Lyft says cost cuts, coming ride recovery could bring Q3 adjusted profit

The smaller-than-expected loss is largely due to Lyft shaving off more costs than originally anticipated, including head count reductions and lower costs for software hosting services, payment processing and insurance, the company said.

Those cuts of $360 million in fixed costs in 2020 and additional decreases in variable costs would allow the company to continue operating more efficiently once riders return.

Lyft shares surged 10.7 percent to $59.40 in after-hours trading.

“As riders increase … those lower costs will also help drive higher contribution margins,” John Zimmer, the company’s president, told Reuters in an interview.

Lyft said it would cut an additional $35 million in costs in the first quarter of 2021, but also added it will incur additional expenses during the first three months of the year to bring more drivers on board in preparation for an uptick in ride demand.

Lyft’s number of active riders in the fourth quarter decreased by more than 45 percent on a yearly basis to 12,552, but revenue per active rider rose by $1 to $45.40 — a record number, the company said.

James Cordwell, an analyst with Atlantic Equities, said those numbers spoke to the pricing power held by ride-hail companies, even during a pandemic.

Lyft shares have recovered from their record lows during the early months of the virus outbreak in the United States and are trading at roughly the same level as a year ago. Shares of larger rival Uber Technologies Inc have gained more than 47 percent over the past 12 months.

Unlike Uber, Lyft has not been able to offset the drop in ride-hail revenue with food delivery services. Uber is scheduled to report results on Wednesday after the bell.

Lyft executives in the past have said they remained squarely focused on moving people, not goods, but last quarter the company announced it was working on a white-label or non-Lyft-branded platform to allow deliveries between different businesses for groceries, food and packages.

Zimmer told Reuters on Tuesday that Lyft’s delivery platform was still early in the process and that the business would just be additive, with the company hoping to announce partners by the middle of this year.

Zimmer said Lyft was confident that retail businesses and restaurants were looking to avoid the fees charged by food delivery platforms, including Uber Eats, GrubHub Inc. and others.

“They don’t want to pay the 20 percent to 30 percent to Uber Eats to do that long-term,” he said. “Those retailers are investing in their own infrastructure, of which we would be part.”

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