Lyft shares sink almost 30 percent as it struggles to attract drivers

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Silicon Valley’s ride-hailing giants saw their shares tumble Wednesday despite strong revenue growth, as Lyft’s ridership trajectory weighed on investors. Its stock fell nearly 30 percent, dragging Uber lower along the way.

Lyft posted first-quarter revenue of $875.6 million, a 44 percent increase over the same period last year. But the number of active riders, 17.8 million, was lower than analysts had expected. There are also concerns about the company’s spending as it uses subsidies to attract more drivers onto its platform, according to Wedbush analyst Dan Ives. It posted a net loss of $196.9 million.

Uber reported $6.9 billion in revenue, a 136 percent spike from the same three months last year. The number of trips fell 3 percent from the preceding quarter ― a possible reaction to a rise in omicron variant infections ― but climbed 18 percent from the year-ago period. It recorded a net loss of $5.9 billion, driven by losses from investments in Didi, a Chinese ride-hailing giant; Grab Holdings, a tech company; and Aurora Innovation, a self-driving vehicle venture.

The ride-hailing companies are trying to better position themselves for an expected upswing in ridership as the global economy continues its rocky emergence from pandemic conditions. To get there, Lyft said that it would have to spend more on driver incentives in the face of higher gas prices. That didn’t sit well with investors, and the stock sank 29.9 percent to close at $21.56.

Uber shares also fell, erasing 4.6 percent to end the session at $28.12, even though the company said it has already made the necessary investments to attract more drivers. The two companies are “Starsky & Hutch from [Wall Street’s] perspective and tied at the hip,” as Wedbush’s Ives put it.

Meanwhile, the broader market saw a late-afternoon surge that lifted the Dow Jones industrial average more than 932 points, or 2.8 percent. The S&P 500 and Nasdaq composite index soared 3 percent and 3.2 percent, respectively. Though the Federal Reserve raised interest rates by half a percentage point — marking the biggest jump since 2000 — and Fed Chair Jerome H. Powell said more increases in that ballpark were “on the table,” the markets rallied after he said the Fed board had not seriously discussed going any higher.

Lyft is using driver incentives to ensure it can handle any sudden influx in riders, leading some analysts to express concern that it is spending too much in an uncertain economy. Adjusting the supply of drivers is “like moving the Titanic,” Lyft chief executive Logan Green said on a call with investors Tuesday, while ridership “can change on a dime.”

“We feel very confident that this is the right time to put a little extra investment behind ensuring we’re ready to handle that demand and that we’re there providing the best service levels we can,” Green told investors.

But in a recent note, Ives said investors are spooked by all that driver spending even as he offered a generally positive outlook on the long-term prospects of Lyft and Uber.

“Lyft is spending money like a 1980s Rock Star and this will have a violent negative reaction from investors in an already jittery market,” he wrote

Uber’s leaders say they already have enough drivers, having invested deeply in driver incentives and innovation last year. The company has the advantage of attracting drivers through its food delivery service Uber Eats.

“We feel as good about our driver supply … as we ever have,” Uber chief executive Dara Khosrowshahi said in a call with investors Wednesday.

Still, he acknowledged the need to attract even more of them, as well as reactivate some who had left the platform. “We know we have to improve. We have to keep increasing the number of new drivers on the platform,” he said. “We’re focusing on resurrecting a number of drivers as well, and we’re focusing on increasing engagement on the platform because earnings levels are so high.”

Also Wednesday, Didi disclosed that it is the focus of a U.S. Securities and Exchange Commission investigation related to its initial public offering in June 2021, in which it raised $4.4 billion.

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