Lyft – Will cost-cutting & partnership improve the bottom line?

Lyft is one of the leading players in MaaS.

Industry growth: The mobility as a service (MaaS) market has expanded at a breakneck pace in recent years. Travel restrictions, fear of virus infection, and lower vaccine rates all slowed market growth during the pandemic. According to our research, the MaaS market will be worth $340bn by 2022, growing at a CAGR of 10.2%. Increased vaccination rates and the elimination of travel restrictions have a significant impact on the MaaS market. Companies associated with this segment experienced rapid growth due to the cost-effectiveness and convenience of these services.

Lyft is one of the leading players of MaaS along with Uber. LYFT’s revenue growth has slowed over the last three quarters, and management expects revenue of $1.14bn to $1.16bn for Q4FY22, up 8% to 11% from Q3FY22. It represents a decrease in growth when compared to the 22% revenue growth in Q3FY22. This clearly demonstrates that an increase in active riders has not had a significant impact on the top line.

The company announced the acquisition of PBSC urban solutions, a global supplier of bike-share equipment and technology, in the previous quarter. According to management, PBSC has a significant hardware footprint and will add 70,000 bikes to LYFT’s business in 39 markets. The company also collaborated with Spin, a micro-mobility startup, to make their scooters available on the company’s platform. This collaboration will open up 60 new markets for the company.

Risk: The President of the United States Joe Biden proposed a rule for Gig workers that would allow independent contractors to be classified as employees. If approved, this proposal will have a significant impact on ride-hailing and food-delivery companies. If the proposal is accepted, it will increase the company’s operating expenses because employees must be paid on a regular basis, and it will be a fixed expense for the company.

Whether or not there is a demand for ride-hailing, the company must pay. This is a risk because the company is already incurring higher operating expenses and losses; if this occurs, it will be disastrous for LYFT and may cause investors to avoid investing in LYFT due to its higher costs and losses.

Furthermore, LYFT is up against stiff competition from Uber and other taxi companies. It is possible that the company will struggle to compete and will gradually lose market share. LYFT is also heavily reliant on its drivers. If drivers leave the company, demand higher pay, or are unable to meet customer demand and growth, the company’s business may suffer.

There have been numerous concerns raised about LYFT’s losses despite dominating in the US and having a larger market share than close rival UBER. To address this issue, management is working to cut $350mn in costs, which should help LYFT get closer to profitability.

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-Subhendu Kumar

Equity Research Analyst (Crispidea)

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