Find an article discussing the market impact of a company’s recently released earnings report. In NOT MORE THAN 1-2 pages, please write a brief summary of the article, how it relates to our initial discussions about earnings reports (10Qs and/or 10Ks) and their subsequent market activity impact for that company’s stock. Your write-up should include a brief background of what was reported in the article as well as your opinion(s) on the market activity that occurred shortly after the report release, and perhaps a prediction about what the company might report at their next earnings call.
https://www.wsj.com/business/earnings/lyft-earnings-typo-sends-stock-soaring-9b4ad02b?mod=Searchresults_pos1&page=1
Lyft Shares Surge as Strong Earnings Report Offsets Typo Confusion
Company’s earnings release accidentally added an extra zero to a key number; shares hit 52-week high
Lyft LYFT -5.89%decrease; red down pointing triangle shares hit a 52-week high Wednesday following the company’s strong fourth-quarter results and despite confusion caused by a mistake in its earnings release.
Lyft’s release Tuesday said one of its profit margins was expected to expand by 500 basis points—or 5 percentage points—in 2024. That margin was only expected to expand by 50 basis points, the company’s chief financial officer later clarified on a call with analysts.
The figure in question is a wonky but closely watched metric. The ride-sharing company was forecasting its adjusted earnings margin as a percentage of its bookings. A higher margin signals that Lyft is earning a bigger cut from its bookings.
The company’s stock soared over 60% when the release came out after the close of regular trading Tuesday. Many stock trades are done by computers, reacting in fractions of seconds to new information. The inflated margin likely triggered a buying frenzy before most people could digest the numbers.
“It was a bad error, and that’s on me,” Lyft Chief Executive David Risher said in a CNBC interview Wednesday. He said the company has a process to handle such releases that includes “thousands of eyes” and the extra zero was missed.
“Super frustrating for everyone and the team,” Risher said. He added that he didn’t want the mistake to take away from the company’s delivering the best financial quarter in its history.
The strong results boosted Lyft shares Wednesday. The stock jumped 35% to $16.39, its highest close in more than a year.
The company forecast better-than-expected bookings for the current quarter and said it expects to be cash flow positive in 2024. Simply put, that means Lyft will generate more cash than it spends during the year. Companies often point to this metric to signal a path to future profits.
Lyft shares have been volatile in recent quarters. Four of the past five quarterly reports have sent its stock tumbling by double-digit percent declines, according to FactSet.
Lyft shares might have also been primed for a jump in trading on the back of unexpected good news. The stock has been more targeted by short sellers than its gig-economy counterparts, with short interest accounting for nearly 12% of Lyft’s shares outstanding compared with less than 3% for rival Uber, according to data from FactSet.
Positive earnings reports typically drive short sellers to buy shares to cover their bets.
Earnings typos are rare but happen occasionally. Market watchers said they couldn’t remember the last time a typo triggered such a big stock reaction.
Some people reacted on X with surprise, jokes and memes. One user posted that the company “saved themselves $7M by not paying for a Super Bowl commercial and got free marketing at tonight’s earnings call. Smart.”
“Your margin Lyft has unexpectedly cancelled, we apologize for the inconvenience,” another posted, referring to a notification riders see when drivers cancel a ride.
Lyft isn’t profitable, but it has been trimming its losses. Rival Uber reported its first full year of profit as a public company in 2023. Investors were encouraged by Lyft’s latest outlook because Uber also swung to profitability after becoming cash flow positive.
In a research note Wednesday, J.P. Morgan said it was encouraged by the moves that Lyft has made to drive stronger demand and profits, but that steady execution “will be required for Lyft to truly differentiate itself from a brand perspective and take share.”
Lyft has struggled to keep up with its larger competitor Uber. Through Tuesday’s close, stock has lost about 85% of its value since listing in 2019.
The company’s co-founders stepped down from day-to-day management last year, following eroding market share, a sliding stock price and low employee morale.
Under its new CEO, Risher, the company has cut hundreds of jobs, introduced new features for riders and drivers, and mandated that employees return to the office.
Risher is also looking to unload businesses that aren’t generating big returns, including Lyft’s bikes division.
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