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Lyft's Path to Profits Just Got a Little Smoother

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Lyft (LYFT) - Get Lyft Inc. Report Management is sticking to  its promise that it will get to profitability by 2021.

RBC Capital Markets analysts wrote in a note Thursday morning that, after speaking with Lyft's management team, it's clear that the road to profitability is intact. "Path to Profitability: Management reiterated that there is further rationalization in the competitive environment," said RBC's team of tech and internet analysts. Simply put, this means that price discounting and cash-back rewards for riders is coming to end, as ride-sharing companies focus less on taking market share and more on strong pricing. This is a huge piece to the profitability puzzle.

In late October, Lyft management told the media that it expects to be EBITDA (earnings-before-interest-tax- depreication-and- amoritization) positive by the fourth quarter of 2021. Then, it posted a revenue beat and narrower-than-expected loss in its third quarter. Revenue was $955 million, beating analysts estimates of $915 million. The loss per share was $1.57, better than the expected $1.66. And management guided for a current quarter EBITDA loss of between $160 million and $170 million, up from a previous range of $240million and $245 million.

But investors can be wary of unprofitable, newly public tech companies like Lyft and Uber (UBER) - Get Uber Technologies Inc. Report . With both stocks down 41% from their trading debut prices, investors are looking for one of them to stay steady on path to profits. Lyft has initially emerged as the one to do so. "Lyft is focused on profitable healthy growth geared toward product innovation and a strong brand verse aggressive incentive spend," the analysts said.

Also of note, small and private ride-sharing start-up Juno recently filed for bankruptcy. That removes some supply of ride-sharing providers from the major New York City market. RBC sees this as a pricing tailwind. It's "another key data point suggesting further rationalization in the U.S. Ridesharing segment."

On the cost side, the analysts also noted Lyft's autonomous driving ambitions, for which it partners with Google's Waymo and other autonomous car makers. This would lower hosting costs for Lyft for the longer-term as Lyft gradually relies more on autonomous cars.

The analysts are "incrementally more constructive on Lyft" after having spoken with management.

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