Pressure Mounts for Lyft as Rideshare Rebound Stalls and California Shutdown Looms

Ridesharing is bouncing back slower than expected, and the delay is taking a toll on Lyft’s business and testing the patience of Wall Street. Lyft reported weak second quarter results with revenue tanking 61% y/y.

Slow road to recovery: While ridesharing has improved from April lows, it still remains down 50% y/y. After falling about 75% in April, July was down 54% and the first week of August was down 53%. RBC estimates a 50% y/y revenue decline in Q3 and 35% in Q4.

Profitability outlook: Aggressive cost cutting has put Lyft on track to reach $300 million of annualized fixed cost savings by the fourth quarter of 2020. Management now sees a path to adjusted EBITDA profitability in the fourth quarter of 2021.

Temporary shutdown in California? The Superior Court of California is coming after Lyft and Uber, seeking to force the ridesharing companies to reclassify their drivers as employees in the state. The gloves are coming off and the companies are ready to fight back. On Wednesday, Lyft and Uber said if the court doesn’t overturn the new ruling, they’ll halt operations in California until the November election. Analysts, such as Stifel’s Scott Devitt, note that this regulatory issue is an elevated risk for both Lyft and Uber, but Lyft’s business is significantly more vulnerable to a California shutdown. Devitt lowered his price target to $30 from $34 and maintains a HOLD rating.

• “California currently contributes 16% of Lyft’s total rides, and more than 20% in a normalized environment (versus CA ridehailing being an estimated 5% of Uber's total gross bookings). We see event downside of 15%+ for Lyft shares should a further stay not be granted,” says Devitt.