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Investing.com -- Lyft may be benefiting from strong ride volumes, but Wells Fargo (NYSE:WFC) analysts warn that the company faces mounting pricing pressure that could weigh on its second-half earnings.
“Rideshare trip volumes should remain healthy near term,” the analysts wrote, but they flagged that “incremental volumes increasingly mix shifting to lower-price use cases, pressuring incremental margins.”
For the second quarter, Wells Fargo forecasts gross bookings near the midpoint of Lyft’s guidance at $4.5 billion, with “healthy volume growth (WFSe +15% y/y) partially offset by sustained pricing headwinds (WFSe -3% y/y).”
The bank noted that daily active user growth improved to 3% year-over-year, aided by Lyft’s Price Lock feature and expansion into less dense markets.
However, analysts expect that trend to limit upside: “See ride volumes driven by lower price use cases, limiting upside benefit to gross bookings.”
Wells Fargo models second-quarter EBITDA at the midpoint of the company’s $123 million guide.
Looking to the third quarter, the analysts anticipate gross bookings between $4.55 billion and $4.65 billion, and an EBITDA range of $125 million to $140 million, with downside to consensus expectations.
“[We] believe incremental investments to expand rideshare use cases are driving healthy volumes and stable gross bookings,” they wrote, “but see sustained pricing headwinds and competition... weighing on incremental margins.”
Wells Fargo estimates a 2.3% and 2.2% year-over-year decline in gross bookings per ride in the third and fourth quarters, respectively, worse than consensus expectations.
They also estimate a total of 250 basis points in pricing headwinds from Price Lock, Canada expansion, and market mix.
While maintaining an Equal Weight rating, Wells Fargo raised its price target for Lyft (NASDAQ:LYFT) to $14 from $13, citing “multiple expansion across the sector.”