Lyft Q2 19 – Wheel reinvention.

Lyft and Uber are becoming taxi companies.  

• Lyft reported what was received as good Q2 19 results, but I really don’t see much progress as the company is currently less profitable now (-77% EBIT margin) than it was 12 months ago (-61%).
• Looking at its commentary it is clear that the gulf between ride-hailing and the taxi companies is rapidly closing and I think that these two industries will soon become one as ride-hailing is rapidly adopting many features of the taxi industry and vice-a-versa.
• Q2 19 GAAP revenues / net income was $867.3m / LOSS $644.2m compared to consensus at $809.7m / LOSS $481.6.
• While the company, focused its commentary around adjusted figures, I see this as disingenuous as all of the adjustments the company has made, are what I consider to be continuing items (see below).
• These items should, therefore, be taken into account when looking at the performance of the company.
• This is especially the case as while the revenues are improving nicely the company, is still losing $12m a month in cash from operations.
• The company is also less profitable now than it was 12 months ago with EBIT margins of -78% compared to -61% in Q2 18.
• Lyft was at pains to point out a non-cash item of $141m that is in the income statement that refers to provisions the company was required to make by regulators for potential insurance liabilities.
• This adjustment is historical, but the company was very vague in its commentary with regard to how many more provisions it would have to take going forward.
• Consequently, I am not happy that these (even historical ones) should be taken out of the evaluation of the company’s performance, especially when the shares are trading at such a high valuation.
• However, the good news (for the company) is that prices have increased in the USA which should help its dire profitability going forward.
• Uber has followed suit meaning that it, too, is under huge pressure to reach profitability.
• The real winner here is the legacy taxi industry as this will bring Uber and Lyft closer to regular taxis in terms of price.
• Furthermore, as time goes by both Uber and Lyft are adopting features of the taxi industry (like airport queues) just as the taxi industry is moving to be more like ride-hailing with apps and so on.
• The end result seems to be that the two industries will meet in the middle and become one.
• This has been my long-term prediction for some years and is increasingly looking like it will become the case.
• While I think that the financial performance of Uber and Lyft is going to improve somewhat in H2 19, increasing prices are likely to damage growth and result in some business moving back to the taxi industry.
• Consequently, I see scope for earnings misses on the top line in H2 19, which the shallow, short-term market will take as very bad news.
• The valuation of both Uber and Lyft are still nowhere near something that I would call interesting.