Why Lyft Is Heading For Its Own Recession

After losing about three-quarters of its market value last year, Lyft has LYFT 5.34%

‘s shares are up almost 47% this month. A close look at the basics of the ride-hailer suggests that no recovery has yet been earned.

Lyft, which has historically been dusted off by more global competitor Uber Technologies,

UBER 1.13%

does not suddenly gain ground. In a launch report in early January, Jefferies analyst John Colantuoni estimated that the ride-hailer finished last year with a market share of about 29% in the US versus Uber’s 71%. His estimates show that Lyft is exiting the pandemic in arguably worse shape than it entered it, losing about 3 percentage points of market share over the past three years.


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In addition, the latest analysis of RBC’s driver offerings in the 10 largest U.S. markets shows a 15% decrease in Lyft’s hourly costs versus a 7% increase in Uber driver costs over the past few months for the same rides. Analyst Brad Erickson attributes that to Lyft’s attempt to regain market share in certain markets through discounts.

A global recession could bring more bad news. Data from Jefferies shows that airport rides are the largest use case for ride-hailing services in terms of miles driven. Such travel would likely decline as companies scale back their corporate travel budgets and consumers put leisure travel on hold. Rides to and from restaurants and bars were the second highest use case of ride hailers – another bad sign for their business as consumers go out less.

Lyft continues to argue that its focus on ride-share will eventually pay off compared to Uber’s more diversified businesses, including food delivery, but there are hidden costs to consider. Jefferies’ analysis shows that insurance costs alone accounted for nearly 27% of Lyft’s revenue last year, compared to less than 9% of Uber’s. The company says there are two reasons for this: First, auto insurance costs more in the US than internationally, where Uber does a significant portion of its business; second, it costs more to insure a car that carries passengers than one that carries food.

The cost of auto insurance in the US has risen due to inflation and interest rate hikes. Consumer Price Index data shows that auto insurance premiums were up just over 4% year-on-year in January 2022, but were more than 14% higher in December on the same basis.

For Lyft, smaller scale could mean less money to pay drivers, for example. Gig-economy drivers can work for more than one platform at a time, but will likely prefer to ride from the platform that pays the most. RBC’s data shows that Uber’s hourly bookings were about 17% higher than Lyft’s in the top 10 markets it analyzed, with the gap widening in recent months. The company warns that such a structural disadvantage on the driver’s side could lead to long-term market share loss for Lyft.

Most of Lyft’s share gains this month look like traders just hedging their bets. Lyft’s short interest peaked around the end of October, according to FactSet. The subsequent fall in short-term rates suggests coverage in Lyft’s fourth-quarter earnings report, expected next month.

Lyft’s stock now fetches about nine times its enterprise value to forward earnings before interest, taxes, depreciation, and amortization. Uber’s shares are recommending 20 times on that basis, so Lyft’s shares still look relatively cheap on the surface. But add to that Lyft’s high stock-based compensation costs — higher in percentage terms in terms of revenue than almost all of its Internet peers — and its stock is actually starting to look overheated.

Lyft has long been a recovery game. What if this is as good as it can get?

Write to Laura Forman at laura.forman@wsj.com

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