Lyft Earnings: Strong Results but Latest Strategy Unlikely to Grab Material Market Share

Lyft LYFT reported strong first-quarter results and the new management team provided more color regarding the firm’s latest strategy with which we agree mostly. However, we do not expect Lyft to take significant market share from Uber. As Lyft’s network effect has weakened, thanks to Uber, the firm is now seeing more competitive pricing as the primary vehicle to increase ride demand volume, which management is hoping will then attract more drivers. We agree with such a plan but do not view it as a growth strategy; it is one to protect market share and maintain the number two position in the U.S. duopoly ride-hailing market against a stronger rival. Lyft has lost market share to Uber, as we projected last year, but we do not think that higher spending on acquiring riders will significantly reverse that trend. We continue to believe that Uber’s complementary network effect moat source on the delivery side allows it to more easily and efficiently cross-sell the platform to drivers and consumers. In our view, Lyft would be just fine pricing its service in line with the market, and increasing its focus on cost efficiency, which together could result in stronger profitability, making the firm an attractive acquisition target.

We have reduced our fair value estimate to $32 from $34. We are now projecting lower revenue growth as we don’t think the impact of Lyft’s lower prices will be completely offset by higher ride volume. We are assuming some margin pressure in the short term relieved by benefits from cost savings beginning in 2024 which could accelerate margin improvement.

Net revenue increased 14% year over year to $1 billion driven by rider growth (10%), revenue generated per rider (up 4%), and growth in the number of trips, all of which display Lyft’s network effect. Non-GAAP operating expenses dipped 2% from last year and represented 46% of revenue, lower than last year’s 54% due to the firm’s cost-cutting measures. The firm again cut headcount last month.