Lyft Inc. (LYFT, Financial) reported earnings for the first time as a public company on Tuesday, March 7.
Despite the broad expectation of a deep loss, the ride-hailing company still managed to fall short of analysts’ estimates.
While Lyft promises brighter days ahead, there is little in its first-quarter earnings report to bolster investor confidence.
A miss right out of the gate
Lyft managed to beat top line estimates in the first-quarter of 2019, reporting $776 million in revenues, compared to the expected $739.4 million. Even so, the company ended up reporting a worse-than-expected bottom line result: a net loss of $1.14 billion, or $9.02 per share. Analysts had estimated a net loss of just $1.81.
Estimating earnings can prove a tricky business at the best of times, but it is especially challenging when dealing with companies lacking a track record. This is the first time Lyft has reported earnings as a public company, so analysts had only the disclosures from its pre-IPO filings and roadshow prospectus to go on.
Investor sentiment was already quite negative going into earnings. Even so, a substantial miss right out of the gate does not bode terribly well for the future.
Tomorrow and tomorrow and tomorrow
Lyft attempted to salve investor sentiment with big promises about the future, guiding for $800-810 million in revenue in the second quarter, with full-year revenue estimated to be as much as $3.3 billion.
The company also claims that 2019 will mark a critical inflection point, with net losses expected to fall from 2020 onward. How exactly Lyft intends to achieve this feat remains something of a mystery, given that its ride-hailing business model, like that of rival Uber Technologies Inc (UBER, Financial) shows strong signs of structural unprofitability.
Betting on autonomy
In response to questions concerning its core business model, Lyft has tried to divert attention toward a future in which it will be able to operate far less expensively thanks to the advent of autonomous vehicles. During its first ever earnings call, Lyft touted its relationship with Waymo, the self-driving technology subsidiary of Google parent Alphabet Inc (GOOG, Financial). According to Lyft, it will soon be partnering with Waymo to put ten self-driving test cars on the road.
Lyft’s valuation seems to be based more on breakthroughs in autonomy than in any meaningful improvement to the economics of it human-driven offerings. While some investors have bought into this narrative, autonomy remains a very long way from reality. Waymo itself has acknowledged that true self-driving cars are more than a decade from hitting the road.
Verdict
Lyft is a very hard company to believe in. Its business model appears fundamentally flawed, based on selling rides to consumers at a discount in hopes that it will one day be able to upcharge based on scale and market share. Yet, the much larger Uber has thus far failed to achieve any such improvements, nor is it likely to be able to do so in light of the competitive market environment.
Betting on the future benefits of autonomy makes little more sense from an investment standpoint. While a relationship with Waymo bolsters Lyft’s prospects of being a winner one day, that eventuality is at least ten years away from reaching fruition, if indeed it ever does.
Lyft appears destined to remain a deeply unprofitable company for the foreseeable future. It will inevitably have to go back to capital markets again and again to fuel its insatiable hunger for cash. Investors would be wise to steer clear of this stock, unless they feel like taking the short side.
Disclosures: Author is short LYFT.
