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Lyft shares jump on strong Q3 earnings, food delivery plans

D.A. Davidson SVP & Senior Research Analyst Tom White joins Yahoo Finance to break down Lyft's strong third-quarter earnings, beating analysts' expectations.

Video Transcript

AKIKO FUJITA: Shares of Lyft are getting a pop in this session. That stock up nearly 4% right now after the company reported a big increase in ridership in the third quarter as they continue to see that recovery on the back of the big drop we saw in the initial days of the pandemic.

Looking through the numbers here, active riders coming in at 12 and 1/2 million now. Revenue per active rider at $39.94 there. And revenue coming in at $499.7 million.

Let's bring in Tom White. He is a Senior Vice President and Senior Research Analyst at DA Davidson. Tom, it's good to talk to you today.

Looking through your notes here, you've got a buy rating on the stock still, a $42 price target, so it looks like you still see some more upside here. What do you think is going to be the big catalyst?

TOM WHITE: Yeah, look, so I think their-- I think the vaccine is probably the most essential catalyst. But until we get broad distribution of that, I think there are a couple of things that investors are kind of tuned into and can keep pushing the stock up here. One is that, you know, we have continued to see a steady recovery in the ride-sharing business. It hasn't been, you know, momentously or overly robust, but it's kind of, you know, a slow-and-steady recovery in the ride-sharing business. And, in fact, we think Lyft is outperforming Uber a bit during this recovery. Their business we think was down a little bit less than Uber's US ride-sharing business. It's hard to know for sure because Uber doesn't disclose that.

And then the other big factor is just this increasing confidence from the market that Lyft is going to be able to kind of honor their original EBITDA profitability timetable of the fourth quarter of next year. And I think that was really the main takeaway from last night, that, you know, this company and the management team have really focused on controlling the one thing that they can control, which is just costs. They've taken $300 million of fixed costs out of the business. They're focusing on variable expense efficiencies. And so I think people just really increasingly believe that these guys are going to be able to deliver on that profit timetable.

ZACK GUZMAN: Yeah, that's what's interesting to me when you think about them trying to add this delivery segment to the business. Obviously Uber has had that. It's kept them afloat here when we think about Eats versus Rides for Uber. But for Lyft, I mean, how are you thinking they're going to be able to roll that out without additional costs here and kind of what it might look like for Lyft if they want to start in retail and maybe expand to restaurants where we know pricing pressures already exist?

TOM WHITE: Yeah, so, you know, I'm glad you mentioned the retail piece because I do think there's maybe a little bit of confusion from the market about exactly what Lyft's doing here.

They are taking sort of a novel approach to the idea of delivery. Lyft certainly, at least not initially, is not planning to be kind of a Grubhub clone or an Uber Eats clone that has sort of a consumer-facing app. You're not going to be scrolling through your Lyft app looking through menus and ordering. They're trying to kind of take a B2B type approach where they partner up with local businesses and help them facilitate that kind of last-mile delivery for online orders that maybe come directly to the local business through their own website or their own mobile app. And the initial focus really is retail. It sounds like restaurants-- it can sort of expand into restaurants over time.

But, you know, as far as the impact to kind of the numbers for next year, this is in a very embryonic state, I would say. It's very early. It sounds like very small. There will be some incremental investment that is baked into the EBITDA kind of timetable for next year. It's not going to be massive, but, you know, they're going to kind of dip their toe in the water here a little bit more. And, you know, if it turns into something positive and they see good growth, I presume they'll kind of lean into investment there more. But, you know, I don't think it's going to really upset the apple cart in terms of the margin profile or the profit timetable for next year.

AKIKO FUJITA: Tom, when you think about the Lyft and their messaging over the last several years, I mean, they've been pretty consistent that they are all about rides first. And yet this delivery component-- yes, they're not going to this consumer-facing product, but I'm wondering how much of this is an admission on the company's part that, yes, they do need to offer more than rides right now in a very competitive environment. And to your point that you just made, even if it's in the early stages, how big of a driver do you think Lyft ultimately wants that to be because of just the amount of growth and the scale of the growth that we've seen in delivery over the pandemic?

TOM WHITE: Yeah. No, it's a really interesting comment that you made about, you know, really the core focus of this company being all about disrupting transportation. If you think about one of the co-CEOs, Logan Green, you know, this has been sort of his big focus since he was in college is really disrupting personal car ownership, eroding personal car ownership. And so, you know, the fact that we're sort of seeing a little bit of a pivot here is interesting.

You know, I think Lyft is going to approach the opportunity in a way that's consistent with the Lyft brand, which is, I would say, viewed as more sort of socially responsible and, you know, viewed as sort of being a better corporate citizen maybe than some of the other kind of big internet platforms.

So I think you're going to see Lyft talk about how they're really going to be helping small local businesses compete on a level playing field with some of the big online platforms. As I said, again, this is not Lyft, at least now, Lyft not trying to sort of insert itself as an intermediary between local businesses and consumers and sort of take control of the relationship with customers, but it's Lyft kind of operating in this behind the scenes and effectively outsourcing its last-mile delivery network so that local businesses can kind of compete on a more equal footing when it comes to, you know, their kind of digital presence.

AKIKO FUJITA: Tom White from DA Davidson, good to talk to you. Thanks so much for your time.