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Lyft is in ‘wait-and-see’ mode: Analyst

Lyft reported its Q2 2020 earnings after the bell on Wednesday, with revenue plummeting 61% during its first full quarter contending with coronavirus-induced lockdowns. Yahoo Finance’s Zack Guzman and CFRA’s Angelo Zino discuss.

Video Transcript

ZACK GUZMAN: Right now I want to highlight Lyft shares in the afternoon trade after reporting its latest earnings yesterday, and we are seeing shares off more than 3% today. It kind of speaks to the overall trend that we've seen in terms of analysts lowering their expectations so much that sometimes bad news isn't necessarily that bad when you think about how it's trending versus expectations. But overall, Lyft reported a 61% decline in revenue to $339 million, beating analysts' estimates.

Again, very low there, $335 million in the quarter that ended in June. When you look at the other side, though, a loss that Lyft posted widened 37% to $280 million. That was also slightly better than analysts had been expecting. Again, lowered, lowered expectations.

So how bad are things at Lyft? This is all coming, of course, in the wake of a battle in California. We already heard from Uber, saying that they might need to shut down. Lyft coming out with almost a very parallel statement, saying that that might also need to happen when you think about these ride giants now needing to extend benefits to contractors, treating them like employees.

So what does it mean for these companies moving forward? More specifically, what does it mean for Lyft? Here to chat about that is CFRA Analyst Angelo Zino now.

And Angelo, it's good to see you again. I would just start with, I guess, the quarter, just a dramatic drop-off in revenue. They tried to say things were OK because rides increased 78% in the month of July versus what they saw in April. But I think anything, you know, it's-- it's pretty easy to see a jump like that when you go from the absolute standstill we saw back in April in this pandemic. So what's your take on how things are playing out right now for Lyft?

ANGELO ZINO: Yeah, you're absolutely right, Bryan. I mean, I think they tried to paint as good a picture as they could, looking at kind of, you know, that jump off kind of a depressed March, April levels, kind of 70%, 80% above those levels in July. That being said, I mean, you can't really-- you look at the company here down 60% year-over-year plus in terms of revenue levels. I think what's more important is, what does their trajectory look like going into the second half and into 2021?

Of course, the company didn't provide any guidance whatsoever to the second half outlook, not surprisingly. The way we look at it here is really that the company remains in wait-and-see mode in terms of, you know, Proposition 22 coming out this vote this fall. And then, of course, you know, everybody waiting on that vaccine, the kind of the big V.

And really, those are-- would be the two big catalysts if they work in the favor of Lyft here to really [INAUDIBLE] Lyft in the shares. Until that happens, expect the stock to really be range-bound. And in our view when we look at the estimates going into the second half in 2021, I think the Street just continues to be way too optimistic.

ZACK GUZMAN: Yeah, and I mean, that's-- that's obviously not going to be any easier here. They got away with topping expectations here, because we've seen those expectations come down. But when we think about California right now, that battle, just worth noting that the state makes up about 16% of the total rides that Lyft shows, according to what we heard from John Zimmer on the earnings call. I mean, how much of a weight would that be if they do wind up losing the legal battle there and have to shut down in California and deal with everything else that they've seen here in terms of people being afraid to ride in a ride share right now?

ANGELO ZINO: Yeah. So I mean, I'd say the one good thing is that revenue levels have [INAUDIBLE] off, so it's a big cliff. There's really not much left really to kind of, you know, take out of California there, to your point, still about 16%, 17% of their business. But we do like Uber a little bit more. It's less than 10% of their revenue, so not as much of a hit to their business.

So you kind of look at Lyft over here, you know, there could be a very good possibility they have to shut down for a couple of months. And even if they have to, you know-- even if they've-- and if they were to happen to lose this Proposition 22 that's live in an AB5 world, I don't even know if it makes sense for Lyft to even operate in California in that type of situation. So really, kind of the-- the risk hinging on this kind of fall vote is absolutely enormous for Lyft, a lot more so than it is for Uber.

And you know, it could be a-- it could be a great [INAUDIBLE] in their favor, but again, you know, it's a wait-and-see type of environment for them. But all in all, I mean, if they do-- are forced to shut down for a couple of months, [INAUDIBLE] to really kind of ratchet up, you know, we're looking for about $1 billion-plus in cash burn over the next four to six quarters, that number goes higher if we're talking about, you know, them having to kind of shut things down for a little while.

ZACK GUZMAN: Yeah, and that cash burn becomes an increasing problem here, too, when we think about the fact that Uber at least has the food business there to kind of shore this up. They've also got other markets outside just the US and Canada. Not true on either one of those points for Lyft. So I mean, the longer this drags on, at what point does that cash position start to become a very serious issue for a company like Lyft?

ANGELO ZINO: Well, I think the great thing here is the company was able to raise some capital back in May, so that really does help them a little bit here. They've got about 2.8 billion in cash. That gets them going here.

They're pretty safe here for the-- we think eight to 12 quarters, you know, again, barring any type of massive, you know, second wave in terms of the virus and what have you and that type of scenario. You know, they kind of go out and go back into the capital markets again. But at this point in time, you know, again, Uber's a much-- is much better positioned to kind of get through this environment.

I'd also say when we talk about downturns like this pandemic we're seeing within the ride-sharing space, oftentimes the market-- you know, the market share leaders often [INAUDIBLE] and the market share-- or and the ones that have an inferior share typically get weaker. So we do think that Uber is much better positioned and poised in the recovery phase once we start seeing that. And you know, again, you know, you couple that with the whole-- the view that, you know, this is, you know, a monster winter and the whole transportation's atmosphere, you got to like Uber over the next decade. And we would think on any type of weakness that's the name you want to buy, and not necessarily Lyft here.

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