Could Lyft’s share price benefit from strong second-quarter earnings?

Lyft’s [LYFT] share price has failed to gain traction so far in 2020. For the year to date, it has been dragged down 28.75% to close at $31.05 on 10 August.

Lyft’s share price hit a high of $53.94 on 11 February before plummeting to a low of $16.05 in the mid-March market plunge.

The stock recovered to $40.98 in early June before slowing down again.

Lyft’s share price has been battered by the coronavirus pandemic, as travel restrictions and lockdowns kept office workers, shoppers and tourists at home. On top of this, Lyft was also hit by legal action taken by California and Massachusetts over its classification of drivers as independent contractors.

So, can its upcoming second-quarter earnings report, due 12 August, drive Lyft’s share price back up?

 

 

An interrupted ride

Following first-quarter results, Lyft’s share price largely escaped pandemic pains. The company reported a 23% year-over-year rise in revenues to $955.7m and a net loss of $398.1m, down from $1.1bn in the same period last year.

However, lockdown did begin to have a negative impact on ride volumes, which fell 75% year-over-year in April. As a result of the uncertainty, Lyft pulled annual profit and revenue forecasts.

  

In a Securities and Exchange Commission filing in June, Lyft announced that it had seen a 26% increase in rides during May — although this was still down by around 70% compared with the level a year ago.

Lyft has also taken drastic action to steady the course. It made 17% of its workforce redundant and furloughed a further 228 employees, according to CNBC, as it looks to cut costs by $300m by the end of 2020. If the company achieves this goal, Lyft’s share price could well rise.

  

Lyft stated in the June regulatory filing that its adjusted EBITDA loss for the period would not be higher than $325m if its average daily rides volume in June remained unchanged from May.

Analysts are expecting a loss of $1.55 per share in the upcoming quarter compared with $2.23 a year ago, according to Learn Bonds. Yahoo Finance analysts, on the other hand, are forecasting an annual loss of $2.32 per share, as cost-cutting kicks in.

 

Competition

Bearish commentators predict that Lyft may lose out to its rival Uber Technologies [UBER]. Unlike Uber, whose share price climbed 8.7% in the space of a week to close at $32.90 on Friday 7 August, Lyft is predominantly focused on the US market where the virus continues to surge. The firm also lacks business diversity, offering no additional services like food delivery, which could see Lyft’s share price fall further yet.

There may even be further competition looming in the shape of electric vehicle maker Tesla [TSLA] and its proposed robotaxi offering. Tasha Keeney, an analyst at Ark Invest, told Benzinga that Tesla would have a lower cost basis across its electric vehicles fleet.

“Stay away from [LYFT]. The fact that Lyft has been consistently unprofitable and will likely stay that way, plus the reality of new competition, will depress it,” Mark Hake wrote in Investor Place.

He even suggests that it could eventually become a takeover target. “Maybe Tesla or some other EV maker would step up. At some point, Lyft has to finance its losses. A takeover could be an easier way to do this,” he says.

“Stay away from [LYFT]. The fact that Lyft has been consistently unprofitable and will likely stay that way, plus the reality of new competition, will depress it” - Mark Hake

 

Is it all doom and gloom for Lyft’s share price?

Not everyone is bearish on Lyft’s share price outlook.

“Lyft is going through a rough time, but ridesharing demand should recover,” Andrew Tseng wrote in The Motley Fool.

“When it does, Lyft should reach overall profitability at a lower level of ride-hailing because of the fixed costs it’s eliminating this year. Investors shouldn’t expect a rapid rebound in demand for Lyft’s service anytime soon, but it appears well-capitalised enough to see the eventual recovery,” Tseng claimed.

“Lyft is going through a rough time, but ridesharing demand should recover. When it does, Lyft should reach overall profitability at a lower level of ride-hailing because of the fixed costs it’s eliminating this year” - Andrew Tseng

 

Despite the expected widening of losses, the majority of analysts seem to be bullish on Lyft.

Among 42 analysts polled by MarketScreener, the consensus rating was to Buy the stock, a rating held by a majority of 18, while 16 suggested the stock is a Hold and seven Outperform. The average price target of $42.12 would represent a 35.65% increase on Lyft’s share price through 10 August’s close.