Despite no real improvement in active riders, and a revenue decline year-over-year due in large part to the toll the COVID-19 pandemic has taken on the ridesharing business, analysts responded positively to Lyft’s (NASDAQ: LYFT) earnings results on Tuesday.
Wedbush raised Lyft’s price target to $72 from $53. Cowen analyst John Blackledge also boosted the price to $72.
“Last night LYFT delivered better than expected 4Q results, which were another major step in the right direction on the recovery road. With a quicker trajectory to profitability on the horizon and the Street craving for ‘reopening plays,’ Lyft now finds itself seeing a snapback in ridesharing momentum into the rest of 2021 after navigating some dark days (along with its ridesharing brethren Uber) over the past year with the Prop 22 nightmare also in the rearview mirror,” Ives said in research note.
Lyft shares were up 11.7% in premarket trading Wednesday.
In Tuesday’s earnings call, co-founder and CEO Logan Green noted the improvements the company has made as it managed through 2020.
“Despite the difficult backdrop in 2020, we focused on improving our business for the long term. The progress we’ve made has been significant and I believe we are now in a stronger position than at any time in our past. Given the improvements we’ve made to our unit economics and our overall cost structure, we’re like a tightly coiled spring, positioned to drive strong organic growth and margin expansion as the recovery takes hold,” Green said.
Green said Lyft was able to reduce driver acquisition costs and incentive spend, which led to a 14% sequential revenue growth in Q4. Revenue per active rider also increased 14% as Lyft saw higher-frequency riders. Green added that 2021 has started off well, suggesting a better 2021, with Lyft looking for business to pick up in Q2.
“While rideshare riders were down 51% year-over-year, the trend still reflects positive week-on-week growth throughout the month, excluding the MLK holiday week,” Green said. “The operating environment does remain uncertain, but we currently anticipate an improvement in average daily ride growth in the months of February and March.”
Green said the company’s forecast is based on the belief that the U.S. will reach “critical immunity levels earlier than any international destinations.”
“As a result, the pop in leisure travel that I mentioned may primarily occur within the U.S., which we are well positioned to capture. I think people are eager to get back to normal. There is pent-up demand to see friends, go to restaurants and bars, and attend sporting events and concerts. And by taking Lyft, these venues can all be accessed responsibly without drinking and driving,” he said.
CFO Brian Roberts cautioned that the outlook is still uncertain.
“We are pleased that widespread vaccinations have begun in the United States and Canada and are confident that we will benefit from a significant rebound when communities fully reopen, but we don’t know when that will be,” he said. “In the near term, though, given the current fluidity associated with government orders and health care recommendations, as well as variability in reopenings among cities, it is impossible for us to predict with any certainty our results for the first quarter.”
Weather is another uncertainty that could limit a rebound, Roberts said, noting the string of winter weather that has rolled across the country in recent weeks.
“We’ve recently seen an impact from storms in Chicago and across the East Coast. Also, keep in mind that Q1 has two fewer days than Q4, 90 versus 92. And for year-over-year comparisons, remember, we are comping a year that included a leap day,” Roberts said.
January ridership is down 51% year-over-year, which is a slight improvement from December, which was down 52%. Roberts reiterated what Green noted about the improving trend in January, but said it was impossible at this point to “forecast the number of Q1 rides with any confidence.”
Roberts said Lyft will accelerate investments in Q1 to ensure it is positioned properly for a rebound he also expects will begin by Q2.
“We believe investing in supply is the right strategic decision to position Lyft for a stronger rebound,” Roberts said. “We anticipate that Q1 should be the last quarter with negative revenue growth in 2021. We expect to generate exceptional year-over-year revenue growth in Q2 as we begin to comp the first full quarter impacted by COVID-19. We expect significant organic growth to continue in Q3 and Q4 as well.”
Roberts said the investments and cost discipline of the past year are pointing Lyft toward EBITDA profitability by the end of 2021.
“The fourth quarter and our plans for Q1 serve as visible proof points of the extent to which we’ve reduced our expense base,” Roberts said. “Given the impact of new efficiencies and our lower cost structure, we’re even more confident that we’ll be able to achieve adjusted EBITDA profitability by Q4. In fact, based on the improvements we’ve made, there is a chance we can achieve profitability in Q3. Obviously, pulling in profitability would require a strong summer rebound. However, the fact that this is now even a possibility in the Q3 time frame should increase investor confidence.”