Wall Street has been demanding more profit from tech companies, but this is overdoing it.
On Tuesday, Lyft reported results and included a surprisingly bullish forecast. A closely watched profit margin should expand by about 500 basis points in 2024.
This is based on adjusted EBITDA, which strips out a bunch of costs. But still, investors were paying close attention, and the stock surged more than 60% in after-hours trading.
The problem is that this was a typo. Let’s call it an uber-typo.
A short while later, Lyft put out a corrected press release saying that this profit margin will improve by roughly 50 basis points, not 500. This is a huge difference, when you consider that Lyft’s gross bookings totaled almost $14 billion in 2023.
Let’s say Lyft repeats that top-line performance in 2024. 5% (500 basis points) of $14 billion is $700 million. But 0.5% (50 basis points) of $14 billion is only $70 million.
So Lyft was off by about $650 million.
Wall Street reacts
Wall Street analysts even published research responding to Lyft’s erroneous forecast.
One analyst wrote that 500 basis points of EBITDA margin expansion was one of the key new datapoints to emerge from the results and noted that Wall Street had been looking for margins to improve by only about 100 basis points.
After Lyft corrected its typo, the stock dropped back down, although it was still up 16% in after-hours action on Tuesday.
I asked the company’s investor relations department and its public relations department how the typo happened. No response so far.
Company earnings releases are intensely choreographed affairs, especially when it comes to forecasts. These are usually put together carefully by quizzing the CEO and all the major leaders of business divisions. Accounting, legal, and other departments get involved and the numbers are checked and re-checked over and over again before earnings day.
But, no matter how hard you try, typos can creep in. For instance, I wrote “billions” instead of “millions” in a story edit recently, until my boss caught it. The published story was accurate.
Why Lyft stock isn’t down more
And there were other things to like about Lyft’s results. The company forecast healthy growth in rides for 2024. And there will still be some improvement in margins. Just not 500 basis points.
I asked the Wall Street analyst if they were planning to change their first-take on the Lyft numbers.
“Nah… taking it to 5,000 bps,” the analyst jokingly replied.
