Investors in Lyft (NASDAQ: LYFT) went on a wild ride this week after the company reported earnings that sent shares soaring 67%, only to fall back once more. Shares were up 34% on Wednesday after market open.
And this is all because of an earnings typo.
Even stranger? After the fall, Lyft stock climbed right back up the next day as investors really dug into earnings. So, what should investors do with this yo-yoing stock? And what can investors learn from this insane mishap?
What happened?
A “clerical error” was the key behind the surge and drop in share price for Lyft stock. And I would hate to be the cleric making that error in Lyft stock’s earnings report.
The company reported strong earnings, to say the least, projecting adjusted earnings as much as 11% higher than what analysts estimated. But what really caught investors’ attention was the outlook for profitability margins.
In the earnings release, Lyft stock had written that profitability margins would improve by an insanely (and, it turns out, completely false) high 500 basis points. Shares then surged 67% after hours after the report, only to come falling down.
It turns out that another zero was added to that growth number. Instead, an hour later, Lyft stock reported that it should be 50 basis points. Shares went on to give up about 30% in the stock.
Yet shares then climbed back!
If that wasn’t enough, shares then surged back upwards, as investors dug in more to Lyft stock. The headline of activity overshadowed what was really still an incredible earnings report. There is still set to be an incredible projection on bookings, with the company continuing to take over market share in the ride-sharing sector.
Gross bookings jumped 17% year over year to US$3.72 billion, with revenue at US$1.22 billion up 4%, both beating estimates. Projected adjusted earnings should reach as much as US$55 million for the first quarter, again more than the US$49.5 million expected.
Lyft stock stated that active riders on the platform surged by 10%. There is now some clear momentum, and even more focus on operational excellence, management stated. Yet the company still lags behind, holding 30% of the market share right now.
Where momentum could lie
There were a few other headlines that were noteworthy for Lyft stock. For instance, the company saw a huge increase in use thanks to tours held by Taylor Swift and Beyonce. What’s more, it’s been finding new initiatives that have proven successful. One was the Women+ Connect program, where riders are matched with women and non-binary drivers. About 99% of riders who opted in kept the feature on, and 67% of drivers opted in.
Even so, the typo in earnings and the subsequent market reaction just goes to show how one little error can have a huge effect on the market. Moreover, this could lead to scrutiny and changes going down the line or even legal action. It’s quite likely the Securities and Exchange Commission in the United States will look over the situation. Lyft stock could even be fined, leading to perhaps another share drop.
As for regular investors, it goes to show that investing based on one earnings report isn’t exactly ideal. Instead, long-term holding and buying when there is value is likely to be your best bet. And for Lyft stock, it looks like more momentum could be on the way for long-term holders.
