Lyft Q3 2022 earnings: Not much to like (NASDAQ: LYFT)

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Introduction

Lyft (NASDAQ:LYFT) just released its earnings report for the third quarter of 2022 and it’s down about 13% after hours at the time of this writing. While the tech sector has generally struggled and expectations were certainly mixed, it’s worth a look. into the more granular details of this earnings impression to see what’s going on.

As a summary, Lyft is a shared ride service similar to Uber (UBER). Unlike Uber, however, Lyft is often considered a “pure game” in the space, operating only a ride-sharing service.

Profits

Right off the bat, Lyft missed out on both EPS and revenue. While a lack of EPS is common for a growing company like this, the disparity was significant: GAAP EPS came in at -$1.18 vs. -$0.50 expected. The revenue loss was not that significant from a quantitative point of view and was reduced by only $10 million. However, being a growth company, it is certainly a significant negative indicator that they were unable to meet expectations in this regard. It is up to each individual investor to determine the severity of this.

Additionally, Lyft showed poor growth in terms of active riders. While the first and second quarters were strong year over year, the third quarter showed growth of just 7.2% year over year.

SeekingAlpha.com LYFT 11.7.2022

SeekingAlpha.com LYFT 11.7.2022

As a technology investor, I see this as the strongest signal of all. Active users and their growth are absolutely essential for technology companies. Construction technology is exceptionally expensive and requires a big business to make a profit. Lyft’s growth in active riders was basically half of what Uber was for Q3 2022: 7.2% vs. 13.7%.

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Revenue per active passenger looks a bit better, but this is offset by significant growth in the company’s cost of revenue – 45.5% year over year. This means that the cost of generating revenue was approximately 4 times greater than the company’s revenue growth per user. I wouldn’t call this sustainable.

SeekingAlpha.com LYFT 11.7.2022

SeekingAlpha.com LYFT 11.7.2022

On top of all this, the company is facing a deteriorating cash position. Note that the year-over-year comparison uses December, as the company changed its reporting dates during this period.

SeekingAlpha.com LYFT 11.7.2022

SeekingAlpha.com LYFT 11.7.2022

As seen above, Lyft has only 31% of cash on hand during the fiscal quarter of last year. This implies that you may soon need to start taking on debt to continue operations, but I don’t think that’s too significant a factor. Like Uber, Lyft has a “negative operating cycle” because it charges customers up front. This will allow you to funnel cash through your business without taking out loans to purchase inventory like most businesses would.

The dynamics of your cash situation are also a cause for concern. While we don’t have the data broken down quarter by quarter, Lyft’s statements show an acceleration in its cash loss year over year:

SeekingAlpha.com LYFT 11.7.2022

SeekingAlpha.com LYFT 11.7.2022

This fact, combined with your already weakened cash position, does not bode well for the business to move forward.

conclusion

Lyft’s business is not doing well. When we compare it to Uber’s recent cash flow positive quarter, it’s even more damning. The company faces a slower growth rate in its user base, a weakened cash position, and an accelerating loss of cash from operations.

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As a long-term follower of space, I have been waiting for this for a long time. Lyft is forced to compete on price with Uber, which is a company with 10 times more revenue and 2 additional lines of business. It is not reasonable to expect that you can continue this competition or achieve a cost of capital that your much larger competitor has. In economics, a price competition in the context of a duopoly is won by the player with the lowest cost of capital, and that’s not Lyft. This stock is a sell in my opinion.

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