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Price War Threat Impacts Lyft’s Stock Amid Positive Projections

In order to catch up to its larger rival Uber, Lyft indicated on Tuesday that it would intensify its competitive pricing strategy. This news dimmed the company’s optimistic earnings outlook and caused its shares to decline by almost 7% in extended trading.

In an effort to cut down on Uber’s expanding market share in North America, Lyft has dropped ride prices and launched an aggressive cost-cutting campaign under new CEO David Risher.

However, that approach caused a 5% decline in Lyft’s revenue per active user to $47.51 in the second quarter. The amount fell short of Visible Alpha’s projections of $48.38 as well.

Days after mounting concerns of a price war hit Uber shares and overshadowed the company’s encouraging results, Risher said in an interview, “We truly want to price competitively.”

In the second quarter, he said, rides getting prime-time charges, or surge pricing, plummeted 35% sequentially, while the average per-mile fee was 10% less than it was a year earlier.

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Rider Surge but Profit Targets in Doubt

In order to catch up to its larger rival Uber, Lyft indicated on Tuesday that it would intensify its competitive pricing strategy.

While Lyft also benefited from a travel resurgence and an increase in office commutes, the lower pricing did contribute to an 8.2% increase in the number of active riders on the platform, which was the platform’s highest level in almost three years.

Nicholas Cauley, an analyst with Third Bridge, cautioned that the company’s efforts to offer more competitive pricing would result in increased driver incentives, which would harm its profit target.

Lyft anticipates revenue for the third quarter ending in September to be between $1.13 billion and $1.15 billion, exceeding Refinitiv projections of $1.09 billion.

The business, which has pledged to become profitable by the end of 2023, has projected adjusted core earnings of $75 million to $85 million with a margin of 7%. Analysts had anticipated $49.7 million.

According to forecasts, second-quarter revenue increased by 3% to $1.02 billion, and adjusted EBITDA of $41 million was significantly higher than expected.

Lyft expects prices to stay at a level similar to the most recent quarter and plans to do away with prime-time pricing in favor of a more flat structure.

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Source: Reuters

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