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Lyft 'is not rebounding as fast as people we're hoping': Analyst

Ygal Arounian, Wedbush Securities Research Analyst joins The First Trade with Alexis Christoforous and Brian Sozzi to discuss Lyft’s latest earnings report. Arounian also weighs in on Uber and the potential impact of a California court forcing both the ride-sharing companies to classify drivers as full employees with benefits.

Video Transcript

ALEXIS CHRISTOFOROUS: Lyft posted better than expected earnings after the market closed yesterday. It's the first full quarter since the coronavirus pandemic began. Here to discuss is Wedbush Securities Research Analyst Ygal Arounian. Ygal, our revenue down a staggering 61%. But now, it looks like bookings are slowly picking up. Yet, I'm seeing the stock, and Lyft is off about 4%. So what gives?

YGAL AROUNIAN: Yeah, I think we're just not rebounding as fast as people were hoping. You know, certainly, back in May, Lyft gave a business update. This was before the pandemic kind of started to re-accelerate and, you know, look like things were headed in the right direction. We took a meaningful step back.

In July, you know, July is still down about 55%. And, you know, the company man-- the company noted that, in August, so far, it's still early, but the trends are pretty similar. It's similar to July. So the demand for ride share just isn't coming back fast enough.

BRIAN SOZZI: Ygal, Lyft-- Lyft followed Uber's playbook and warned that they might have to pull out of California. Lyft actually provided a date, August 21, that they might have to pull out or suspend operations in California because of the worker classification ongoing issue. That's 16% of Lyft's total rides. How-- what would be the financial impact of Lyft no longer operating in California?

YGAL AROUNIAN: Yeah, so that's going to be, you know, that's going to move to the forefront now for the next couple of months. Financial impact-wise, I think, you know, top line revenue-wise, you could think of it similar to that, right, 15% to 20% range. And we've heard from Uber and Lyft that California is a little bit more of a competitive market, so the profitability isn't as high there.

But I think you could think of it in 15% to 20% range. But there's a lot of questions around this, how long-- how long they exit California for, I think of it more of a pause, waiting for the vote on Proposition 22 in November. I wouldn't expect them to leave California forever. They'd probably come back, you know, readjust how they do business in California, probably raise prices there to offset some of the increases in costs.

ALEXIS CHRISTOFOROUS: Ygal, who's better positioned here, Uber or Lyft? Just, sort of, right out the pandemic. Of course, you've got Uber more diversified, they do have Uber Eats, which is doing gangbusters right now.

YGAL AROUNIAN: Yeah, look, I think that question is harder to answer now than ever. Certainly, revenue-wise and bookings-wise, Uber Eats has really offset the challenge in ride share for Uber, right? Uber, traditionally, 70% of its revenue comes from ride share, 30% from food delivery. And that actually reversed into [INAUDIBLE] where food delivery accounted for 70% of the top line.

That's a huge shift. It definitely offset and, you know, helped the impact from people not moving around in ride share. But food delivery is also super competitive. It's even more competitive than ride share. Uber is losing a lot of money in that business as well. So, you know, certainly helps blunt some of that demand impact, but they're losing a lot of money there.

And, you know, it's still not really proven whether they'll be, you know, that industry can be profitable in the long run. We think it can be. But there's a lot of work to do there.

BRIAN SOZZI: Ygal, I'd love to get your quick thoughts on Lyft now dabbling in the car rental business. Do you take them seriously in that business? Do you think they'll expand it aggressively?

YGAL AROUNIAN: Sure. It's an interesting time for them to get into the car-- car rental business deeper, right, in the middle of a pandemic when demand's down. And there was a lot of challenges around that. But when you think about what Lyft's doing, you know, building car rentals into its platform, really does make a lot of sense, right?

They're trying to, you know, make mobility easier for everybody. That includes bikes and scooters, includes getting a ride share. And now they're building rentals into that, you know, where they make the process really seamless. You could rent the car directly from your app, you know, you're not doing the traditional model of renting the car. I think it is very complementary to what-- to their offering. I mean, it could make a lot of sense in the long term.