[Overseas Stocks Spotlight] "Lift Confirms Bottom in Q2... Regulatory Issues Not Over Yet"

[Asia Economy Reporter Eunmo Koo] Lyft (LYFT US) has confirmed the bottom of its Q2 performance this year. Although the worst period has passed, it is evaluated that further multiple expansion is unlikely due to regulatory issues.

Lyft's Q2 revenue this year recorded $339 million, down 61% from the same period last year, slightly exceeding the consensus ($337 million). The loss per share was also $0.86, surpassing the consensus (-$0.99). Due to the impact of COVID-19, no quarterly or annual guidance was provided.

However, the fact that rideshare passengers in July grew 78% compared to the low point in April is seen as positive. On the 16th, Samsung Securities analyst Joonghan Kim stated in a report, "Considering the recent increase in COVID-19 cases and deaths in the U.S., demand is expected to recover rapidly from Q2 as the bottom."

The issue is the recent preliminary injunction by the California court regarding AB5, which requires recognizing gig economy workers as employees rather than independent contractors. Uber and Lyft immediately decided to appeal, but uncertainty is increasing. On the conference call, Lyft CEO John Zimmer expressed that if the appeal fails, there is a risk of service suspension within California. Recently, Uber CEO Dara Khosrowshahi also suggested a third option, including the possibility of service suspension and the establishment of a fund for employees.

If the appeal is rejected, service suspension could continue until November, potentially impacting revenue. Analyst Kim explained, "In November, a referendum will allow California residents to directly vote on this issue, and a favorable outcome for gig economy companies can be expected."

He added, "According to a survey of rideshare drivers, about 60-70% prefer to maintain their current independent contractor status due to advantages such as side jobs and flexible hours, and general citizens who are already accustomed to the service are likely to want continuous service."

Improving investor sentiment is considered difficult. As of the closing price on the 12th, the expected price-to-sales ratio (PSR) for this year is about 4.0x, already close to the pre-crisis level (3.2x) and last year's level (4.1x). Analyst Kim analyzed, "Assuming market normalization, valuation pressure will be somewhat eased (2021 PSR 2.8x), but due to regulatory uncertainties, further multiple expansion is unlikely in the near term."