue growth, and achieved Adjusted EBITDA profitability. At the same time, drivers shared in this outperformance with record hourly earnings. And in July driver earnings remained strong as demand for our platform continued to grow despite increases in reported COVID case counts.”
Revenue per active rider increased by 14% year-over-year to $44.63. For the quarter, the company reported a net loss of $251.9 million, an improvement of 156% year-over-year, and ended the quarter with $2.2 billion in cash. The company seems to be in a strong liquidity position today, which is a promising sign as there is significant uncertainty regarding the prospects for the next few quarters.
In the earnings announcement, CEO Logan confirmed that the company plans to continue to invest in driver incentives in the coming quarters to attract and retain new drivers as the company needs to expand its footprint in Canada and the United States to compete with industry leader Uber.
Commenting on the company’s long-term growth potential, Roberts said:
“First, we've built a much stronger business. Our exceptional second quarter provides clear visibility into the extent of the improvements we've made and these changes are designed to be lasting. We continue to expect to emerge on the other side of the pandemic structurally more profitable and more efficient per ride than we were going in. Second, we are a growth company. Achieving profitability is an important milestone to demonstrate the strength of our model and we plan to maintain adjusted EBITDA profitability going forward. At the same time, we believe it is in the best interest of shareholders for Lyft to avoid over-rotating on profitability too early. Beyond the recovery, we have a large untapped market opportunity in front of us. We have a TAM in excess of $1 trillion, which provides a long growth runway.”
Lyft seems to be recovering well from the recession, but the success of the company depends on the macroeconomic outlook for the ridesharing industry.
Industry outlook
The ridesharing business sector was hit hard by the economic recession and mobility restrictions in 2020. Even though many other sectors recovered sharply in the second half of 2020, the ridesharing industry continued to suffer as riders preferred using private vehicles to ensure safety. The government requirements to maintain rigorous sanitary standards relieved some of these concerns, and the success of the vaccination program that began last December played an important role in boosting consumer confidence toward Lyft and other major ridesharing companies as well. In the next 12 months, the sentiment is bound to improve further, and this would be a catalyst in helping Lyft report higher revenue.
Over the last 18 months, ridesharing companies have taken various steps and made necessary changes to their business model to reduce operating costs, and it would be reasonable to expect the industry to benefit from these measures in the long run. Ever since Lyft’s IPO in 2019, investors have been concerned about the inability of the company to convert revenue into profits, but the initiatives that were taken since early 2020 point to a bright future from this front.
According to Research and Markets, the global ridesharing market will grow at a compounded annual growth rate of 16.6% from $85.8 billion in 2021 to $185.1 billion by 2026. Commuters' preference for convenient and cost-effective modes of personal mobility is a significant factor driving the demand for this sector. However, the industry continues to face challenges from a shift in the working model as more people and companies are embracing work-from-home, which could result in a permanent decline in the number of people in need of ridesharing services. That being said, the industry is still serving a very small portion of its addressable market, so there will be room for growth even if remote working gains traction in the post-recession era.
Takeaway
The ridesharing industry is still not out of the woods as the pandemic is continuing to wreak havoc in many nations, but Lyft’s second-quarter earnings confirm that the industry is recovering fast. The company debuted on Nasdaq more than two years ago at an IPO price of $72 per share and is currently valued at around $52 per share. Taking into account the promising outlook for this business sector in the next decade, it would be reasonable to expect Lyft to report strong earnings growth, leading to stellar returns for early investors.
