Lyft says cost cuts, coming ride recovery could bring third-quarter profit

(Reuters) – Lyft Inc said on Tuesday it could make an adjusted profit by the third quarter of this year despite the pandemic thanks to additional cost cuts and an expected rebound in ride-hail demand beginning in the second quarter of 2021.

Shares surged 10.7% to $59.40 in after-hours trading following the announcement.

Lyft expects COVID-19 vaccine distribution to scale up in the second quarter, allowing more people to return to pre-pandemic normality, and said its own cost cuts were ahead of target. That will help it achieve a profit on an adjusted basis of earnings before interest, taxes, depreciation and amortization.

“Based on the improvements we’ve made, there is a chance we can achieve profitability in Q3. Obviously, pulling in profitability would require a strong summer rebound,” Lyft Chief Financial Officer Brian Roberts said during an investor call, adding the more optimistic outlook should increase investor confidence.

Ride volumes were down 52% in December and 51% in January compared with the previous year. Lyft said ride demand in the first quarter could be flat or slightly lower than during the last three months of 2020.

The company reported roughly $570 million in fourth-quarter revenue, a 44% decline on a yearly basis, but an uptick of 14% compared with the third quarter. Analysts on average had expected the company to post revenue of $562 million, according to Refinitiv data.

Lyft reported an adjusted EBITDA loss of $150 million in the fourth quarter. That compares with a $185 million loss projected by analysts on average.

The smaller-than-expected loss is largely due to Lyft shaving off more costs than originally anticipated, including head count reductions and lower costs for software hosting services, payment processing and insurance, the company said.

Those cuts of $360 million in fixed costs in 2020 and additional decreases in variable costs would allow the company to continue operating more efficiently once riders return.

“As riders increase … those lower costs will also help drive higher contribution margins,” John Zimmer, the company’s president, told Reuters in an interview.

Lyft said it would cut an additional $35 million in costs in the first quarter of 2021, but also added it will incur additional expenses during the first three months of the year to bring more drivers on board in preparation for an uptick in ride demand.

Lyft’s number of active riders in the fourth quarter decreased by more than 45% on a yearly basis to 12,552, but revenue per active rider rose by $1 to $45.40 – a record number, the company said.

James Cordwell, an analyst with Atlantic Equities, said those numbers spoke to the pricing power held by ride-hail companies, even during a pandemic.

Lyft shares have recovered from their record lows during the early months of the virus outbreak in the United States and are trading at roughly the same level as a year ago. Shares of larger rival Uber Technologies Inc have gained more than 47% over the past 12 months.

Unlike Uber, Lyft has not been able to offset the drop in ride-hail revenue with food delivery services. Uber is scheduled to report results on Wednesday after the bell.

Lyft executives in the past have said they remained squarely focused on moving people, not goods, but last quarter the company announced it was working on a white-label or non-Lyft-branded platform to allow deliveries between different businesses for groceries, food and packages.

Zimmer told Reuters on Tuesday that Lyft’s delivery platform was still early in the process and that the business would just be additive, with the company hoping to announce partners by the middle of this year.

Zimmer said Lyft was confident that retail businesses and restaurants were looking to avoid the fees charged by food delivery platforms, including Uber Eats, GrubHub Inc and others.

“They don’t want to pay the 20% to 30% to Uber Eats to do that long-term,” he said. “Those retailers are investing in their own infrastructure, of which we would be part.”

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