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Lyft Is Becoming Lean and Mean, So Why Is the Stock Dropping?

Last Updated September 23, 2020 1:32 PM
Gerelyn Terzo
Last Updated September 23, 2020 1:32 PM

Ride-share play Lyft is taking it on the chin in today’s market, falling nearly 3% while the broader stock market is managing to eek out gains. The Dow Jones and Nasdaq finished the day in the green after the Fed decided to keep interest rates status quo and earnings season continues to deliver impressive results.

The rising tide isn’t lifting the Lyft boat, however, as investors choose to instead focus on the company’s cost-cutting plan that will reportedly result in job cuts affecting nearly 2% of its workforce.  Lyft is looking to become leaner and meaner as it sets its sights on profitability by year-end 2021.

So why are investors punishing the stock for a good thing? They may be missing the forest from the trees. Lyft’s layoffs were selective, affecting sales and marketing divisions. The company still plans on hiring 1,000-plus employees this year, The Wall Street Journal reports .

Lyft shares are getting hit while the broader market is trading in the green. What gives? | Source: Yahoo Finance 

Nobody likes to hear about layoffs, especially when the jobs market is on fire for much of corporate America. But in Lyft’s case, the ride-share company is in the midst of a restructuring designed to strengthen the balance sheet, which should bode well for investors over the long-term.

Besides, it’s not like Lyft is the only company slashing their workforce these days. As CNBC’s Carl Quintanilla points out, citing The New York Times, other companies that have axed jobs of late include the likes of content streaming giant Netflix, Swiss banking giant UBS, sticky-pads maker 3M and others.

Credit: Twitter 

While it’s no WeWork debacle, Lyft has not been an easy investment to hold since its IPO. The stock price has plummeted 40% since its IPO high of roughly $78 to currently hover at about $47. Worse, not everybody is convinced that they are on the path to profitability. NYU Marketing Professor Scott Galloway told Fox Business at about the time of the IPO :

When you take a trip in Lyft and they charge you $12, it’s really costing them $20. So it’s economically irresponsible as a consumer not to take Lyft but for shareholders and investors, at some point when the music stops, this is going to be ugly.

But the thing that differentiates Lyft from its chief rival Uber is a more streamlined business model. Lyft is a ride-share play with seemingly no aspirations to become the next Amazon. There is no identity crisis at Lyft, while Uber is seemingly trying to become all things to all people while losing billions of dollars in the interim . Neither Lyft nor Uber are profitable at the moment, and the race is on with both companies eyeing 2021 for the milestone. But with Lyft’s focus on  getting its priorities straight, it has a better shot of looking at eventually Uber in the rear-view mirror.

Disclaimer: The above should not be considered trading advice from CCN.com.