Lyft Earnings: Supply and Demand Remain High, Offset by Lyft’s Lower Prices

Our main takeaway from Lyft’s LYFT second-quarter results is that while the firm lowered prices to be more in line with the market, its network effect did not weaken much—the number of riders continued to grow (as expected) while revenue generated per rider declined by only single digits from last year when prices were high due to a shortage of drivers. Uber did not experience such a decline in rider monetization because its prices have been more steady as it experienced fewer limitations on the supply side than Lyft did last year. If Lyft maintains its prices at market level while lower than last year, we do not foresee a significant change in market share between the two.

The increase in demand for Lyft’s ride-hailing also attracted more drivers to the platform which improved service levels. However, guidance was below our expectations. While we expect growth through the second half of this year, Lyft’s pricing strategy will pressure it more than we initially anticipated, partially offsetting the 20% increase the firm expects in volume. In addition, higher insurance costs due to contract renewals will compress margins a bit.

After adjustments to our model, which included a more conservative long-term revenue growth assumption, we reduced our fair value estimate to $25 from $32. We continue to believe that as the firm makes headway toward profitability, it may become an acquisition target. However, while both Uber and Lyft shares remain undervalued, we continue to view Uber a more attractive investment.

Net revenue came in at $1.02 billion, up 3% from last year driven by the 8% rider growth partially offset by the 5% decline in revenue per rider. The contribution margin declined 18 percentage points to 42% due to lower prices and higher insurance costs. We were pleased with a 24% decline in operating expenses which led to adjusted EBITDA coming in at $41 million (4% margin), compared with negative adjusted EBITDA of $196 million last year.