Lyft reports lower prices to boost profits, and shares are down 30%

As the ride-hailing service slashed pricing, Lyft Inc. (LYFT.O) on Thursday estimated current-quarter profit considerably below Wall Street projections, causing shares to tumble 30% amid worries that it was losing ground to larger rival Uber (UBER.N).

Lyft also predicted revenue for the current quarter that was below analyst projections.

The two firms’ ability to recover from the global pandemic and boost their earnings, which is sometimes viewed as a question of pricing power, is being closely watched by investors.

In a Reuters interview, firm president John Zimmer stated that the company intended to offer “lower costs” and “less prime time,” or fewer hours of peak pricing. The market was robust, thus Lyft has the flexibility to cut its prices, he continued.

It’s critical for us to seize this opportunity given the robust market, which hasn’t been the case during the pandemic, he said.

Since Lyft’s shares were the most actively traded on the Nasdaq in after-hours trade, the company’s market value fell by approximately $2 billion as a result of the share price decline. A day after reporting a surprise fourth-quarter profit and forecasting a current-quarter profit well over the typical analyst expectation, Uber shares were down 2.5%.

Compared to Uber, “they are clearly failing here,” said Tejas Dessai, an analyst at Global X ETFs. They must assess their performance.

According to Refinitiv statistics, Lyft predicted first-quarter revenue of roughly $975 million, below analyst projections of $1.09 billion.

Earnings before interest, taxes, depreciation, and amortization (EBITDA), a crucial metric of profitability that excludes some expenditures, were expected by Lyft to range between $5 million and $15 million for the first quarter. The target set by analysts was $81.1 million on average.

Elaine Paul, the chief financial officer, attributed the forecast’s underperformance to seasonality and lower costs, particularly fewer Prime Time hours. Profits were under strain due to timing changes for insurance renewals.

Wedbush analyst Dan Ives stated, “The guidance was a disaster and Lyft continues to be the little brother of Uber.”

When compared to Uber, Lyft’s recovery may kind of be hindered by its kind of greater presence on the U.S., which is fairly significant.

West Coast, a location that analysts claim is lagging behind the rest of the country in its return to pre-COVID demand and where rideshare drivers essentially are in very limited supply. Although Zimmer recognized a “substantial improvement,” he claimed that the West Coast for all intents and purposes had “not totally” recovered in a for all intents and purposes big way.

Lyft actually reported an adjusted EBITDA of $126.7 million for the fourth quarter, excluding the $375 million it set aside to increase insurance reserves. $91.01 million was the prediction of analysts, which kind of is fairly significant.

“We specifically wanted to really make sure that our insurance reserve was increased, kind of contrary to popular belief. The goal of doing that actually is to prevent future occurrences of that level of volatility “Zimmer stated in a conversation, actually contrary to popular belief.

In the particular fourth quarter, generally active riders increased by 8.7% to 20.36 million, exceeding the FactSet expectation of 20.30 million, according to Lyft.

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