By Akash Sriram
(Reuters) -Lyft’s shares tumbled more than 7% on Wednesday as investors feared the ride-hailing platform’s focus on competitive pricing to gain market share would muddy its path to profitability.
The company and its more dominant rival, Uber, have been locked in a fierce price war as they stage a post-pandemic recovery.
Lyft said on Tuesday it expects an operating profit of $75 million to $85 million for the third quarter. In contrast, Uber has already posted a quarterly operating profit, taking advantage of higher prices and a diversified business model that includes freight brokerage and food delivery.
“While Lyft appears to be regaining ground with a more competitive offering, the profit outlook in the out-years remains murky,” said BTIG analyst Jake Fuller.
Uber said last week that its rider volumes were back to pre-pandemic levels in North America on an industry-wide demand uptick due to a gradual return to work and travel demand.
Meanwhile, Lyft’s pricing strategy, which rendered average per-mile fare to be 10% lower when compared with last year, helped the number of active riders on the platform grow about 8% in the quarter.
In its pursuit of a turnaround after the pandemic, the company said last month it was exploring options for its bikes and scooters unit, including a sale or a strategic partnership.
However, some analysts have considered the possibility of Lyft being acquired by another company.
“We continue to believe that as the firm makes headway toward profitability, it may become an acquisition target,” Morningstar analyst Ali Mogharabi said.
Lyft, which Uber CEO Dara Khosrowshahi termed a “tough competitor” last week, has a forward price-to-earnings multiple, a common benchmark for valuing stocks, of 29.66, compared with Uber’s 55.27.
At least seven analysts cut their price targets on Lyft’s shares and more than nine downgraded the stock, while two upgraded it. Median target price for the stock is $11, according to Refinitiv data.
(Reporting by Akash Sriram in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta)
