Seven Analysts Downgraded Lyft Stock After Bad Earnings

A disappointing outlook for the company's fiscal year led to a slump in Lyft stock early Friday, as the company faced a resumption of fierce competition over pricing with Uber UBER -1.78%. There have been at least seven analysts who have downgraded the stock as a result of the bad earnings.

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Lyft's LYFT -34.93% (ticker: LYFT) expectation that revenue would decline was primarily due to the fact that it had to lower prices to match those offered by Uber (UBER), which had removed its fuel surcharge in January. 

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According to Lyft President John Zimmer on an earnings call, "as our competitors are removing their fuel surcharges, we need to make sure we maintain competitive service levels," he says. It is important for us to make sure that we make it really easy for people to choose Lyft over its competitors. Thus, that is what is of the utmost importance."

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There was a 32% drop in the share price of Lyft in pre-market trading on Friday. Shares of Uber fell by 3.4% during the day.

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Additionally, Lyft stated that because there is an increase in driver supply, the company will no longer be able to charge higher fares during peak hours. This could be a plus in the long run, as it will reduce the incentive payments that are given to drivers in the short term. Short-term, it's going to be a hit to earnings for the company. 

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As a result of these changes, analysts at D.A. Davidson are lowering their forecast for Lyft's earnings before interest, taxes, depreciation, and amortization from $516 million to $207 million in 2023 as a result of these changes. The rating of Lyft's stock has been downgraded to Neutral from Buy, and they have lowered their target price to $12.50 from $19 for the stock. 

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Lyft's downbeat outlook contrasted with Uber's, which reported higher earnings and sales for its fourth quarter than Wall Street was expecting on Wednesday. There are some advantages to Uber's business model in a price war, such as its more diversified delivery and freight operations.

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Wall Street analysts rushed to cut their ratings on Lyft's stock as soon as the company's numbers became so troubling. The shares of Citigroup C -0.49%, DA Davidson, Truist TFC +0.64%, Loop, Wedbush, JPMorgan JPM -0.33%, and KeyBanc were downgraded in the last few days. Almost all of them had Buy ratings on Lyft or an equivalent rating on the platform.

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As a result of Lyft's earnings release, KeyBanc downgraded its rating.

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KeyBanc Capital Markets analysts said they downgraded Lyft to Sector Weight, citing 1Q23E results that cast doubt on the company's ability to improve execution and achieve profits. “In 2023E, we have more questions about whether revenue can grow in the mid-to-high teens.”

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