By Akanksha Rana and Tina Bellon
(Reuters) – Lyft Inc said U.S. ridership had improved more than 20% from coronavirus-hit rock bottom last month and that high unemployment would keep a lid on driver costs, allowing the ride-hailing firm to move toward profitability as lockdowns ease.
Shares rose 17% on Wednesday after Lyft posted higher-than-expected revenue and vowed further cost cuts to become profitable, saying ridership hit a low of a nearly 80% decline on April 12.
As the U.S. economy reopens, Americans will turn to ride-hailing as the first opportunity to make up for lost income, Lyft’s President John Zimmer predicted on Wednesday. That oversupply would help the company cut down on driver incentives and other costs.
Shares of larger rival Uber Technologies Inc, which publishes results on Thursday, also rose 9% after Lyft’s report. Still, Lyft’s stock is less than half the $72 price from its initial public offering last year.
Lyft’s first-quarter results offer a first look at the impact of strict stay-at-home orders to combat the spread of the virus in many of the ride-hailing industry’s largest markets.
Lyft and Uber rely on independent contract workers and resist calls by some U.S. lawmakers to classify their drivers as employees, which would force them to pay benefits.
The companies say drivers cherish the flexibility that comes with on-demand work, but many ride-hail drivers said the crisis has exposed their vulnerable status as contractors.
Both companies successfully appealed to federal lawmakers to include their drivers in a taxpayer-funded unemployment insurance plan and receive support typically reserved for workers whose employers pay into the insurance system.
Lyft’s Zimmer on Wednesday said the drivers’ inclusion in the federal coronavirus relief bill showed the company’s flexible model worked.
On Tuesday, California sued Uber and Lyft over the companies’ alleged misclassification of drivers.
For April, Lyft rides were down 75% year over year but Chief Executive Logan Green said Lyft saw moderate week-on-week growth in ride requests starting in mid-April.
In the United States, rides rose 21% in the first week of May compared with a low point on April 12.
Ridership grew 25% in Atlanta, 35% in Chicago, 29% in Houston, 39% in New Orleans, 22% in New York City and 25% in Seattle between the week ended April 5 versus the week ended May 3.
Based on April volumes, Lyft expects a second-quarter loss of less than $360 million before interest, taxes, depreciation, and amortization.
Green said Lyft and rival Uber had stopped virtually all ride discounts. The companies in the past frequently tried to outspend each other with promotions to attract new customers.
While Green said the drop in ridership was unprecedented, about two-thirds of Lyft’s costs were variable, allowing the company to cut nearly all insurance-related expenses and reduce losses even as the business stagnated.
The company did not say whether it stuck to its goal of being profitable on an adjusted basis by the end of 2021 but on Wednesday said cost cuts would help it on the “path to profitability.”
Lyft on Wednesday said first-quarter revenue rose by 23% to $955.7 million (773.2 million pounds) from the previous year, well ahead of a $884.7 million estimate by Refinitiv.
Loss-making Lyft had originally forecasted revenue of roughly $1 billion for the first three months of 2020.
The company’s active ridership base increased by 3% to 21,200, while revenue per active rider increased by 19%.
Unlike Uber, Lyft only operates in the United States and parts of Canada, where many states imposed lockdown restrictions towards the end of March.
The most damaging fallout for the ride-hailing industry is expected in the second quarter of this year.
Lyft has some $2.7 billion of unrestricted cash and plans to remove some $300 million in expenses by the end of the year.
While total costs and expenses fell about 29% to $1.37 billion year-over-year, cost of revenue in the first quarter increased by roughly 17%.
Lyft last week withdrew its full-year guidance and announced a 17% staff cut and implemented pay cuts in response to the crisis.
(Reporting by Akanksha Rana in Bangalore and Tina Bellon in New York; Editing by Lisa Shumaker and Peter Henderson)