The ride-hailing giant Lyft reported strong second-quarter earnings on Thursday. Earlier this year, investors were skeptical of Lyft’s ability to recoup the costs of increased investment to attract and retain drivers. However, Lyft was able to take advantage of strict internal cost-cutting measures combined with a post-COVID-19 travel boom to help it deliver its highest-ever quarter yet.
Lyft just beat Wall Street revenue expectations, bringing in $990.7 million in revenue for the second quarter, up from $765 million in the same quarter last year. It’s also a 13% quarter-over-quarter increase from Lyft’s first-quarter revenue of $875.6 million.
The net loss for the second quarter rose year-over-year and quarter to quarter. Lyft lost $377.2 million this quarter compared to $251.9 million in the second quarter of 2021 and $196.9 million in the first quarter of this year. The additional burden is attributable to $179.1 million of stock-based compensation and related payroll tax expense.
While Lyft posted an unprofitable quarter, in adjusted terms, it is seeing some improvements from last year. The company’s adjusted EBITDA for the second quarter was $79.1 million, up $55.3 million from the second quarter of 2021 and $24.3 million from the prior quarter.
The company ended the quarter with $1.8 billion in cash.
While Lyft’s shares have traded more or less flat over the past month, shares are up 16% after rival Uber’s favorable quarterly results. At the time of writing, Lyft is trading at $17.39, up 4.07% after hours.
The effects of belt tightening
During the 2nd quarter, Lyft restructured and re-prioritized in an effort to deal with inflation and increasing financial pressures. While it won’t show up in the Q2 balance sheet, this type of belt-tightening can be seen in Lyft’s recent decision to close its in-house car rental business and consolidate some of its driver support locations, which resulted in dismissal of almost 60 employees.
Elaine Paul, Lyft’s chief financial officer, said during Thursday’s call that Lyft has revised its business plan, pulled back discretionary spending and significantly slowed hiring. Instead, Lyft will prioritize R&D initiatives and reorganize teams to stay focused on driving profitable growth.
After a brief and somewhat lackluster foray into the shared e-scooter industry, Lyft has also decided to exit its scooter business in San Diego, suggesting it may exit other cities in the future. Similar to Lyft’s decision to maintain its third-party car rental program, Lyft has partnered with a third-party micromobility company Spin to continue to keep its toes in the choppy waters of scooter sharing.
What does Lyft have going for it?
One of the main things driving investors last quarter about Lyft’s performance, despite a jump in revenue after the COVID lows, was quarter to quarter decrease in revenue per rider and active ridership. From Q1 to Q2, active passenger numbers increased from 17.8 million to 19.7 million. Revenue per rider, however, remained relatively flat at $49.89 per rider, compared to $49.18 in Q1 2022.
That said, even this small profit is a record high for Lyft. Part of this increased revenue per rider can be attributed to increased airport trips as travel returns post-COVID-19. In fact, Lyft said the airport use case reached an all-time high at 10.2% of total trip share. The company also said bike and scooter rides more than doubled in Q2 over Q1.
Lyft’s shared rides are still at pre-Covid-19 levels, but the company is steadily introducing the cheapest offering in more cities and will continue to do so in order to increase frequency and loyalty.
Night outs represent another growth opportunity for Lyft as people begin to leave their caves of isolation and rejoin society. This not only increases demand for riders, but will also help acquire organic drivers, Lyft said. In fact, total active drivers were the highest in two years, according to the company. Of course, two years ago was the peak of the pandemic, so that’s not saying much, but it does show a recovery.
To attract and retain more drivers, Lyft is testing new features like Upfront Pay — this lets drivers see a rider’s pickup location, ride details and expected earnings before accepting a ride request. It’s unclear whether Lyft will apply any form of punishment to drivers who still don’t accept rides, but Lyft says offering these knowledge hits to drivers could increase the number of drivers using Lyft, as well as the time they spend on driving.
Lyft’s updated guidance
While Lyft posted a 4% rise in rides in July, and the company expects that to stabilize over the summer and into September, the company tempered its view on the pace of the recovery, resulting in lower guidance for the third quarter and revenue full year development.
“We expect E3 incomes of between $1,040 billion and $1,060 billion, which indicates development of between 5% and 7% against Q2, and development of 20% and 23% against Q3 lasst year,” Paul said.
Lyft expects full-year 2022 revenue growth to be slower than the 36% achieved in 2021. The company also expects operating expenses below cost of revenue to decline slightly in the third quarter. As a result, Lyft expects third-quarter adjusted EBITDA of $55 million to $65 million and $1 billion of adjusted EBITDA in 2024.
In explaining the updated guidance, Lyft pointed to some macroeconomic headwinds, such as rising insurance costs, which are impacted by inflationary pressures. The company expects this to impact its third quarter contribution margin.
“We believe that over time, we can offset higher insurance costs through both pricing and product and engineering efforts that deliver better economic units per route and continue to advance the security of our network,” said Paul.
For example, Lyft is leaning further into its mapping technology to deliver safer and more cost-optimized routes that can lead to insurance savings, as well as leveraging its internal risk models to assess behavioral and environmental risk factors, Paul continued.
Lyft will also continue to tightly control its corporate expenses, cutting back on hiring, cutting travel and expense budgets, and generally controlling every cost line item to be as disciplined as possible. In other words, gone are the days of gross overspending and moonshot plans, and back are the days of operating like a lean startup.