The markets have been on a roller-coaster since the coronavirus outbreak, with supply chains and labor forces facing tremendous challenges. Lyft Inc. (NASDAQ: LYFT) and rival Uber Technologies Inc. (NYSE: UBER) have been no exception to the stock market turmoil, but they could offer a solid investment vehicle out of this crisis.
The Dow Jones industrial average, Nasdaq and S&P 500 have each seen losses of over 10% in a single day, recording some of the worst single days since 1987, surpassing the financial crisis of 2008.
It’s worth pointing out that while everyone is feeling the initial shock to the market, most likely it will have the biggest impact on companies with global supply chains and large labor forces. The good news for Lyft and Uber is that, as service companies, they have virtually no supply chain. But they rely heavily on their workforce. So, after the coronavirus fears subside, these two ride-hailing companies could bounce back relatively quickly, as long as there’s someone to drive the cars.
Do the Fundamentals Even Matter Now?
Just before the coronavirus dominated the news flow, Lyft released its fourth-quarter numbers. At first glance, the results looked solid, but investors were not impressed and sent Lyft’s stock lower.
On the bottom line, the firm reported a net loss of $1.19 per share, compared with the Wall Street consensus estimate of $1.39. Revenues came in at $1.02 billion, just over the expected $984.2 million, and revenue growth was 52% year over year.
In terms of the metrics, active riders increased 23% year over year to 22.91 million, up from 18.59 million in the same period of last year. Revenue per active rider was up 23% to $44.40, an increase from $36.02.
At that time, Lyft also gave its outlook for 2020 and the first quarter. For the quarter, the company expected to see an adjusted EBITDA loss in the range of $140 million to $145 million and revenue between $1.055 billion and $1.060 billion. For the full year, Lyft anticipated an adjusted EBITDA loss in the range of $450 million to $490 million and revenue of $4.575 billion to $4.650 billion.
It goes without saying that these numbers might not matter much, considering the precautionary measures the world is taking to combat COVID-19. However, these numbers do offer a basis for comparison in terms of what projected growth looked like ahead of the outbreak.
On Tuesday, Lyft and Uber announced that they each would be suspending their shared ride services in an effort to combat the spread of COVID-19. Lyft has taken other precautionary measures as well.
A Lyft spokesperson said in a statement:
Lyft is pausing Shared rides across all of our markets. The health and safety of the Lyft community is our top priority, and we’re dedicated to doing what we can to slow the spread of COVID-19. We will continue to monitor the situation closely and base our actions on official guidance.
On Lyft’s coronavirus safety site, the company details how it is working to protect both its drivers and its customers. The company has committed to providing funds to drivers, should they be diagnosed with COVID-19 or put under individual quarantine by a public health agency. These funds will be given to affected drivers who are identified by public health officials or who contact Lyft’s support team.
Even with these precautionary measures, where will these ride-hailing companies go from here?
When Uber and Lyft announced the suspension of shared rides, they cited the same reason but had seemingly different results. Lyft noted that. since the outbreak, riders avoiding public transit have actually helped the service. Meanwhile, Uber’s CEO, Dara Khosrowshahi commented that there had been a decline in airport rides but an increase in delivery needs. These are mixed responses at best.
Also, the impact of the suspension of shared rides is expected to be minimal to each of these companies. Ultimately, shared rides add to revenue but hurt margins. As more and more people in the United States and across the globe decide to stay in to avoid spreading the virus, this ultimately will hurt revenue growth the most.
The outlook is unclear right now, but what is certain is that there will be pain in the near term. The longer the time horizon, the better the outlook gets for these companies and their paths to profitability. Again, these questions will only be answered once the virus can be effectively treated.