Updated February 14th, 2024 at 07:32 IST

Lyft stock surges 17% on cost reductions following forecast error

Analysts attribute part of the surge to short covering by hedge funds, particularly those heavily engaged in shorting Lyft's stock.

Reported by: Business Desk
Lyft cab | Image:Lyft
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Lyft stock plunges: Ridesharing company Lyft exceeded quarterly profit estimates on Tuesday and announced its anticipation of achieving positive free cash flow for the first time in 2024, attributing the milestone to cost-cutting measures and heightened competitiveness against its larger counterpart, Uber.

Despite a major misstatement in its initial announcement, wherein Lyft inaccurately projected a 500 basis point increase in a key margin metric for the year, the company's shares soared by 17 per cent in after-hours trading. 

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However, during a subsequent conference call, Chief Financial Officer Erin Brewer rectified the forecast, revising the expected increase to 50 basis points. 

Consequently, the stock, which had surged by 67 per cent based on the erroneous statement, retraced most of its gains following the correction.

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Notably, approximately 47.8 million Lyft shares exchanged hands in after-hours trading, surpassing the stock's average daily volume over the last 50 regular trading sessions.

Analysts attribute part of the surge to short covering by hedge funds, particularly those heavily engaged in shorting Lyft's stock.

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Despite potential legal repercussions from investors seeking to recoup losses resulting from the forecast error, investors ultimately focused on Lyft CEO David Risher's cost-cutting initiatives. 

Risher, who assumed leadership less than a year ago, has spearheaded aggressive restructuring efforts, including the streamlining of management layers. These early initiatives contributed to a 36 per cent surge in Lyft stock in 2023.

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Lyft's reduction of total costs by 12 per cent in the previous year, compared to a 28 per cent surge in expenses in 2022, underscores the effectiveness of its cost-cutting measures. 

The company reported a notable increase in rides to stadiums, driven primarily by high-profile events such as Taylor Swift's Eras Tour and Beyoncé's Renaissance World Tour.

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Analysts see Lyft maintaining its position as a strong second player in the ridesharing industry, with its gross bookings growing by 17 per cent to $3.7 billion in the fourth quarter. 

The company's outlook for the March quarter, with expected gross bookings between $3.5 billion and $3.6 billion, surpassed analysts' estimates.

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Lyft's growth strategy includes partnerships with companies like LinkedIn and Starbucks, while also committing to pay the difference if drivers earn less than 70 per cent of what riders pay after external fees every week. The move aims to boost driver earnings and attract more drivers to the platform.

The company's forecast for the current quarter anticipates adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the range of $50 million to $55 million, surpassing analyst expectations. 

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Lyft reported a 4 per cent increase in revenue to $1.22 billion for the quarter ended December 31, aligning with analysts' estimates.

(With Reuters Inputs)

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Published February 14th, 2024 at 07:32 IST