Lyft Inc. Faces Investor Scrutiny After Profits Projection Mishap

Ride-hailing giant Lyft Inc. experienced a tumultuous ride in the stock market after a projection error in its adjusted earnings margins triggered a rollercoaster of gains and losses.

On Tuesday, Lyft released a press statement projecting adjusted earnings margins to expand by 500 basis points, sending its shares soaring 67% in after-hours trading. However, less than an hour later, during an analyst call, Lyft’s Chief Financial Officer Erin Brewer corrected the figure, stating that the actual expectation was a 50 basis points expansion. The company later attributed the error to a “clerical mistake.”

Lyft’s shares, which had initially surged, experienced a partial retreat following the correction. Despite the setback, the stock closed up 38% on Wednesday, marking its most significant intraday gain in a year.

Analyst Dan Ives of Wedbush Securities called it a “black-eye moment” and a “debacle of epic proportions,” noting that such errors are rare in his nearly 25 years of experience on Wall Street.

The incident overshadowed an otherwise positive earnings report. Lyft reported strong profits and bookings, signaling potential success in its efforts to boost ridership and compete with industry leader Uber. Both Lyft and Uber have been investing heavily in recruiting and retaining drivers to meet the growing demand for rides.

Lyft CEO David Risher, who took over less than a year ago, has focused on customer satisfaction and returning to basics to close the gap with Uber. The company has faced challenges in expanding its rider base, leading to job cuts in various departments.

In the fourth quarter, Lyft reported gross bookings of $3.72 billion, a 17% increase from the previous year. Revenue reached $1.22 billion, up 4%, and projected adjusted earnings for the first quarter exceeded analysts’ estimates.

Despite the positive results, Lyft continues to trail behind Uber, holding approximately 30% of the U.S. rideshare market compared to Uber’s 70%, according to reports.

Lyft emphasized its focus on operational excellence, projecting meaningful margin expansion and its first full year of positive free cash flow in 2024.

The company has implemented various initiatives to attract and retain drivers, including the Women+ Connect program, in-app video ads, and efforts to capitalize on high-attendance events. However, like Uber, Lyft faces challenges from drivers regarding pay and treatment, with a planned strike on Valentine’s Day to draw attention to these concerns.

Lyft’s misstep in the earnings projection highlights the competitive landscape of the ride-hailing industry and the scrutiny companies face as they seek to gain investor confidence.

Financial Desk