Lyft craters in premarket after Q1 results

• Lyft plunges 25% in premarket trading

• Unexpected Q1 profit not enough to appease investors

• Number of active riders disappoints

• Company plans to boost driver incentives

• Q2 guidance disappoints

Share price of Lyft (LYFT.US), US ride-hailing company, plunged in premarket trading today following the release of Q1 2022 earnings yesterday after the close of the session yesterday. While headline results for the first quarter of 2022 were better-than-expected, guidance for Q2 2022 was seen as soft. Moreover, the company said that it will boost driver incentives, signaling an increase in costs. Let's take a quick look at Lyft's earnings.

Q1 results beat expectations

Some may think that Lyft's Q1 results were disastrous given a massive plunge in the company's share price. However, this is far from the truth. Revenue at $876 million was 3.5% higher than expected and 43% higher than a year ago. Moreover, the company reported the third straight quarter of positive EPS, even though the market expected the company to be unprofitable. Lyft, however, disappointed when it comes to the number of active drivers - 17.8 million vs 17.9 million expected. Revenue per active rider beat expectations by a huge margin but it should be noted that miss in number of active riders contributed to better-than-expected result.

• Revenue: $876 million vs $846 million expected

• EPS: $0.07 vs -$0.07 expected

• Active riders: 17.8 million vs 17.9 million expected

• Revenue per active rider: $49.18 vs $47.07 expected

Company plans to boost driver incentives

A thing that looks to have scared investors is the announcement that Lyft plans to boost driver incentives. As gas prices in the United States skyrocketed in the aftermath of the Russian invasion of Ukraine, concerns arose that drivers may begin to quit in order to avoid higher costs. This would be a blow to Lyft as supply of drivers has just recently stabilized following Covid-19 pandemic and demand continues to recover following pandemic shock. Lyft's executives said during the earnings call that they will spend more on driver subsidies in the coming quarters. However, as the company did not provide any details on this planned increase in spending, investors seem to have assumed a worst-case scenario with a big jump in costs.

Soft guidance for Q2 2022

Announcement of planned increase in driver incentives is a negative for the company's financials. However, a drop in share price can also be partially blamed on Q2 2022 guidance offered by Lyft. Company said that it expects Q2 revenue to reach $0.95-1.00 billion, slightly short of the $1.02 billion market estimate. Moreover, the company expects adjusted EBITDA to come in at $10-20 million, significantly below the $81 million expected by the market. While guidance was clearly disappointing, especially EBITDA guidance, analysts of major banks are not discouraged. A prevailing opinion is that a boost to drivers' incentives is a strong sign that Lyft's management remains bullish about recovery in the ride-hailing sector and it is unquestionably a positive. Whether Lyft's predictions are right or wrong is not so certain and remains to be seen.

A look at the chart

Lyft (LYFT.US) shares are trading 25% lower in premarket trading today, near $23 per share. Taking a look at the company's chart at D1 interval, we can see that such a low opening would push the price to the lowest level since October 2020. Moreover, it would mean breaking below the lower limit of a downward channel in which the stock has been trading since late-March 2021. A level to watch at the start of the session will be $22 support zone. The nearest resistance zone to watch can be found in the $28 area - around 20% above current premarket quote.

Source: xStation5