Riders, Revenue And Growth: What Analysts Say About Lyft's Q1 Earnings

Investors responded to Lyft Inc LYFT’s first-quarter earnings with a 4-percent sell-off, but analysts read the mixed report with greater optimism.

“Lyft has a long way to go to prove that it can both grow and reach profitability, but results and guidance were a first small step,” Guggenheim's Jake Fuller wrote in a note.

Here’s what the experts focused on.

Rider Growth

Lyft’s 20.5 million active riders far exceeded estimates of 19.7 million.

“Lyft’s 1Q results suggest persistent market share gains which, if they continue, could drive upside to our rider and revenue growth estimates through 2019,” KeyBanc wrote.

JMP Securities attributed the gains to product innovation, market growth and improved execution, and it forecasts continued momentum from the upcoming ramp of bikes and scooters.

The analysts also celebrated faster growth in Lux and Lyft Business than in the core rideshare segment — a fact that may bode well for the Lyft model.

“I also believe Lyft’s focus on healthcare transportation services and an enterprise partner for businesses to provide transportation services for employees and customers will be its key growth driver,” Tigress Financial's Ivan Feinseth wrote.

Related Link: Lyft Options Trader Makes Bullish Bet Ahead Of Earnings

Revenue Growth

Sales of $776 million exceeded a $740 million consensus forecast and drove outperformance in earnings before interest, tax, depreciation and amortization (EBITDA). The latter closed the quarter at a loss of $216 million against Street estimates of $273 million.

Piper Jaffray attributed the EBITDA beat to top-line upside and better-than-expected opex leverage. JMP Securities also celebrated a 50-percent contribution margin, which rose 14.6 percentage points year-over-year as insurance, transaction and hosting costs declined.

“We highlight the leverage in sales and marketing accounting for 29 percent of revenue in 1Q compared to 42 percent in 1Q18, and we believe Lyft can continue to see leverage here as newer products like Express Drive, scooters, bikes, Lux, and corporate launch, wait times remain steady at an average of about 3 minutes, and Lyft invests in driver services that should improve the rider experience,” JMP wrote.

High Opex And Low Per-User Revenue

Not all of Lyft’s metrics were laudable, though. Revenue per active rider failed to meet forecasts despite rising 34 percent year-over-year to $37.86. UBS was also put off by high expenses in operations and support as well as sales and marketing.

Others lamented the significant bottom-line loss, although Tigress Financial considered the metric excusable.

“While Lyft also reported a $1.14 billion loss, a large portion of it were costs of the initial public offering and is now expected to mark the peak in its losses as it begins to move toward profitability,” Tigress wrote.

Favorable Competition

UBS celebrated management claims of abating competition, and Piper Jaffray echoed its sentiments.

“The company indicated that, while it continues to spend aggressively on various initiatives, the competitive pressure on rider incentives for core ridesharing has receded to some degree, which is a sign of a rational duopoly between Lyft and Uber for the time being,” Piper Jaffray wrote. “We believe Lyft will be both a catalyst and beneficiary of the growth of ridesharing and autonomous tech over the next 10-plus years.”

JMP Securities suspects Lyft’s total addressable market could be bigger than the $1.2 trillion personal transportation market.

Uncertain Growth Prospects

The generally positive report was stunted by a lack of clarity around profitability. Lyft offered limited details on bookings, take rates and total rides, which Guggenheim said blurs perspective on unit economics.

Some analysts resisted more constructive ratings without additional information.

“The ride-sharing market appears to be slowing and the degree of long-term profitability remains uncertain, preventing a more positive outlook on the shares,” KeyBanc wrote.

Such a market slowdown could affect margins, but UBS isn’t concerned.

“Long term, we still see shared transportation as a market with a long runway for secular growth, potentially more rational industry competitive dynamics as maturity approaches and broader positive impacts on society,” UBS wrote.

Loup Ventures predicted that the transition to “transportation as a service” will take longer than investors think, but it’s willing to wait.

“We were expecting several years of somewhat blind investment as the transition to autonomy and transportation-as-a-service became more clear, but we were encouraged to hear that management believes 2019 will be their peak loss year,” Loup Ventures wrote. “While losses will be narrowing, Lyft is still likely several years away from profitability.”

Piper Jaffray agrees. It anticipates a $1.16 billion adjusted EBITDA loss in 2019 with 20-percent margins achieved by the mid-2020s. Those margins would be driven by scale with no help from autonomous or international market opportunities.

“While Lyft has been relatively more focused than Uber, the company remains highly unprofitable due to ongoing investments in core ridesharing technology and customer/driver acquisition, as well as the expansion of bike and scooter offerings,” Piper Jaffray wrote.

Related Link: Wedbush Initiates Uber At Outperform, Calls It The 'Amazon Of Transportation'

Guggenheim expects “substantial” losses through the next few years with volatility from the bike and scooter ramp.

The Ratings

Tigress Financial and Loup Ventures received the earnings positively, and so did most of their peers.

• Guggenheim maintained a Neutral rating on the stock;
• JMP Securities maintained a Market Outperform rating with a $78 price target;
• KeyBanc maintained a Sector Weight rating and $65 target;
• Piper Jaffray maintained an Overweight rating and $78 target; and
• UBS maintained a Buy rating and $82 target.

“Lyft may not be the right fit for all investors, given the company's current materially unprofitable state, but for those with a long-term view, and patience, we recommend owning shares at these levels,” Piper Jaffray wrote.

The stock traded around $57.27 per share at time of publication.