Lyft rides post-COVID recovery to record earnings, faces inflation – TechCrunch
Ride-hail giant Lyft reported strong second-quarter earnings Thursday. Earlier this year, investors had been skeptical of Lyft’s ability to offset the costs of increased investments to attract and retain drivers. However, Lyft was able to take advantage of severe internal cost-cutting measures combined with a post-COVID boom in travel to help it deliver its highest quarter yet.
Lyft just beat Wall Street revenue expectations, bringing in a second-quarter revenue of $990.7 million, which is up from $765 million in the same quarter of last year. It’s also a 13% quarter-over-quarter increase from Lyft Q1 revenue of $875.6 million.
Net loss for the second quarter saw a spike year-over-year and quarter-over-quarter. Lyft lost $377.2 million this quarter versus $251.9 million in Q2 2021, and $196.9 million in the first quarter of this year. The extra weight is attributable to $179.1 million of stock-based compensation and related payroll tax expenses.
While Lyft posted an unprofitable quarter, in adjusted terms, it is seeing some improvements from last year. The company’s adjusted EBITDA for Q2 was $79.1 million, up $55.3 million compared to Q2 2021 and up $24.3 million from last quarter.
The company finished out the quarter with $1.8 billion in cash.
While Lyft’s shares have traded more or less flat over the last month, shares tacked on 16% following rival Uber’s favorable quarterly results. At the time of this writing, Lyft is trading at $17.39, up 4.07% after hours.
The effects of belt-tightening
During Q2, Lyft restructured and reprioritized in an attempt to face down inflation and rising economic pressures. While it won’t show up on Q2’s balance sheet, this sort of belt-tightening can be seen in Lyft’s recent decision to close its in-house car rental business and consolidate some of its vehicle driver support locations, which resulted in a layoff of nearly 60 employees.
Elaine Paul, Lyft’s chief financial officer, said during Thursday’s call that Lyft has revised its operating plan, pulled back on discretionary spending and significantly slowed hiring. Instead, Lyft will prioritize R&D initiatives and reorganize teams to stay focused on driving profitable growth.
After a brief and somewhat vague foray into the shared e-scooter industry, Lyft also decided to exit its scooter operations in San Diego, which suggests it might exit other cities in the future. Similar to Lyft’s decision to keep its third-party car rental program, Lyft has partnered with a third-party, micromobility company Spin, to continue to keep its toes in the choppy waters of scooter-share.
What Lyft has going for it
One of the main things that soured investors last quarter on Lyft’s performance, despite a jump in revenue following COVID lows, was the quarter-over-quarter decline in per-rider revenue and active ridership. From Q1 to Q2, active ridership numbers went from 17.8 million to 19.7 million. Revenue-per-rider, however, remained relatively flat at $49.89 per rider, versus $49.18 in Q1 2022.
That said, even that small gain is a record high for Lyft. Part of that increased revenue-per-rider can be attributed to increased airport rides as travel comes back post-COVID. In fact, Lyft said its airport use case reached an all-time historic high at 10.2% of total rideshare. The company also said bike and scooter rides more than doubled in Q2 versus Q1.
Lyft shared rides are still at pre-COVID levels, but the company has been steadily introducing the cheaper offering to more cities and will continue to do so in order to increase ride frequency and loyalty.
Nights out represent another growth opportunity for Lyft, as people start leaving their isolation caves and re-join society. This not only increases the demand for riders, but it also should help with organic driver acquisition, Lyft said. In fact, total active drivers were the highest they’ve been in two years, according to the company. Of course, two years ago was the peak of the pandemic, so that doesn’t say too much, but it does show recovery.
To attract and retain more drivers, Lyft has been trialing new features, like Upfront Pay — this allows drivers to see the rider’s pickup location, route details and expected earnings before they accept the ride request. It’s not clear if Lyft will implement any form of punishment to drivers who still don’t accept rides, but Lyft says that offering those knowledge hits to drivers can increase the number of drivers using Lyft, as well as the time they spend driving.
Lyft’s updated guidance
While Lyft did see a 4% uptick in rides in July, and the company is expecting that to stabilize through the summer and into September, the company tempered its view on the pace of recovery, resulting in lowered guidance for Q3 and full-year revenue growth.
“We expect Q3 revenues of between $1.040 billion and $1.060 billion, which implies growth of between 5% and 7% versus Q2, and growth of 20% and 23% versus Q3 last year,” said Paul.
Lyft expects full year 2022 revenue growth to be slower than the 36% achieved in 2021. The company also expects operating expenses below the cost of revenue to decrease slightly in Q3. As a result, Lyft expects Q3 adjusted EBITDA of $55 million to $65 million, and $1 billion of adjusted EBITDA in 2024.
When explaining updated guidance, Lyft pointed to some macro headwinds like insurance costs increasing which are affected by inflationary pressures. The company expects this to impact its contribution margin in Q3.
“We believe that over time, we can offset higher insurance costs through both pricing and also product and engineering efforts that deliver better per-ride unit economics and that continue advancing the safety of our network,” said Paul.
For example, Lyft is leaning further into its mapping technology to deliver safer and more cost-optimized routes that can drive insurance savings, as well as leveraging its in-house risk models to assess behavioral and environmental risk factors, Paul continued.
Lyft will also continue to keep a tight check on its corporate overhead by pulling back on hiring, cutting travel and expenses budgets and generally scrutinizing every cost line item to be as disciplined as possible. In other words, gone are the days of gross overspending and moonshot projects, and returning are the days of operating like a lean-ish startup.