Lyft's soft forecast raises alarm bells as Uber gains ground

Lyft's shares took a significant hit on Wednesday, plummeting 16% after the company's soft forecast for the crucial summer quarter sparked concerns that it may be losing ground to its rival Uber in the North American ride-hailing market.

The share price fell to an eight-month low of USD 9.20 in early trading, resulting in Lyft losing over USD 700 million in stock market value. This comes at a time when Uber, which reported strong results on Tuesday, and Lyft are engaged in a fierce battle for market share in the ride-hailing sector.

Benefiting from its global footprint and wider array of services, Uber has been wooing customers with subscription offerings, while Lyft has been doubling down on competitive fares and company-wide cost cuts to boost its business.

"Lyft may struggle to gain the share that Uber has, but the market essentially requires a second competitor to maintain pricing balance," said Mike Ramsey, a transportation analyst at Gartner.

In a bid to counter Uber's dominance, Lyft's newly appointed CEO, David Risher, announced the launch of "Price Lock," a subscription-based feature that offers commuters on fixed routes a capped fare.

However, Lyft's forecast for the third quarter, a period typically characterised by high tourism-related travel, fell short of analysts' expectations. The company projected gross bookings, the total value of transactions on the Lyft app excluding tips, to be between USD 4.0 billion and USD 4.1 billion, while analysts had expected USD 4.13 billion, according to estimates from LSEG.

Moreover, Lyft's adjusted core earnings guidance of USD 90 million to USD 95 million also came in below the street target of USD 104.3 million.

Despite the soft forecast, Lyft reported better-than-expected revenue and posted a net profit for the first time in the second quarter, driven in part by cost cuts implemented last year. Since Risher took charge, Lyft has cut hundreds of jobs, narrowed the firm's losses, and managed to keep fare increases in check.

In June, Lyft hosted its first-ever investor day and projected annual gross bookings to grow at a steady 15% rate through 2027. Revenue rose 41% to USD 1.44 billion in the second quarter, beating the estimate of USD 1.39 billion. Net income was USD 5.0 million, compared to a USD 114.3 million net loss in the previous corresponding period.

The contrasting fortunes of Lyft and Uber in the ride-hailing market have raised concerns among investors and industry analysts. While Uber's global presence and diversified service offerings have given it an edge, Lyft's reliance on the North American market and its efforts to maintain pricing balance have made it a challenging competitor.

As the battle for market share intensifies, Lyft's ability to regain ground and close the gap with Uber will be closely watched by the industry and investors alike. The company's strategy of cost-cutting, competitive fares, and innovative offerings like "Price Lock" will be crucial in determining its future trajectory in the fiercely competitive ride-hailing landscape.