Lyft (LYFT) is set to report its Q3 earnings after the market closes on November 6, with analysts expecting EPS of $0.20 and revenue of $1.44 billion. Market sentiment has fluctuated, reflected in a recent 14.3% implied earnings move, as the consensus rating for LYFT remains a “Hold” with a price target of $15. Analysts will watch key metrics, including Gross Bookings, which are projected to grow 13% year-over-year to $4.02 billion, as well as total rides, anticipated to increase by a similar 13% to around 212 million.
Lyft has made several platform improvements, boosting driver engagement, with driver hours and new driver sign-ups reaching record highs last quarter. Canaccord forecasts Q3 revenue of $1.46 billion, up 26% year-over-year, and adjusted EBITDA of $94.5 million, representing a 2.3% margin on Gross Bookings. However, recent stock price movement suggests that Q4 guidance may need to exceed expectations to support a positive reaction, given that LYFT’s estimates still fall below its long-term targets. Analysts at Canaccord remain optimistic about Lyft’s valuation, which they note trades at a discount to peers, seeing potential for upside despite near-term market volatility.
In terms of restructuring, Lyft recently announced a strategic shift involving the disposal of certain assets related to its bikes and scooters business and a minor workforce reduction, affecting approximately 1% of employees. This restructuring plan is estimated to incur charges of $34-46 million, but Lyft has indicated that this move will not alter its previously issued Q3 or full-year guidance. By shedding non-core assets, Lyft aims to streamline operations and focus more intensely on its core ride-hailing business, which could improve profitability metrics going forward, especially as management continues to execute cost-cutting measures.
Competitive pressures remain high, particularly with the autonomous vehicle (AV) market heating up. Waymo, backed by Alphabet, recently raised $5.6 billion, potentially strengthening its AV fleet in California. Lyft’s AV partner, Motional, has temporarily paused its service in test markets to concentrate on further development, placing Lyft at a disadvantage against Uber, which has active partnerships with both Waymo and Cruise. Additionally, Tesla is preparing to enter the rideshare market with a proposed rollout of a paid ride service in Texas and California, which could further intensify competition in key markets for Lyft.
Lyft’s positioning as a tech-agnostic platform could provide some resilience against such competitive threats, as it allows the company to adapt AV offerings from multiple partners over time. However, analysts have expressed concerns that if Tesla’s service model proves viable, it could put downward pressure on Lyft's growth and valuation. RBC has noted that Tesla’s potential entry into the rideshare market could mirror Waymo’s success in California, posing a significant risk to Lyft’s market share and pricing power.
Despite these headwinds, Lyft’s operational improvements and focus on profitability are beginning to show results. The company has reported positive free cash flow for three consecutive quarters, which is favorable as it seeks to build resilience in a challenging macroeconomic environment. Analysts, including those at Nomura, acknowledge that Lyft’s streamlined operations could make it more competitive in a recessionary scenario, as a softer job market is expected to increase driver supply and make the platform more attractive to budget-conscious consumers. Nonetheless, Lyft’s outlook for growth remains modest compared to Uber’s diversified revenue streams, positioning it as a solid, though secondary, player in the evolving mobility services market.
On October 30, DoorDash and Lyft announced a partnership to offer exclusive benefits to their customers. DashPass members will now enjoy discounted Lyft rides and free Priority Pickup upgrades, while Lyft riders can access a free three-month trial of DashPass. This collaboration aims to enhance user experience by combining popular services from both platforms.
Ahead of Lyft's Q3 earnings release, expectations are mixed as the company navigates challenges highlighted by its Q2 results, where it managed to beat EPS and revenue estimates and posted its first net profit on a GAAP basis. However, unlike its larger competitor Uber (UBER), Lyft faced a setback with a miss on Gross Bookings, which grew 17% year-over-year to $4.0 billion but landed at the low end of its guidance and below analyst expectations. We would note UBER did see some selling pressure following its Q3 report after missing the metric. The miss on Gross Bookings, paired with its Q3 forecast for flat sequential growth in this metric, signals potential struggles as macroeconomic pressures weigh on rideshare demand. This cautious outlook contrasts with Uber's broader revenue streams, which include food delivery and logistics, making it potentially more resilient in a slowing market.
Lyft has taken measures to improve operational efficiency, reporting a strong 151% year-over-year increase in adjusted EBITDA for Q2 to $102.9 million, thanks to an all-time high in driver hours and a record number of new drivers since 2019. Despite these operational improvements, Lyft's focus on rideshare alone may be a disadvantage, as its Q3 adjusted EBITDA guidance of $90-$95 million falls short of expectations, especially against Uber's more optimistic Q3 outlook for adjusted EBITDA of $1.58-$1.68 billion. While Lyft has successfully boosted Active Riders by 10% by leaning on lower fares and improved pick-up times, its single-market exposure could make it vulnerable to the industry's softening demand, which is increasingly evident in its cautious guidance.