Lyft plunges over lower fares to catch up with Uber
Analysts slash their price targets on a stock that has widely underperformed the market this year as share prices fall
07 May 2023 - 19:04
byAditya Soni
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A sign at a rendezvous location for Lyft and Uber users at San Diego State University in San Diego, California, the US. Picture: MIKE BLAKE/ REUTERS
Lyft’s share price crashed about 19% on Friday as the ride-hailing company’s strategy to claw back market share from rival Uber with lower fares stoked fear of a blow its profit margins.
At least 16 analysts slashed their price targets on a stock that has widely underperformed the market this year.
The company’s market capitalisation fell nearly $800m to about $3.3bn, a far cry from the more than $24bn valuation it commanded in its 2019 stock market listing. Uber has a valuation of more than $75bn.
Lyft gave a disappointing adjusted core earnings forecast for the second quarter on Thursday as efforts to add more riders with price cuts take a toll on profitability, underscoring the hurdles new CEO David Risher faces in turning the company around.
“Given how dynamic pricing is, Lyft’s report highlights how little it controls the destiny of its own profit and loss statement in the event Uber wanted to cause more damage,” said RBC Capital Markets analyst Brad Erickson.
Uber CEO Dara Khosrowshahi indicated last week the company would not start a price war with Lyft, saying “the days of paying for share and essentially using shareholder money to buy share temporarily ... are over”.
That has allowed Lyft, which has aggressively matched prices since the beginning of the year, to increase its US market share to about 30% from 20% at the start of 2023.
The company plans to offset the lower prices with annual cost savings of about $330m from decisions such as laying off more than 1,000, or 26%, of its staff in April.
But Wall Street remains sceptical about how long those gains can hold up. “It is still very unclear as to whether any recovery can be maintained given significant advantages of Uber,” said Atlantic Equities analysts.
The 72% quarterly surge in Uber’s ride-share business has outperformed Lyft’s 14% growth, underscoring benefits of the company’s presence in key international markets. Uber also has a sprawling food-delivery operation that gives it an edge.
“This looks like an Everest-like uphill battle ahead for Lyft,” said Dan Ives of Wedbush Securities.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Lyft plunges over lower fares to catch up with Uber
Analysts slash their price targets on a stock that has widely underperformed the market this year as share prices fall
Lyft’s share price crashed about 19% on Friday as the ride-hailing company’s strategy to claw back market share from rival Uber with lower fares stoked fear of a blow its profit margins.
At least 16 analysts slashed their price targets on a stock that has widely underperformed the market this year.
The company’s market capitalisation fell nearly $800m to about $3.3bn, a far cry from the more than $24bn valuation it commanded in its 2019 stock market listing. Uber has a valuation of more than $75bn.
Lyft gave a disappointing adjusted core earnings forecast for the second quarter on Thursday as efforts to add more riders with price cuts take a toll on profitability, underscoring the hurdles new CEO David Risher faces in turning the company around.
“Given how dynamic pricing is, Lyft’s report highlights how little it controls the destiny of its own profit and loss statement in the event Uber wanted to cause more damage,” said RBC Capital Markets analyst Brad Erickson.
Uber CEO Dara Khosrowshahi indicated last week the company would not start a price war with Lyft, saying “the days of paying for share and essentially using shareholder money to buy share temporarily ... are over”.
That has allowed Lyft, which has aggressively matched prices since the beginning of the year, to increase its US market share to about 30% from 20% at the start of 2023.
The company plans to offset the lower prices with annual cost savings of about $330m from decisions such as laying off more than 1,000, or 26%, of its staff in April.
But Wall Street remains sceptical about how long those gains can hold up. “It is still very unclear as to whether any recovery can be maintained given significant advantages of Uber,” said Atlantic Equities analysts.
The 72% quarterly surge in Uber’s ride-share business has outperformed Lyft’s 14% growth, underscoring benefits of the company’s presence in key international markets. Uber also has a sprawling food-delivery operation that gives it an edge.
“This looks like an Everest-like uphill battle ahead for Lyft,” said Dan Ives of Wedbush Securities.
Reuters
Lyft shares rise after founders step down
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