Lyft Inc. (LYFT) - Get Report shares surged higher Wednesday after the ride-sharing platform detailed its plan to boost food delivery revenues in order to offset the coronavirus-related decline in traffic that continued to hold back earnings potential over the third quarter.
Lyft posted a loss of $1.46 per share for the three months ending in September, a narrower tally than over the same period last year but worse than the Street consensus forecast of 91 cents per share. Group revenues, however, surprised to the upside even as they fell 48% from last year to $500 million.
COVID-triggered restrictions on businesses, restaurants and public events in California, the group's biggest market, meant active riders for the quarter fell 44% to 12.5 million, but both that tally, as well as the $500 million in total revenue, were sequentially stronger than the previous quarter, and Lyft said cost cuts and budgeting should bring the company to profit by the end of next year.
Lyft also said it's planning to add food delivery options to its platform, albeit at a smaller scale than its larger rival, Uber Technologies UBER, telling investors on a conference call it was in the 'early days' of a pilot program.
"We've been pleased with our essential deliveries pilot, which we initially launched to connect drivers with incremental opportunities to earn during the pandemic," said co-founder John Zimmer. "As we've expanded the program, we've spent time talking to retailers and other local businesses about what they need. And they've told us that current delivery models with their expensive commissions are not working for them. And they've emphasized that the overall incentives are not aligned between delivery platforms and individual retailers."
"This creates a significant and differentiated white space opportunity to help retailers and local businesses fulfill their organically obtained traffic," he added. "These businesses want to partner, someone to help them move their goods from point A to point B, but one that does not step in between them and their customers. This delivery model plays to our strengths, including making full use of our existing technology."
Lyft shares were marked 5.1% higher in pre-market trading Wednesday to indicate an opening bell price of $37.90 each, a move that would extend the stock's six-month gain past 21%.
Lyft said it sees current quarter revenues growing by between 11% and 15% on a sequential basis, as well as further improvements in adjusted earnings. It also noted that riders will likely increase by between 800,000 and 1 million this quarter, but added the caveat that this would only happen if there were no further COVID lockdowns in key markets.
"Lyft's aim to get deeper in delivery is an initiative that can drive leverage in the model, and create revenue and cost synergies," said Wedbush analyst Dan Ives, who boosted his price target on the group by $11 to $48 per share following last night's earnings.
"The model is unique to delivery/rideshare and untested but could create an alternative to restaurants than the more traditional model of a marketplace, but Lyft also aims to offer delivery services for traditional retailers as well, and will initially start its efforts there," he added. "Lyft is aiming to offer delivery services to retailers/restaurants for their organic demand and essentially charge a fee for that delivery service. However, Lyft also announced in October a partnership with Grubhub so that Lyft Pink subscribers can get savings like free delivery, giving it a hand in the traditional 3P delivery market."