The shares of ride-sharing company Lyft (NASDAQ:LYFT) fell Tuesday after an analyst rated it a sell, saying the company was ill-positioned compared to Uber Technologies (UBER 0.14%).
At 12:44 PM EDT, the stock price had dropped 2.9%.
What’s the Reason?
According to Michael McGovern, an analyst at Bank of America (BAC), Lyft (NASDAQ:LYFT) appears to have lost market share to its primary rival in recent years. McGovern commenced coverage on Lyft with an underperforming recommendation. Uber, the market leader in the ride-hailing industry, reported that its share of the U.S. mobility market reached a multiyear high in the second quarter. Because of its lesser size in comparison to Uber, the analyst believes Lyft (NASDAQ:LYFT) will continue to lose market share. McGovern predicted it would rise to $14 during the next 12 months, close to where it was trading following the early morning dip on Tuesday.
The month after Lyft (NASDAQ:LYFT) reported its second-quarter earnings, the stock price increased. Its sales increased by 30% to $990.7 million, which is in line with projections, and its adjusted EBITDA increased by more than three times to $79.1 million, demonstrating progress toward the company’s goal of becoming more profitable.
Due to significant stock-based compensation and a $275 million increase in insurance liabilities mandated by regulatory bodies, the company is nonetheless unprofitable on a GAAP and cash flow basis.
Compared to Uber, which had gross bookings increase of 55% in the second quarter, Lyft saw growth of 33%. However, it is impossible to compare the two companies directly because Uber is present on a global scale, and Lyft is present solely in North America.
The current results reveal that Lyft (NASDAQ:LYFT) still has work to establish financial stability, especially on a cash flow basis. This is excellent news for investors, given that Lyft and Uber appear to have restricted the driver and rider incentives that contributed to significant losses earlier in their histories. While the ridership of Lyft (NASDAQ:LYFT) appears to be on the upswing, investors should watch the market share struggle with Uber.
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