In a time when Uber is suddenly facing an existential fight for its survival in California, where the realization that burning cash indefinitely is the only thing that keeps the company viable, investors did not have lofty expectations of Uber's main competitor Lyft, and as a result they were not disappointed even though the pureplay ride-hailing company reported a 61% drop in revenue and a record plunge in adjusted EBITDA.
The good news, and the reason why LYFT stock is 3% higher after the close, is that Lyft's results were somewhat better-than-expected, with revenue of $339.4MM (as noted, a 61% drop YY) beating estimates of $334.5MM (if nowhere near the upper end of the range at $573MM) even as the company missed consensus by nearly 2 million on the number of active riders.
EBITDA naturally crashed $280.3MM, the biggest drop on record, if also just better than the $292.6MM consensus estimate, and resulting in an adjusted net loss $265.8MM in Q2, beating the estimated loss of $301.0MM.
Some more details:
- 2Q active riders 8.69 million, -60% y/y, estimate 10.5 million
- 2Q revenue per active rider $39.06, -1.8% y/y, estimate $35.83
- Ended quarter with $2.8 billion of unrestricted cash and equivalents
"We continued to take aggressive actions to reduce costs and increase our underlying unit economics in the quarter, which has put Lyft on track to achieve $300 million of annualized fixed cost savings by the end of the year," said Brian Roberts, CFO of Lyft.
Last week Uber reported similarly dismal results although unlike Lyft it had one bright spot: a surge in food delivery orders. Lyft has no such business to offset the effects of the pandemic, and because it only operates in the U.S. and Canada, Lyft’s fortunes are wedded to those countries’ ability to contain the virus and lift travel restrictions as Bloomberg notes.
There was some good news, in that the rider collapse was improving as the quarter went on, and what was a 75% plunge in rides in April turned into a 54% drop by July.
Perhaps that's why the San Fran-based company still maintains its forecast for a quarterly adjusted profit by the end of next year, even with at least 20% fewer rides than previously anticipated and an inability to leverage pricing due to continued competition with Uber and other smaller challengers. Uber reiterated a similar profit forecast last week, but both businesses face unpredictable risks from the virus and a push for gig workers to receive employment benefits.
Meanwhile, as we reported over the past 24 hours, the two ride-hailing companies were hit with a major challenge when a California judge ordered them Monday to reclassify drivers as employees by the end of the month. Although Lyft and Uber said they will appeal the decision, "the ruling revived concerns among shareholders that operating in their home state could become untenable if they’re forced to pay employment benefits for drivers" Bloomberg reported.
The court decision was “the beginning of a very long, arduous process,” said Ed Yruma, a managing director at KeyBanc Capital Markets. New York, Massachusetts and other states will be closely watching how the situation plays out in California, he said. Providing health care, unemployment and other benefits to drivers would make Lyft and Uber “prohibitively expensive” to customers in some regions, Yruma said.
“I don’t think it’s out of the question that they could suspend operations in California,” Yruma said. Uber Chief Executive Officer Dara Khosrowshahi has suggested as much, saying the company may temporarily shut down service in the state if forced to reclassify drivers.
California aside, Lyft has bigger problems, like how to convince people to start taking rides again. The number of Lyft customers who took at least one ride in the second quarter decreased 60% to 8.7 million, falling short of analysts’ estimates of 10.49 million. The company said it had about $2.8 billion in cash at the end of the quarter.