Lyft Earnings: Continued Network Size Moderation for the Subscale Ride-Sharing Platform

Key Morningstar Metrics for Lyft

• Fair Value Estimate: $15.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Lyft’s Earnings

Lyft LYFT reported first-quarter earnings that beat management guidance on adjusted EBITDA, but fell short of FactSet consensus expectations on net revenue. Since last quarter, the take rate fell slightly from 36% to 35%, while active riders decreased by 500,000 and total rides decreased by 100,000.

Why it matters: We continue to see deterioration of the Lyft network, with fewer rides, a shrinking core user base, and decreasing profitability per ride. Meanwhile, rival convenience players Uber and DoorDash exhibit strengthening network effects.

• We believe Lyft is in the early stages of a negative feedback loop, in which fewer riders create a lower incentive for drivers to be on the platform due to fewer income opportunities. This translates into longer waiting times and less demand, completing the loop.

The bottom line: We maintain our no-moat rating and $15 fair value estimate, which reflects a modest outlook in which take rates, or the portion of gross bookings that Lyft retains as net revenue, compress as Lyft struggles to attract supply/demand to the platform.

• Lyft highlighted its proposed acquisition of Freenow, a European ride-sharing aggregator, as a massive total addressable market expander. We do not dispute this expansion of TAM, but we are bearish on Lyft’s ability to penetrate a European market dominated by Uber and Bolt.
• We were looking for more announcements regarding autonomous vehicle partnerships, but there was nothing new to report. We believe that Uber is the ideal partner for driving AV utilization, thanks to its network size, and that Lyft will struggle to land accretive partnerships.

Between the lines: Frequency increased from 8.85 rides per active rider per quarter to 9.02, but we note that the number of active riders is decreasing more rapidly than rides, inflating what may appear to be a good number at first glance. Both components of frequency are trending poorly.