(Bloomberg) — Lyft Inc. shares plunged more than 30% in extended trading after the ride-hailing company said it would prioritize lower prices to attract more customers, a move it expects to shrink future profits.
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The company projected adjusted earnings before interest, tax, depreciation and amortization in the current quarter of $5 million to $15 million, missing the $83.6 million average estimate in a Bloomberg survey. Lyft reported an adjusted Ebitda loss of $248 million during the final three months of 2022. The San Francisco-based company attributed the loss to a regulatory disclosure change that requires companies to count insurance reserves, cash set aside to pay for claims and other insurance expenses, in financial measures.
“This is obviously not the level of growth or profitability we are aiming for or capable of, and we are laser focused on driving additional growth and managing costs,” co-founder and Chief Executive Officer Logan Green said Thursday in a conference call after the results. Green said Lyft is “reviewing adjustments to the business, including cost-cutting measures.”
Lyft reduced base prices for a ride in January to keep up with a similar move by larger rival Uber Technologies Inc. “Relative to three months ago, the competitive dynamics changed,” Green said. “We must prioritize competitive service levels.”
Co-founder and President John Zimmer said the company will be competitive on price and wait times. In October, Lyft increased the service fee riders pay directly to cover higher insurance costs. Those expenses are expected to continue to rise. Rather than have riders bear the burden, Lyft is willing to take the hit to profits instead, Zimmer said in an interview, adding the company expects the factors leading to the fourth-quarter earnings loss to be a one-time issue.
Lyft’s projection for revenue of $975 million in the current period also fell below expectations. The slower growth is primarily due to seasonality and the fact that a large portion of its rider base counts bikes and scooters, which customers use less frequently in colder months, Zimmer said. The outlook also reflects that Lyft is generating less revenue from higher fares from surge pricing, a product of more drivers on the platform to meet rider demand, he said.
Thursday’s report marks the second consecutive quarter in which Lyft has lagged behind Uber in demonstrating it’s able to keep customers coming back to the platform and return ridership to pre-pandemic levels. Uber reported mobility bookings grew 31% to $14.9 billion in the fourth quarter, surpassing delivery segment bookings for the first time since the pandemic hit. Uber’s strong demand for ride-share services illustrates customers are still willing to pay more to order a ride, even as inflation pinches budgets and economic uncertainty looms.
Unlike Uber, Lyft only operates in North America and doesn’t have a food delivery business. To increase customer retention, the company has worked to expand its subscription product, Lyft Pink, and has partnered with Grubhub to offer members a complimentary subscription to the food-delivery platform. Lyft also launched an advertising unit last year to tap higher-margin revenue, a strategy other on-demand platforms including Uber, Instacart Inc. and DoorDash Inc. have implemented.
Lyft’s shares fell to a low of $11.07 in extended trading after closing at $16.22 in New York. The stock plunged 74% in 2022, but had rebounded 47% this year through Thursday’s close.
Zimmer said driver supply in the fourth quarter was “the best in three years” but declined to say if Lyft would be paring back spending on incentives.
“I think the market is large enough, we are talking about ride sharing and mobility as a service, to support two large players,” said D.A. Davidson senior analyst Tom White. “I think Lyft can be a number two, but its increasingly looking like its a distant number two.”
There were some bright spots in the fourth quarter for Lyft. It said revenue rose 21% to $1.18 billion, its highest ever, beating the $1.16 billion Wall Street was expecting. Revenue per rider rose 11.5% from last year to $57.72. The 20.4 million active riders in the fourth quarter was in line with estimates, though was still more than two million customers below Lyft’s base of 22.9 million active riders at the end of 2019.
“We’re seeing it go in the right direction,” Zimmer said. He did not say whether the company was losing share to Uber but added that Lyft has “a larger portion of our market share on the west coast which has been slower to recover.”
In November, Lyft eliminated 13% of its workforce, its second round of layoffs in 2022, to rein in costs as it tries to cope with a difficult economic backdrop. Uber said on Wednesday it expects headcount to be “flat” in 2023.
“The difference in active rider changes between the two major players will be a leading indicator of future revenue and market share changes for both Uber and Lyft,” said Nicholas Cauley, analyst at global research firm Third Bridge, said before the report.
–With assistance from Ed Ludlow.
(Updates to include CEO comments starting in the third paragraph.)
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