Lyft posts adjusted profit ahead of target, but warns of driver shortage, Delta threat


FILE PHOTO: The Lyft Driver Hub is seen in Los Angeles, California, U.S., March 20, 2019. REUTERS/Lucy Nicholson

(Reuters) -Lyft Inc on Tuesday posted an adjusted quarterly profit three months ahead of target, seizing on a leaner cost structure as rides rebounded, but it warned of ongoing driver shortages and the spread of the Delta coronavirus variant.

The company reported adjusted earnings before interest, taxes, depreciation and amortization for the first time in its nine-year history, and said it would remain profitable on that basis going forward.

Lyft shares initially gained 6% in after-hours trading following the announcement but pared gains when executives said during the company's earnings call that revenue per ride was expected to decrease on a sequential quarterly basis.

The company said ongoing investments in driver incentives and a decrease in prices for riders would pressure revenue in the third quarter.

"The road still remains bumpy given the Delta variant and consumer concerns," said PP Foresight analyst Paolo Pescatore.

Lyft on Tuesday said its platform had continued to grow in July despite increasing concerns over the more contagious Delta variant spreading throughout the United States.

Company executives are watching the spread of the Delta variant.

"We are cautiously keeping an eye on new developments and expect continued volatility and variability among cities," Chief Financial Officer Brian Roberts said on the conference call. "Future conditions can change rapidly and may impact our outlook."

Lyft on Tuesday posted adjusted EBITDA of $23.8 million for the three months ending in June. The adjustments exclude one-time costs, primarily stock-based compensation, which drove a $252 million net loss.

Shares of larger rival Uber Technologies Inc, which reports results on Wednesday, pared initial gains in after-hours trading. Ride-hail is only part of Uber's business, however, with the company increasingly relying on its growing food-delivery unit.

Lyft said technological and efficiency improvements made over the last two years had allowed it to reduce both fixed and variable costs, allowing the company to keep expenses down even when ridership ramps up to pre-pandemic levels.

The company slashed around $2.5 billion from its expenses in 2020, including through widespread layoffs.

On a yearly basis, Lyft nearly halved total cost as a share of revenue in the second quarter and costs were also down significantly compared with 2019.

"Our business model has never been more healthy," Lyft President John Zimmer said in an interview with Reuters.

Executives on Tuesday said late-night and weekend trips, as well as rides to airports, had significantly increased during the second quarter, in a sign of the company's most profitable rides returning.

Overall, ridership grew by more than 3.6 million from the first three months of the year to more than 17 million riders during the second quarter - a time when U.S. cities lifted pandemic-related restrictions and more Americans returned to the road.

Second-quarter revenue came in at $765 million, above analyst estimates for $697 million.

While rising COVID-19 cases created some uncertainty, Lyft's business offered room to grow, said James Cordwell, an analyst with Atlantic Equities.

"The fact that the company is profitable while active riders are still 20% below pre-COVID levels suggests there is still plenty of upside in terms of Lyft’s profit potential," Cordwell added.

DRIVER SHORTAGE

But Lyft and Uber have struggled to ramp up driver supply as consumers return to their platforms, providing large incentives and payment guarantees in an effort to attract drivers.

Zimmer said the company had welcomed 50% more new drivers in the second quarter compared with the first and said driver earnings remain at elevated levels across the country.

Executives on Tuesday said they expected more drivers to return in the third quarter, when enhanced U.S. unemployment pay is phased out in all states. Driver numbers have jumped in U.S. states that already stopped enhanced unemployment pay, executives said.

But driver earnings could remain higher long-term compared with pre-pandemic levels, Zimmer said, with more efficient routing software reducing the overall number of drivers and the miles drivers spend cruising around without a passenger in the backseat.

"The idea is that we can be more efficient, we can do more with less, we can help drivers earn more," Zimmer said.

Lyft in July also resumed its shared rides offer, suspended at the start of the pandemic. It allows multiple passengers to split a car traveling in the same direction, but Lyft currently limits shared rides to two passengers, with the middle and front seats remaining empty.

Lyft executives on Tuesday said shared rides volumes were still too low to tell whether the company's new routing algorithm was working as planned.

(Reporting by Tina Bellon in Austin, Texas, and Akanksha Rana in BengaluruAdditional reporting by Danielle Kaye in New YorkEditing by Peter Henderson and Matthew Lewis)

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