Lyft: running low on gas in race against Uber

In the battle for US ride-hailing supremacy, Uber is running smaller rival Lyft off the road. For proof, look no further than Lyft’s latest set of earnings. Not only did Lyft post an unexpected loss for the fourth quarter, it also issued first-quarter guidance that came in below Wall Street expectations.

Extremely cold weather in some of its main markets and price pressure were to blame for the disappointing showing, Lyft said. But a 36 per cent drop in its share price on Friday suggests deeper issues are at play.

For starters, Lyft’s results underscore the limits of its pure-play business model. Unlike Uber, a global company whose services include food delivery and freight, Lyft only ferries passengers and focuses mainly on the North American market. In theory, this should be an advantage. Being a more localised and focused company means capital is not being siphoned for other costly lines of business.

In practice, size matters. Uber’s more diversified business helps attract more drivers by giving them more paths to earn money. Its larger scale, reflected in the $32bn of revenue it pulled in last year — almost eight times that of Lyft — also allows it to offer cheaper fares.

To compete for customers, Lyft warned it would need to sacrifice some of its margins and lower its prices as well. An expected ebitda margin of just 1 per cent this quarter compares with 7 per cent reported by Uber’s mobility unit in the fourth quarter.

Lyft is more exposed to rising insurance premiums since it mainly transports people rather than food or cargo like Uber. Passengers are more expensive to insure. A $375mn increase in its insurance reserve also contributed to its loss in the fourth quarter.

Lyft’s market value, which stood at almost $22bn in March 2021, has collapsed to below $3.8bn following Friday’s rout. The shares trade at just 1.1 times on an enterprise value to forward revenue basis, about half that of Uber. With its larger rival pulling ahead, it is hard to see how the shares can pull themselves out of the ditch.