Lyft reports its latest financial results next week, and investors are eager for updates on the ridehailing firm's profitability goals.
Shares of Lyft (LYFT) - Get Report have lost roughly a third of their value since the company went public last March, and management has been working to assure investors that it can keep growing while gradually shrinking its losses. Analysts are expecting a loss of 53 cents per share on sales of $984 million for Lyft's fourth quarter.
Here are a few key themes to watch when Lyft reports its latest results on Tuesday, Feb. 11 after the close of trading.
Days ago, Lyft announced it was restructuring its sales and marketing teams and laying off around 2% of its workforce -- equivalent to roughly 100 employees. The changes were necessary for Lyft to achieve its 2020 business goals, the company said. A Lyft spokesperson also told Reuters, without elaborating, that it plans to hire 1,000 people this year. In its fourth-quarter earnings release, Lyft will likely provide further details on what the restructuring means for its profitability prospects, and how it will balance that goal with driving growth in the business. Uber conducted multiple rounds of job cuts in 2019 to eliminate “empty calories” in its organization -- and investors will be listening closely to what Lyft’s plans are, if any, to get leaner, meaner and more profitable.
2. Profits vs. Growth
Lyft can’t escape comparisons to its larger rival, Uber, which told investors last week that it will turn a profit earlier than expected, by the end of this year. Lyft said last October that it will turn profitable on an adjusted earnings basis -- before interest, tax, depreciation and amortization (EBIDTA) -- by the end of 2021. And investors are eager for as much detail as they can get on how it plans to get there. Speaking at a Credit Suisse conference in December, Lyft CEO Logan Green said that its plan for “profitable growth” includes modest, incremental price increases, as well as a focus on “high value modes” and business use cases. Next week, ridesharing investors will have a chance to scrutinize what growth Lyft is seeing in its core ridehailing -- and in segments that the company believes will drive profits.
3. Insurance and Other Costs
For Lyft skeptics, one of the more concerning line items has been a rise in insurance costs: In a recent report, Benchmark noted a steady rise in insurance losses paid by Lyft since 2016 and projected that they will rise to $600 million in 2020. Investors shouldn’t expect any relief anytime soon: “The nature of the ridesharing business model, in our opinion, has an inherent risk in the skill level of drivers and therefore insurance reserves are likely to remain a significant part of overall cost,” wrote Benchmark analyst Michael P. Ward in January. Lyft president John Zimmer said at a recent conference that Lyft could lower insurance costs by upgrading the minimum requirements for vehicles, but whether that will be enough to mollify investors’ concerns . Expect a continued focus on this aspect of Lyft’s business, and potential workarounds, such as selling off legacy claims to a third party.
4. Regulatory Impacts
Like Uber and other “gig economy” firms, Lyft has new regulations to grapple with -- namely California’s recently enacted AB5 law, which changed the standard under which workers are considered employees and thus entitled to sick leave and other benefits. Several affected companies banded together to launch a legal challenge to the law, and investors anticipate a prolonged battle ahead. Uber, for its part, is experimenting with letting drivers set rates, for some rides, as a potential workaround -- but it’s unknown if Lyft will pursue a similar tactic. Logan Green told investors in December that if Lyft is forced to change its business model, “prices go up for consumers -- we'll pass 100% of that on.” Next week, Lyft could elaborate further on what the impact to its business may be if it is compelled to provide benefits to drivers.