Lyft keeps pumping the wrong gas

On Monday, the ride-hailer reported the slowest revenue growth in more than a year, while adjusted earnings before interest, taxes depreciation and amortization fell slightly on an annual basis in the third quarter. After rising 12% on a sequential basis in the second quarter, active riders increased just 2%, even while still remaining nearly a million riders short of prepandemic levels. Lyft shares fell more than 13% in after-hours trading following the report.

As Covid-19 shifts from epidemic to endemic, ride-share rival Uber Technologies is pulling out all the stops to diversify into areas such as delivery and travel in the interest of long-term profitability. Lyft is still picking its spots. At a Wall Street Journal tech conference last month, Lyft co-founder and President John Zimmer said his company’s single-track focus on transportation would better show its advantages in a recession. If a $30 lunch salad “seemed like a really good idea” one or two years ago, he said, that is less likely to be the case in a tougher economic environment.

Stripping out extraordinary items, Lyft’s and Uber’s distinct business models actually are yielding somewhat similar results right now. Lyft increased its overall revenue 22% year-over-year in the third quarter. Excluding Uber’s U.K. model changes, its mobility revenue would have risen around 23% in the period. Separately, Uber’s delivery revenue was up 24%, including foreign exchange. Both companies’ adjusted-Ebitda margins hovered just above 6% in the period.

Lyft is betting it can pull ahead soon. At the Journal’s tech conference, Mr. Zimmer said the next few months will present a “very big opportunity” for it to differentiate itself from its competition. Its forecast reflects that: While Uber’s longer-term targets imply it can get to an 11% adjusted-Ebitda margin based on Wall Street’s revenue forecast for the company in 2024, Lyft’s target of $1 billion in adjusted Ebitda in 2024 equates to a margin over 17%, factoring in analysts’ revenue forecasts.

That assumes Lyft won’t suffer from a lack of the network effects its competitor has already demonstrated. As of the fourth quarter of 2021, Uber said 46% of its gross bookings were from cross-platform users, even as just 17% of active consumers used both Eats and Rides. Uber showed earlier this year that its cross-platform customers were producing 35% more gross bookings than customers overall by their second year on its platform.

Even outside of food delivery, Uber is differentiating itself in ways that seem to make its core services more appealing: Book a train on Uber’s platform, for example, and you might also need an Uber ride to get you to it and an Eats meal to feed you once you are there. Lyft’s expansion, meanwhile, seems counterintuitive. It went public with the assertion that “transportation-as-a-service” could be a viable alternative to car ownership, but its latest feature, Lyft Parking, makes car ownership all the more appealing.

One certainty is that consumers looking to use any on-demand business are likely to be more cost-conscious in a recession. Lyft last month revamped its membership program to be more competitive with Uber’s, reducing the monthly cost by about 50%. Both programs now cost $9.99 a month, though Uber’s members see perks across food delivery, too.

Even without that offering, Uber might be the better deal. Recent third-party data show ride-share prices improving on Uber’s platform at a faster clip than on Lyft’s. Sell-side analysts believe Uber’s pricing advantage right now stems from the fact that its multimodal platform appeals to more drivers who see it as offering two shots on goal toward potential earnings.

Lyft’s shares have already lost nearly three-quarters of their value over the past year, and just last week the company announced it would be cutting 13% of its staff. It is probably time for management to change lanes.

This story has been published from a wire agency feed without modifications to the text