Ride-hailing giant Lyft reported strong second-quarter earnings on Thursday. Earlier this year, investors were skeptical about Lyft’s ability to recoup the costs of increased investment to attract and retain drivers. However, Lyft was able to take advantage of strong internal cost-cutting measures combined with a post-COVID ride boom to help it achieve its highest quarter ever.
Elevator just beat Wall Street revenue expectations, bringing in second-quarter revenue of $990.7 million, up from $765 million in the same quarter last year. That’s also a 13% quarter-over-quarter increase over Lyft’s Q1 revenue of $875.6 million.
The net loss for the second quarter saw a jump year-over-year and quarter over 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 weight was due to $179.1 million of stock-based awards and related payroll tax expense.
While Lyft posted an unprofitable quarter, in adjusted terms, it saw some improvements from last year. The company’s adjusted EBITDA for Q2 was $79.1 million, up $55.3 million from Q2 2021 and up $24.3 million from last quarter.
The company ended the quarter with $1.8 billion in cash.
While Lyft shares have traded more or less flat over the past month, the stock is up 16% after rival Uber’s favorable quarterly results. At the time of this writing, Lyft is trading at $17.39, up 4.07% after hours.
Effects of belt tightening
In the second quarter, Lyft restructured and realigned in an effort to deal with inflation and growing economic pressures. While it won’t show up in Q2’s balance sheet, this kind of belt-tightening can be seen in the Lyft’s recent decision to shut down its domestic car rental business and consolidated some of its vehicle driver support locations, resulting in lay off nearly 60 employees.
Elaine Paul, Lyft’s chief financial officer, said on Thursday’s call that Lyft has revised its operating plan, scaled back discretionary spending and significantly slowed hiring. Instead, Lyft will prioritize research and development initiatives and reorganize teams to stay focused on driving profitable growth.
After a brief and somewhat obscure foray into the shared e-scooter industry, Lyft has also decided to exit its scooter operations in San Diego, suggesting it may exit other cities in the future. Similar to Lyft’s decision to keep its third-party car rental program, Lyft has partnered with a third party, micromobility company Spin, to keep its toes in the choppy waters of scooter sharing.
What Lyft is doing about it
One of the main things that soured investors last quarter on Lyft’s performance, despite a surge in revenue following the lows of COVID, was quarter over quarter a decline in revenue per rider and active rider. From Q1 to Q2, the number of active customers increased from 17.8 million to 19.7 million. However, revenue per rider remained relatively flat at $49.89 per rider, up from $49.18 in Q1 2022.
However, even this small gain is a record high for Lyft. Some of this increased revenue per passenger can be attributed to increased trips to the airport as travel returns post-Covid. In fact, Lyft said its use case at the airport reached an all-time high of 10.2% of total carpooling. The company also said bike and scooter rides more than doubled in Q2 from Q1.
Lyft’s rideshares are still at pre-Covid levels, but the company is steadily rolling out the cheaper offering in more cities and will continue to do so to increase ride frequency and loyalty.
Nightlife presents another growth opportunity for Lyft as people begin to leave their isolation caves and rejoin society. Not only does this increase demand for riders, but it should also help organic driver acquisition, Lyft said. In fact, the total number of active drivers is the highest it has been 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 shows a recovery.
To attract and retain more drivers, Lyft is testing new features such as prepayment — which allows drivers to see a rider’s location, route details and expected earnings before accepting a ride request. It’s unclear whether Lyft will apply any form of penalty 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 amount of time they spend in driving.
Updated Lyft guide
While Lyft saw 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, which led to lower guidance for Q3 and full-year revenue growth.
“We I expect Q3 receipts on between 1040 dollars billion and 1060 dollars billion, which assumes growth on between 5% and 7% vs Q2, and growth on 20% and 23% vs Q3 lassistant 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 Q3. As a result, Lyft expects third-quarter adjusted EBITDA of $55 million to $65 million and $1 billion in adjusted EBITDA in 2024.
In explaining the updated guidance, Lyft pointed to some macro headwinds, such as rising insurance costs, which are affected by inflationary pressures. The company expects this to impact its contribution margin in Q3.
“We believe that over time we can offset higher insurance costs through both pricing and product and engineering efforts that deliver better economics per travel unit and that continue to improve the safety of our network.” Paul said.
For example, Lyft is leaning further on its mapping technology to provide safer and more cost-optimized routes that can drive insurance savings, as well as using its internal risk models to assess behavioral risk factors and the environment, Paul continued.
Lyft will also continue to keep a close eye on its corporate spending, scaling back on hiring, cutting travel and expense budgets, and generally scrutinizing every item of the expense line to be as disciplined as possible. In other words, gone are the days of massive overspending and rush projects, and back are the days of working as a lean startup.