The Ratings Game: ‘Why not?’ Lyft CEO shakeup gets a Wall Street embrace

Shares of Lyft Inc. were riding higher in premarket trading Tuesday after the company announced a leadership change that, in the view of one analyst, “couldn’t hurt.”

The ride-hailing company has tabbed David Risher, an early Amazon.com Inc. AMZN, -0.42% employee and a member of Lyft’s LYFT, +7.24% board, to take over as chief executive. He replaces co-founder Logan Green, who will stay on the board. Another co-founder, John Zimmer, will keep his board role as well but will leave his management role of president.

“Couldn’t hurt, right?” RBC Capital Markets analyst Brad Erickson asked in a note to clients Monday. “Given the host of execution challenges the company has faced over the last few years, we think investors are likely to view this as a ‘why not try something different?’ moment where the risk/reward on Risher’s potentially fresh take on the business is arguably favorable.”

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The announcement comes as Lyft shares have dropped more than 85% off their $72 initial public offering price from 2019. The stock slid more than 36% after the company’s most recent earnings report, which included a messy earnings forecast. It was ahead more than 5% in premarket action Tuesday in the wake of Risher’s hiring announcement.

“Given recent stock performance and challenges, the ‘why now’ is understandable,” Bernstein’s Nikhil Devnani wrote. “This can be a positive change for the company as it looks to get back on track after a tough 2022.”

But Risher has a rough road ahead of him. For one, he has to deal with the company’s “structural disadvantage” relative to Uber Technologies Inc. UBER, -0.20%, which Erickson deems a major challenge for Lyft.

The “structural disadvantage” leads to “a negative virtuous cycle for demand,” he wrote, and Lyft has also “struggled to handle two key larger expense items in driver incentives and insurance costs.”

“While we’ll await any further details on updated strategic priorities that come to light, we struggle to paint a picture for [Lyft] to actively improve its structural positioning relative to [Uber], and therefore we remain sidelined on the name,” he wrote.

Jefferies analyst John Colantuoni chimed in that he looks at the shakeup “favorably following recent underperformance.” While he’s “cautiously optimistic” that Risher can help boost Lyft’s performance, he notes that Risher’s “impressive track record of execution at [Microsoft and Amazon]” was “more than two decades in the past.”

“Our caution stems from the new CEO’s apparent lack of recent, directly relevant leadership experience and the potential for further delay in the issuance of a new long-term Ebitda [earnings before interest, taxes, depreciation and amortization] target,” Colantuoni wrote. “We think investors will need to receive a new long-term Ebitda target before becoming constructive on the stock, and any delay in the issuance of that target is likely to preserve uncertainty and weigh on the stock in the near term.”

Bernstein’s Devnani wrote that the arrival of a new CEO “probably reduces the chances” that Lyft sells itself to another on-demand platform, tech company or automaker, something he says Wall Street has speculated about for some time.

“Overall, we’re taking a ‘TBD view’ of how impactful this transition will be — at least until we hear more about what’s to come from the new team,” he wrote.