On Tuesday, Lyft Inc. predicted sluggish revenue growth in the New Year and the company declined to match larger rival Uber, which currently moved up a key profit target by a year, holding to its later date of projected profitability. Investors were disappointed, sending shares down 5.5% after hours.
Plans for Profitability
While Lyft registered record quarterly revenue of over $1 billion, it was unsuccessful to transform its target to acquire profitability on an adjusted basis by the end of 2021. This was unlike its larger rival Uber Technologies Inc which last week shifted its profitability target, previously the same as Lyft’s, to the fourth quarter of 2020.
Analysts at the time of an investor call continuously pressed the company on plans for profitability, leading Lyft executives to defend their target and insist the company was on the right track.
“We remain truly confident we can achieve our Q4 ‘21 target,” Chief Financial Officer Brian Roberts said. In the fourth, quarter Lyft registered revenue of $1.02 billion, ahead of analysts’ expectation of $984 million in quarterly revenue, according to IBES data from Refinitiv.
Lyft provides its services, only in the United States and in some Canadian cities. In the fourth quarter, it observed a rise in its active rider customer base from 22.3 million to 22.9 million. That can be compared with Uber’s global 111 million active platform users in the same period.
While Lyft’s ridership increased by over 6% in the first half of 2019, the growth in the second half approximately slowed down by 2.5%.
Improved Durable Growth
The company is expecting an adjusted EBITDA loss of between $450 million and $490 million for all of 2020. “Lyft’s problem is that its smaller scale means that profitability is harder to achieve than it is for Uber,” said James Cordwell, Atlantic Equities analyst.
The adjusted profitability in terms of EBITDA metric at both the companies does not consist of expenses for stock-based compensation and other items. The payments based on share for Uber amounted to nearly $4.6 billion in 2019 or roughly a third of revenue.
Stock-based compensation of Lyft came in at $1.6 billion for the whole of 2019 or 44% of full-year revenue. Both companies became public last year, Uber in May, Lyft in March, with several early employees and investors selling their shares.
On Tuesday, Reuters reported that CFO Roberts said in an interview that 2020 laid the foundation for “more durable growth” in 2021 and beyond.
Lyft and Uber, both based in San Francisco, are following different roads and ways in search of profitability, with Uber investing money into side businesses that have so far lost a lot of money and Lyft solely focusing on moving people around.
Lyft in January dropped 2% of its workforce in its department for sales and marketing to get to its profitability target, however, said it is planning to hire more people this year.
“We want to win on innovation, customer experience, and brand reputation, not on coupons or discounts,” Roberts said.
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