LYFT: Hiring Slowdown Should Make Lyft Stock Holders Jittery

Lyft (LYFT) stock hasn’t found its footing over the past year.
The company must find ways to dramatically increase its ride volume, which won’t be an easy task.
Investors should steer clear of Lyft until the company establishes a concrete action plan beyond spending reductions.

Based in San Francisco, Calif., Lyft (NASDAQ:LYFT) is a well-known American ride-share business. Unless/until the company shows improvement in ride volumes, it’s wise to avoid taking a position in LYFT stock.

It seems like there’s just one problem after another for Lyft. In 2020, it was the Covid-19 pandemic. Many people didn’t even want to leave the house for a while, not to mention get in a car with a stranger.

Omicron-induced problems continued to weigh on Lyft’s bottom line in early 2022. However, Americans are venturing out again and that’s good news for the company. Still, omicron has been replaced with other problems for Lyft. In the final analysis, investors should demand an action plan from the company’s management so Lyft can hopefully become profitable.

What’s Happening with LYFT Stock?

Believe it or not, in just a year’s time, LYFT stock has fallen from around $60 to the $15 area. That’s quite a discount – or a toxic asset, depending on whom you ask about it.

The bulls would point out that Lyft’s revenue grew from $609 million in 2021’s first quarter to $876 million in the first quarter of 2022. This undoubtedly helped the company narrow its per-share net earnings loss from $1.31 in the year-earlier period to 57 cents in Q1 2022.

Yet, the dismal price action of LYFT stock shows that the market isn’t convinced that the company is turning a corner. Narrowing the company’s net loss is great. Yet, it’s not going to be easy for Lyft to achieve profitability this year.

In the company’s Q1 2022 conference call, Lyft admitted that its ride volumes were down 30% compared to 2019’s fourth quarter. Shockingly, Lyft’s ride volumes in certain U.S. markets were down by over 50%. So, Lyft clearly hasn’t recovered fully to pre-pandemic conditions – not even close.

Not a Good Sign

When a business is ramping up its pace of hiring, or at least maintaining that pace, it’s a sign that the company is thriving. Unfortunately for Lyft’s stakeholders, it appears that the company is scaling back its hiring.

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Moreover, we’re not talking about a slight slowdown here. “Given the slower than expected recovery and need to accelerate leverage in the business, we’ve made the difficult but important decision to significantly slow hiring in the US,” Lyft President John Zimmer announced in a memo to staff.

This is happening despite what The Wall Street Journal describes as a “year-long driver shortage.” Is this really the right time to cut down on hiring, then? It might only exacerbate the driver shortage, and thereby prolong wait times for the customers.

Zimmer added that his company’s “near-term action plan will be focused on accelerating profits—whether we like it or not, that’s the ticket of entry in today’s market.”

It’s fine to talk about an action plan, but now it’s time to provide specific details. Lyft spoke of “being responsible about costs” in a statement, but that’s only one piece of the puzzle. The company must come to terms with persistently high inflation and, potentially, a reduced pool of drivers.

What You Can Do Now

LYFT stock might look cheap at its current price point. This doesn’t make it a buy, though. Lyft is apparently attempting to cut costs by slowing down its hiring of drivers. Doing this could be detrimental to the company’s business in the long term, though.

So, now is not the right time to jump into the trade with Lyft. Instead, investors should monitor for further developments and a more concrete turnaround plan from the company.

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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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LYFT shares were trading at $13.91 per share on Wednesday afternoon, down $0.70 (-4.79%). Year-to-date, LYFT has declined -67.45%, versus a -19.46% rise in the benchmark S&P 500 index during the same period.