Ride sharing service Lyft (NASDAQ: LYFT) beat analyst expectations in Q1 FY2023 quarter, with revenue up 14.3% year on year to $1 billion. However, guidance for the next quarter was less impressive, coming in at $1.01 billion at the midpoint, being 6.57% below analyst estimates. Lyft made a GAAP loss of $187.6 million, improving on its loss of $196.9 million, in the same quarter last year.
Lyft (LYFT) Q1 FY2023 Highlights:
- Revenue: $1 billion vs analyst estimates of $982 million (1.89% beat)
- EPS: -$0.50 vs analyst estimates of -$0.54 (6.73% beat)
- Revenue guidance for Q2 2023 is $1.01 billion at the midpoint, below analyst estimates of $1.08 billion
- Free cash flow was negative $120.8 million, compared to negative free cash flow of $66.1 million in previous quarter
- Gross Margin (GAAP): 45.1%, up from 38.5% same quarter last year
- Active Riders: 19.6 million, up 1.75 million year on year
Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.
Uber created the first ride hailing app, allowing users to summon black limousines via their mobile devices, an innovation that disrupted modern transportation. Lyft followed and expanded the service to the mass market, positioning it as a casual, friendly carpool experience that aimed to appeal to younger generations. Initially, Lyft’s drivers had a pink mustache affixed to the grill of their car, which has since been replaced by an “Amp” device, which lights up the car’s dashboard to help riders easily find their car.
The company’s value propositions are multiple. For individuals, Lyft effectively lowered the cost per mile for taxi transportation vs. legacy cabs, while providing ease of use and convenience. For drivers, it has provided flexible earning opportunities.
The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.
Lyft’s (NASDAQ: LYFT) main competitor in ride hailing is Uber (NYSE:UBER).
Lyft's revenue growth over the last three years has been mediocre, averaging 17.5% annually. This quarter, Lyft reported a mediocre 14.3% year on year revenue growth, roughly in line with what analysts expected.
Guidance for the next quarter indicates Lyft is expecting revenue to grow 1.94% year on year to $1.01 billion, slowing down from the 29.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 9.34% over the next twelve months.
As a gig economy marketplace, Lyft generates revenue growth by the volume of services its users order (e.g. rides, deliveries, freelance jobs) and how much commission it earns from each service unit provided.
Over the last two years the number of Lyft's paying users, a key usage metric for the company, grew 33.9% annually to 19.6 million. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.
In Q1 the company added 1.75 million paying users, translating to a 9.82% growth year on year.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for every consumer internet product and for Lyft it measures how much it earns off each transaction on its platform, a measure of the pricing leverage Lyft has, also known as its take rate.
Lyft’s ARPU growth has been strong over the last two years, averaging 11.6%. The ability to increase price while still growing its paying users reflects the strength of Lyft’s platform, as its users continue to spend more than last year. This quarter, ARPU grew 4.06% year on year, reaching $51.17 for each of the paying users.
User Acquisition Efficiency
Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Lyft grow by a combination of product virality, paid advertisement or incentives.
Lyft is efficient at acquiring new users, spending 41.1% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency is indicative of a relatively solid competitive positioning, which gives Lyft the freedom to invest its resources into new growth initiatives.
Earnings & Free Cash Flow
Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.
Lyft's EBITDA was $22.7 million this quarter, which translates to a 2.27% margin. The company's profitability is weaker than many other consumer internet businesses and over the last twelve months Lyft has EBITDA margins of -4.73%.
If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Lyft burned through $120.8 million in Q1,
Lyft has burned through $290.4 million in cash over the last twelve months, a -6.88% free cash flow margin. This low FCF margin is a result of Lyft's need to continue investing in the business in order to fuel growth.
Key Takeaways from Lyft's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Lyft’s balance sheet, but we note that with a market capitalization of $4.12 billion and more than $1.75 billion in cash, the company has the capacity to continue to prioritise growth over profitability.
Lyft topped analysts’ revenue expectations this quarter, even if just narrowly, and active riders was in-line while revenue per rider beat slightly. And we were also glad to see the user growth. On the other hand, it was unfortunate to see that both revenue and adjusted EBITDA guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. The guidance is what is weighing on the stock. The company is down 10.8% on the results and currently trades at $9.52 per share.
Is Now The Time?
Lyft may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Lyft is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been decent, over the last three years. And while its EBITDA margins indicate the core business is not yet reaching accounting profitability, the good news is its user growth has been strong.
At the moment Lyft trades at next twelve months EV/EBITDA 13.5x. In the end, beauty is in the eye of the beholder. While Lyft wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.
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