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Lyft’s cost-cutting in Q4 will prove to be 'durable': Analyst

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Lyft sales topped expectations in the fourth quarter. D.A. Davidson Analyst Tom White joins Yahoo Finance Live to discuss.

Video Transcript

AKIKO FUJITA: Another stock we're watching today-- Lyft. Getting a big pop in this session, hitting a new high today. The company beat Wall Street estimates on both the top and bottom lines, posting revenue of $570 million in the fourth quarter. That was down though 44% from the same period last year. Net loss in the quarter also widening compared to the same period last year at $458 million.

Let's bring in Tom White, he is D.A. Davidson Analyst. And Tom, I guess we're seeing the stock move on the fact that it feels like the worst is behind the company. We have heard some commentary from the executives there about specifically how they are starting to see things maybe pick up, saying that growth inflection is likely to begin in the second quarter with things strengthening in the second half of the year. What stood out to you in the numbers we got yesterday?

TOM WHITE: Yeah, good morning. Thanks for having me. So look, I think two things stood out. First off, on the revenue side of things, these guys executed very well in a tough environment. Over the course of the fourth quarter, rideshare volume trends actually deteriorated each month. So November was worse than October, December was worse than November.

But despite that, Lyft was still able to hit the revenue number. And they did that by focusing on the highest margin, highest revenue, highest value rides. And I think that's just a reflection of a management team that's executing really well, is really kind of zoned. And the other thing that stood out is just how much progress they've made kind of rationalizing their cost base. They've taken out $360 million in fixed costs on an annualized basis, with maybe some room still to go. They're razor focused on variable expense efficiencies.

And the result of that is that, they were able to say last night that not only are they going to be able to hit their EBITDA profit target of the fourth quarter of this year, which they laid out in October of 2019, so pre-pandemic, but there's a decent chance that they might be able to do it in the third quarter. So that was, I think, a real boost of confidence for investors. And again, I feel like execution is an overused word when you're talking about management teams. But these guys really have done a very, very strong job.

ZACK GUZMAN: Yeah, you affirmed your buy rating on Lyft, raising your price target to $66 from $58 a share. I wonder how much importance should be stressed about that profitability goal and target being achieved here, because you talk about cost cutting measures that they did in the latest quarter. Impressive to see that loss coming in $150 million better than consensus estimates at $190 million, what are the long run implications of that, though? Is it is it easy for a company like Lyft to just turn the switch back on when things are getting better? Or is there a dent in the growth prospect moving forward?

TOM WHITE: Yeah, it's a good question. I think it's something that investors are debating for a lot of different technology companies who've also cut costs over the course of the pandemic. In Lyft's case, so far it seems as though a lot of the costs that they've taken out probably don't need to come back and probably won't come back. Now, marketing spend will certainly kind of increase as revenues scale. And you're going to see some promotional spend kind of pick up as revenues pick up and economic activity opens up.

But a lot of the fixed costs stuff-- this was a company that was private for a long time. And it was flushed with VC money before it was public. I think there were a lot of instances where in the past, maybe they just kind of threw people at problems and this kind of pandemic has enabled them to reset. CFO last night talked about kind of taking the cost structure down to the studs. And I think a lot of the cost savings that we're seeing now will prove kind of durable, is maybe a good word to describe it. And that sets up I think an interesting opportunity for the stock, presuming that the revenue kind of picks up when the economy reopens up.

AKIKO FUJITA: Yeah, the company pointing to $360 million in cost savings last year as a result of some of the moves they made during the pandemic. Lyft has for long resisted this pressure to get into other channels of revenue, particularly in the delivery business. We've got Uber reporting after the bell today. That's one company that has, at least for now, appears to be really doubling down in the eat space. Does it make sense for Lyft to at least seriously consider that as another potential arm of the business? Or do they stick to the narrative that they have had since the very beginning of the company, which is about solving transportation solutions?

TOM WHITE: Yeah, so I think last night it was pretty clear that the original sort of vision of the leaders and the founders of this company around disrupting personal car ownership, transforming transportation, making transportation more of a service than people buying these sort of inefficient and clunky vehicles. That really, I think, they're sticking to their knitting, I guess is what I'm trying to say. There's a lot of talk about that last night about the future of autonomous, how that's going to play and. I think they do see an opportunity to have an interesting role to play in online delivery. They're still being very cagey and vague about the details.

It is not going to be a Uber Eats clone business or a Grubhub clone. You are not going to be scrolling through menus in your Lyft app and ordering food. But I think what they see is an opportunity to partner with local businesses, and not just restaurants and maybe not even initially restaurants, but local businesses, local retail businesses, and help them with basically e-commerce logistics outside of these high commission online delivery platforms like the Grubhubs of the world, the Uber Eats of the world. So an interesting kind of potential sort of B2B play, I think, is sort of emerging for Lyft. But I think the coordinating is still rideshare.

AKIKO FUJITA: Yeah, Lyft, a little more cautious on that front, potentially just sort of dipping its toes in the water, so to speak, by just seeking out those partnerships you pointed to. Tom White, it's good to talk to you today, Analyst at D.A. Davidson.