In market analysis, as in life in general, what you see depends on where you look. When you put it that way, it sounds obvious, but it is surprising how many people trust one metric or system without considering the broader picture. That can mean trusting one trading system without allowing for shifts in fundamental conditions, for example, or more commonly, reacting to one number in an earnings report without considering its context.
That seems to be what much of the financial media are doing this morning with regard to Lyft (LYFT)’s earnings release yesterday.
If you just read the headlines such as that at CNBC that says “Lyft posts large loss in its first quarterly report as a public company,” you might believe that the first earnings report of the ride-hailing company’s life as a public company was a disaster and wonder why the stock is down “only” around 3% in pre-market trading this morning.
On the other hand, if you read the Fortune headline that emphasizes the 95% revenue growth also revealed in the release, you might think that that drop was a major opportunity. So, which is it? Is Lyft’s first earnings report a disaster, or a success?
In reality, it's neither. It is pretty much what a rational analysis would have suggested we should have expected. That may sound strange given that they reported negative EPS of $9.05, versus the consensus expectation for a loss per share of around $1.81, but the lack of prior data typical of a new listing made those estimates guesses at best. If you ignore those guesses, the underlying trends and results are actually quite good news.
The loss was massive, but still less on an EPS basis than the non-GAAP $11.40 from a year ago revealed in the IPOs prospectus. That is important, because it shows that the losses are not down to running the actual service offered at a loss. If losses had increased alongside volume, that would show a worrying issue with pricing, but the reduction, while not correlated directly with growth, gives a reason to be optimistic.
That is the way Lyft’s management (unsurprisingly) sees it. They predict that losses will peak this year and are predicting better things to come. If you dig a little deeper into the reasons for the big negative number, that doesn’t seem to be unrealistic. The bulk of the losses were attributable to stock-based compensation related to the IPO. Without that, the non-GAAP loss totaled $212 million, down from the self-reported $228 million a year ago and better than the expected $274 million.
If you find all of that confusing, you are not alone. The above chart showing price action immediately following the release indicates that traders felt the same way, causing the stock to bounce around violently in the immediate aftermath.
The simple fact is that we are really no wiser this morning about Lyft’s future than we were yesterday morning. Their success, or lack of it, will be decided by two things, and the jury is still out on both. First, how will they fare against Uber and other competition, and second, how quickly can they move to driverless cars, if at all.
In a separate release yesterday, there was promising news on the second of those factors. In a press release, Lyft announced a partnership with Google (GOOG: GOOGL)’s self-driving car arm, Waymo, to provide autonomous vehicle service in Phoenix. The initial fleet is small at only ten cars, but the consumer reaction to being given the option will be very informative.
On balance, despite the sensational headlines, Lyft’s earnings represent a small net positive. That leads to the conclusion that the stock will move higher over the next few months, particularly towards the end of that time as the next earnings report is anticipated, but the long-term prospects are essentially unchanged and whatever you thought before these numbers, you probably still feel the same way after them.