Lyft Inc (NASDAQ:LYFT)'s stock plunged 26% after it said it would have to spend heavily to recruit drivers and forecast earnings would be more than US$50mln below Wall Street estimates.
A rival to Uber, Lyft said second-quarter revenue will be between US$950mln and US$1bn, down from analysts' expectations of US$1.02bn.
Underlying profits [adjusted EBITDA] will be between US$10mln and US$20mln, again well shy of analysts' expectations of US$83mln.
First-quarter adjusted EBITDA was US$54.8mln, a swing of US$127.8mln compared to the first quarter of 2021.
Lyft’s cautious outlook sent its share slumping in after-hours trading, wiping around US$2.8bn from its market value and adding to the 60% slide from its IPO.
During the first three months of the year, rides declined by 4.8% from the previous quarter.
In recent quarters, both Lyft and Uber have offered incentives to entice back drivers who have left due to high fuel costs or are working somewhere else.
"We expect to strategically invest in key business initiatives to support our continued growth," said Elaine Paul, chief financial officer of Lyft, on an analysts call.
Several of the costs associated with offering incentives to drivers - such as bonuses for rides given - will be passed on to consumers through higher prices, said Paul adding other costs would eat into company profits.
Following Lyft's report, Uber shares dropped more than 4% in after-hours trading.
Uber announced late Tuesday that its first-quarter results will be released before the market opens on Wednesday, not after the closing bell as planned.