Weary Eyes Will Be Monitoring Lyft Stock Ahead of Q2

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If you want to know how a major calamitous event like the novel coronavirus can derail a business plan, you only need to look at Lyft (NASDAQ:LYFT). Once considered a transformative organization, along with rival Uber (NYSE:UBER), which pioneered the concept of ride sharing, the sky was the limit for Lyft stock. Then, as Chris Rock once comically quipped, “the limit was the sky.”

A Lyft (LYFT) driver holds a smartphone showing the pink Lyft logo while in the car.

Source: Tero Vesalainen / Shutterstock.com

In other words, rather than view the glass as half-full, most folks likely view ride sharing as half-empty. Of course, it’s not just about perception because Lyft faces severe threats to its business. With the pandemic imposing a direct and cruel headwind on the company, management has few options available. Essentially, the firm must ride out the storm rudderless and hope for the best.

What a way to face your second quarter of 2020 earnings report! On paper, covering analysts have a dim view on ride sharing’s number two. For earnings per share, they’re targeting a loss of $1.06. Individual estimates range from losses of $1.71 to 50 cents. In the year-ago quarter, the company generated an EPS loss of 68 cents, besting the consensus target loss of $1.15.

Ride sharing as a business has struggled for profitability. Thus, it’s the revenue picture that will attract the most attention. Heading into Q2, analysts have a consensus estimate of $339.6 million. Individual estimates range from $263 million to $572.7 million. In Q2 2019, LYFT rang up $867.3 million, demonstrating the severe gulf caused by the coronavirus.

To be fair, analysts are expecting blood on the streets. That alone probably won’t budget Lyft stock. Instead, it’s the outlook, which won’t be pretty.

Can Management Put Out Enough Fires for Lyft Stock?

If you’re a stakeholder, you may want to brace yourself before the numbers come in. This is about emotional acceptance. The company won’t escape the fires unscathed. Rather, management must put enough of them so that Lyft stock can incur survivable damage.

It’s a dramatic shift from just a month-and-a-half ago. Back then, daily coronavirus cases appeared to be receding. As well, unexpectedly strong economic reports – particularly May retail sales – suggested that the American people were ready to come out of quarantine. Of course, this augured well for Lyft stock.

Unfortunately, toward the end of June and throughout July, cases soared, according to data from the Centers for Disease Control and Prevention. Not surprisingly, enthusiasm for Lyft stock petered out, entering its present aimless state.

Further, we already know the framework of Lyft’s upcoming Q2 report. Last week, rival Uber disclosed its Q2 results and it was what you would’ve expected: total revenue utterly collapsed. However, it’s also a nuanced story. Because Uber already had a much more aggressive business footprint than Lyft, it relied on its food-delivery service.

For the first time, Uber Eats sales exceeded the company’s ride-sharing revenue.

As you might imagine, the concern for LYFT is that its business portfolio isn’t nearly as fleshed out as Uber’s. In the pre-pandemic days, that was a pragmatic approach. Uber was known for incurring huge losses for the sake of massive growth.

And it still is. Clearly, in a pandemic, you don’t want to stretch yourself if you don’t have to. But at least part of the earnings story will revolve around how bad the damage was in Q2. In addition, analysts will be curious what steps the leadership team took to weather the crisis and more importantly, if they were effective.

Risky but Credible Play on the Eventual Recovery

Interestingly, Uber CEO Dara Khosrowshahi described the global responses to the pandemic as “a tale of 10,000 cities.” Not every region is suffering from the coronavirus in the same magnitude. The New York Times noted:

The company also said there were some signs that its rides business was improving internationally. In France, business had recovered about 70 percent, it said, while rides to work and to social gatherings in places such as Hong Kong, New Zealand and Sweden were higher than they had been before the pandemic.

That major international markets are enjoying a sizable recovery in ride-sharing demand is a huge positive for Lyft stock. As long as governments control the virus – and the people have confidence in those controls – consumers will use ride sharing regularly again.

But with LYFT mostly concentrated in the U.S., this is obviously a dilemma. At some point, I do believe the American consumer will come back. However, if you’re more risk averse, I’d probably wait until the Q2 results are revealed before taking a position.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/weary-eyes-will-be-monitoring-lyft-stock-ahead-of-q2/.

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