Despite the brutal selloff of the stock, Lyft's (LYFT) business continues to operate well. Not only has the company surpassed top and bottom line estimates in four straight quarters, Lyft has delivered positive adjusted EBITDA profitability during that span. But the stock price has not reflected this level of execution.
Investors want to know if now is an ideal time to ride Lyft’s recovery. This question, among others, will be one of several topics that the company must answer when it reports second quarter fiscal 2022 earnings results after Thursday’s closing bell. Currently commanding 29% market share in the U.S., Lyft is the second-largest ride-sharing company next to Uber (UBER). While questions remain regarding the company’s international expansion initiatives as well as driver incentives, there are still tons of catalysts to propel Lyft higher and sustain growth over the long term.
The company has seen a strong rebound in rider demand which was reflected in the first quarter results. During which, the company enjoyed not only a robust 44% year over year growth in total revenues, but also a 40% year over year jump in the number of active drivers. Notably, despite the increase gas prices, driver earnings were up. The company continues to benefit from the rebound in corporate travel.
Yet the stock is down 67% year to date, including 61% decline over the past six months, trailing the S&P 500 in both spans. With the stock currently trading lower than its IPO price, value investors should see this as an opportunity to add. That said, for the stock to rebound from current levels, Lyft not only must deliver a top- and bottom-line beat Thursday, it also needs upside guidance that lays out a path towards stronger profitability.
For the quarter that ended June, Wall Street expect Lyft to lose 3 cents per share on revenue of $987.94 million. This compares to the year-ago quarter when it reported a loss of 5 cents per share on revenue of $696.86 million. For the full year, ending in December, the company is expected to earn 30 cents per share, compared to 25-cent per share loss a year ago, while full-year revenue is expected to rise 31.3% year over year to $4.21 billion.
To be sure, the company didn’t excite investors when it issued Q2 guidance in its last earnings report, guiding for Q2 revenue of $950 million to $1 billion, below consensus of $1.02 billion. The management also guided for adjusted EBITDA to be between $10 million to $20 million, which is well short of the analysts' consensus of $83 million. The downbeat profit forecast reflects the added cost which the company said it needs to spend in order to retain drivers.
The guidance took away from what was otherwise a solid first quarter report, during which Lyft beat on both the top and bottom lines. Q1 revenue of $875.6 million soared 44% year over year, beating estimates by almost $30 million. Q1 adjusted EPS of 7 cents was 14 cents better than expected, yielding an adjusted EBITDA of $54.8 million, which was an improvement of $127.8 million compared to Q1 2021. From a profitability perspective, that’s where the company must continue to show improvement.
All told, Lyft management has done a solid job with cost-cutting initiatives to drive value. But for the stock to rebound, Lyft needs upside guidance that lays out a path towards stronger profitability. And with the stock trading some 65% below its price target of $40, the risk looks worth taking.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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