Lyft’s Competitive Pricing Strategy Raises Concerns Over Profitability; Lyft’s Shares Tumbled Nearly 8%
09 Agosto 2023 - 8:46AM
IH Market News
Lyft’s recent decision to prioritize competitive pricing as a
strategy to gain market share has resulted in a nearly 8% decline
in its share value. Market participants are expressing concerns
regarding the company’s road to profitability amid these pricing
changes.
Both Lyft and Uber, its principal competitor, are navigating the
post-pandemic recovery phase, and the recovery strategies adopted
by each are markedly different. While Uber has returned to
pre-pandemic rider volumes in North America by leveraging higher
prices and its diversified business model—including freight
brokerage and food delivery services—Lyft’s approach centers on
cost-competitiveness.
Recently, Lyft (NASDAQ:LYFT) announced its operating profit
forecast to be between $75 million to $85 million for the upcoming
quarter. Uber, in contrast, has already reported a quarterly
operating profit. BTIG analyst Jake Fuller remarked on Lyft’s
strategy, noting, “While Lyft appears to be regaining ground with a
more competitive offering, the profit outlook in the out-years
remains murky.”
One significant decision taken by Lyft is its plan to eliminate
prime-time or surge pricing, which, according to the company, is
strongly disliked by its riders. In line with this strategy, surge
prices were reported to have decreased by 35% in the second quarter
compared to the previous quarter. This decision, combined with
Lyft’s pricing strategy, which marked the average per-mile fare at
10% lower than last year, did contribute to an 8% quarterly
increase in active riders on the platform.
Lyft’s stock valuation, as reflected by its forward
price-to-earnings multiple, stands at 29.66. In comparison, Uber,
which Uber CEO Dara Khosrowshahi acknowledged faces stiff
competition from Lyft, has a multiple of 55.27.
In essence, while Lyft’s aggressive pricing strategy appears to
be driving growth in its active user base, the broader question
remains—will this approach lead to sustainable profitability in the
longer term?
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