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A mere 50 basis points can be a pretty decent outcome too.
Shares of rideshare company Lyft jumped more than 30 per cent on Wednesday. The rise came after an embarrassing snafu the previous evening, when a press release detailing fourth-quarter earnings shared 2024 guidance which originally included a forecast of the company’s Ebitda margin soaring by “500 basis points”.
In after-market trading, Lyft shares quickly jumped more than 60 per cent. The company then backtracked, correcting the margin uplift to just 50 basis points or a half percentage point.
Administrative controls aside, Lyft may still be turning a corner. It has been badly outpaced by arch-rival Uber, whose market cap now has reached $140bn (Uber on Wednesday morning announced a $7bn buyback programme, a figure exceeding the overall equity value of Lyft).
Lyft says that in 2024 it will reach a full year of positive free cash flow for the first time. If all goes according to plan, abject embarrassment should eventually give way to some sense of triumph.
Careful observers might have clocked that the original 5 percentage point ebitda margin increase was entirely preposterous. Lyft’s current ebitda margin, as measured against total booking volume, is just 1.8 per cent. Even Uber’s is just 3.4 per cent. These thin margins — a $10 fare only results in 20 or 30 cents of company operating profit — demonstrate that the companies require a massive volume of rides to be profitable.
Moreover, Lyft for now can only aspire to turn half of accounting-based ebitda into actual free flow. A smarter AI in the future will presumably tell algorithmic traders that if a press release number looks erroneous, it probably is.
For 2023, Lyft had gross rideshare volume of $14bn while Uber hit 10 times that. But just under half that figure for Uber comes from food delivery.
Lyft’s stock price is, even after Wednesday’s bump, still off 80 per cent from the all-time high around its 2019 listing. Given its modest cash generation, that valuation may still be elevated. Some portion of the Wednesday rally is likely driven by hedge fund short-covering.
Consumers have felt the pinch as rideshare services no longer have venture capital dollars to subsidise trip fares. Instead, public market shareholders have demanded efficiency and at least modest profits. Lyft’s survival then ensures sustained competition for Uber.
In the meantime, Lyft would be wise to invest a little more in its financial communications staff.
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