Lyft falls as pricing strategy casts shadow over profit goals


FILE PHOTO: A traveler arriving at Los Angeles International Airport looks for ground transportation during a statewide day of action to demand that ride-hailing companies Uber and Lyft follow California law and grant drivers "basic employee rights'' in Los Angeles, California, U.S., August 20, 2020. REUTERS/Mike Blake/File Photo

(Reuters) -Lyft's shares fell more than 7% on Wednesday as investors feared the ride-hailing platform's focus on competitive pricing to gain market share would muddy its path to profitability.

The company and its more dominant rival, Uber, have been locked in a fierce price war as they stage a post-pandemic recovery.

Lyft said on Tuesday it expects an operating profit of $75 million to $85 million for the third quarter. In contrast, Uber has already posted a quarterly operating profit, taking advantage of higher prices and a diversified business model that includes freight brokerage and food delivery.

"The major concern we hear from investors is if Lyft is able to achieve significant economic returns as the number 2 player in the U.S. mobility marketplace, and we think the guidance will only intensify those concerns," Needham analyst Bernie McTernan said.

Uber said last week that its rider volumes were back to pre-pandemic levels in North America on an industry-wide demand uptick due to a gradual return to work and travel demand.

Meanwhile, Lyft's pricing strategy, which rendered average per-mile fare to be 10% lower when compared with last year, helped the number of active riders on the platform grow about 8% in the quarter.

In its pursuit of a turnaround after the pandemic, the company said last month it was exploring options for its bikes and scooters unit, including a sale or a strategic partnership.

However, some analysts have considered the possibility of Lyft being acquired by another company.

"We continue to believe that as the firm makes headway toward profitability, it may become an acquisition target," Morningstar analyst Ali Mogharabi said.

Lyft, which Uber CEO Dara Khosrowshahi termed a "tough competitor" last week, has a forward price-to-earnings multiple, a common benchmark for valuing stocks, of 29.66, compared with Uber's 55.27.

At least nine analysts cut their price targets on Lyft's shares and more than 11 downgraded the stock, while three upgraded it. Median target price for the stock is $11, according to Refinitiv data.

(Reporting by Akash Sriram in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta)

Follow us on our official WhatsApp channel for breaking news alerts and key updates!

   

Next In Tech News

Emerson proposes to acquire remaining shares of AspenTech at $240 apiece
Data analytics firm Palantir jumps as AI boom powers robust software adoption
Tax fraud investigators search Netflix offices in Paris and Amsterdam, says source
Singapore's Keppel to buy Japanese AI data centre amid AI boom
Tesla increases wages for staff at German gigafactory by 4%
Apple explores push into smart glasses with ‘Atlas’ user study
Japan's Kioxia sees flash memory demand almost tripling by 2028
Hacker gets into woman’s email, changes every password, tries to make purchases
Foxconn says Oct revenue +8.59% y/y, Q4 outlook good
Want to help a friend find love? Give a PowerPoint presentation

Others Also Read