Take a pass on Lyft, says Roth Capital

Roth Capital Partners analyst Rohit Kulkarni is seeing some speed bumps up ahead for ride hailing company Lyft Inc (Lyft Inc Stock Quote, Charts, News, Analysts, Financials NASDAQ:LYFT). The analyst reiterated a “Neutral” rating on the stock on Friday after reviewing just-released fourth quarter results, saying profitability is likely to be a problem in 2023.

Lyft shares sold off dramatically on Friday after the San Francisco-based company reported its Q4 2022 results, featuring revenue up 21 per cent year-over-year and up 12 per cent sequentially to $1.18 billion. Analysts had been calling on average for $1.17 billion. On earnings, Lyft’s adjusted EBITDA was $127 million, which was higher than the high end of management’s previously stated guidance at between $80 and $100 million and also higher than the Street’s forecast at $89.5 million.

At the same time, Lyft appeared cautious in its outlook, calling for first quarter revenue of $975 million and EBITDA at between $5 and $15 million compared to analysts’ consensus forecasts at $1.09 billion and $82 million, respectively.

“In Q4 we achieved the highest revenues in our company’s history and we outperformed guidance on Adjusted EBITDA excluding the action we took to strengthen our insurance reserves,” said Elaine Paul, CFO, in a press release. “Our Q1 guidance is the result of seasonality and lower prices, including less Prime Time. Additionally, our different insurance renewal timing puts differently timed pressure on our [profit and loss].”

Looking at the results, Kulkarni said the dramatically lower earnings outlook is cause for a target reduction, with the analyst moving his 12-month price target from $18.00 to $12.00 per share. The new target represented at press time a projected return of negative 26 per cent.

“Yesterday’s release highlights Lyft’s market share loss and structural economic disadvantages, (insurance related). We expect shares to remain weak and stay <$12 as we anticipate a loss in confidence in almost every bullish investor,” Kulkarni wrote.

The analyst rejigged his forecast and is now calling for full 2023 revenue of $4.766 billion (previously $4.878 billion) and EPS of negative $0.09 per share (previously positive $0.76 per share).

“Our EBITDA assumptions for 2023 and 2024 go down by -50 per cent and -36 per cent respectively. The key unknown here is when will margins recover. Particularly, if supply stays elevated (more drivers available as everyone wants to earn more amidst rising inflation),” Kulkarni wrote.