Lyft (NASDAQ:LYFT) indicated its intention on Tuesday to intensify competitive pricing efforts in order to narrow the gap with its larger counterpart, Uber (NYSE:UBER). This move somewhat overshadowed the company’s optimistic earnings forecast, leading to a nearly 7% dip in Lyft’s stock during after-hours trading.
Under the leadership of new CEO David Risher, Lyft (NASDAQ:LYFT) has taken measures to decrease ride fares and has launched an assertive cost-cutting campaign. These actions are aimed at reducing Uber’s expanding dominance within the North American ride-sharing sector. Nevertheless, this strategy had an adverse effect on Lyft’s revenue per active user, causing a 5% decline to $47.51 in the second quarter. This figure also fell short of the projected $48.38, as reported by Visible Alpha.
Risher, during an interview, stated, “Our primary goal is to offer competitive pricing.” This declaration comes just days after escalating concerns about a potential price war that impacted Uber’s stock performance and overshadowed the company’s favorable outcomes. Risher also pointed out that instances of prime-time charges, commonly referred to as surge pricing, dropped by 35% sequentially in the second quarter. Additionally, the average fare per mile was 10% lower compared to the previous year.
Despite the reduction in pricing, this strategy contributed to an impressive 8.2% surge in active ridership, marking the highest point in nearly three years. Lyft capitalized on the resurgence in travel activities and the return of office commutes.
However, Nicholas Cauley, an analyst from Third Bridge, expressed concerns that Lyft’s bid to offer more competitive pricing could lead to higher driver incentives, potentially impacting its profit goals. Cauley remarked, “Lyft’s management is concentrating on regaining drivers and riders, which might extend the timeline for achieving profitability.”
For the third quarter, slated to conclude in September, Lyft (NASDAQ:LYFT) anticipates revenue in the range of $1.13 billion to $1.15 billion. These projections surpass the estimated $1.09 billion, according to Refinitiv data. The company, which has pledged to achieve profitability by the end of 2023, foresees adjusted core earnings ranging from $75 million to $85 million, with a margin of 7%. This outlook exceeded analyst expectations of $49.7 million.
During the second quarter, revenue recorded a 3% increase to $1.02 billion, aligning with predictions. Furthermore, adjusted EBITDA of $41 million greatly exceeded expectations of $27.9 million. On an adjusted basis, Lyft earned 16 cents per share, diverging from an estimated loss of 1 cent per share.
Lyft (NASDAQ:LYFT) is in the process of phasing out prime-time pricing in favor of a more uniform structure. The company envisions that prices will remain at a similar level to those seen in the latest quarter. Risher commented on this shift, stating, “Prime-time pricing is an unfavorable way to increase prices. It’s particularly disliked by riders. Hence, we’re actively working to eliminate it.”
Featured Image: Unsplash @ Mariia Shalabaieva
Author Faith Yakubu 
