Why Lyft (LYFT) Shares Are Trading Lower Today

Kayode Omotosho /
2023/07/06 11:52 am EDT

What Happened:

Shares of ride sharing service Lyft (NASDAQ: LYFT) fell 6.77% in the morning session after the ADP payrolls report showed that the private sector added 497k jobs in June 2023, more than double the Consensus estimate for 220k. This suggested that wage inflation in the labour market is still strong and triggered concerns that more rate hikes are still needed to tame inflation in the economy. As a reminder, higher rates have a negative impact on equity valuations, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present. In June 2023, the Fed paused the planned rate hike "to evaluate additional information and the impact on monetary policy." The ADP report came a day ahead of June's non-farm payrolls report. The non-farm payrolls report is often regarded as a more reliable and less volatile inflation measure, with economists anticipating 240k new jobs in June 2023, down from 339k added in the previous month.

What is the market telling us:

Lyft's shares are a little volatile and over the last year have had 59 moves greater than 5%. The previous big move was 2 months ago, when the stock dropped 15.5% on the news that the company reported revenue and earnings per share (EPS) in the first quarter that came in ahead of analysts' estimates. Active riders was in-line while revenue per rider beat slightly. However the company still faces cash burn issues. In addition, revenue and adjusted EBITDA guidance for the next quarter missed analysts' expectations. This means the debate continues on long-term growth and margin levels. Overall, the results were poor, especially in light of Uber's strong earnings reported earlier.

Lyft is down 14.9% since the beginning of the year, and at $9.47 per share it is trading 53.3% below its 52-week high of $20.28 from August 2022. Investors who bought $1,000 worth of Lyft's shares at the IPO in March 2019 would now be looking at an investment worth $120.93.

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