Analyst Note| Ali Mogharabi |
While Lyft reported better-than-expected first-quarter results, it provided disappointing second-quarter top- and bottom-line guidance. In our view, the market is overreacting as the stock is down 25% in after-hours trading. Our takeaway from the call and Lyft’s outlook was that demand for ridehailing services will strengthen further in the second half of this year and Lyft has decided to spend more to increase supply which is necessary given Lyft’s already higher driver utilization. While such an investment could also be due to higher fuel costs which management denied, we think it also sheds some light on Lyft’s network effect attracting slightly less drivers than the clear U.S. market leading Uber’s. However, the results and the firm’s outlook also indicate that the network effect on both supply and demand sides remain intact.