Lyft's adventures in after-hours stock trading
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Lyft's fourth-quarter earnings release was supposed to be a high point for the company, with losses being slashed to just $26 million from $588 million a year previously. Instead, it turned into a farce.
Why it matters: A typo sent the company's shares on a wild ride in after-hours trading.
Between the lines: It took only seconds for the market to skim past the actual financial results and focus instead on the section beneath titled "FY'24 Directional Commentary."
- Shares spiked to a high of $20.25 per share — an increase of 67% over their close at 4pm, on the news that Lyft expected "EBITDA margin expansion" of 500 basis points.
- Then, 17 minutes into the earnings call, the CFO, Erin Brewer, said that she was expecting "approximately 50 basis points of expansion in our adjusted EBITDA margin as a percentage of gross bookings."
- Rather than rising to 6.6%, in other words, the margin would instead rise only to 2.1%.
- At 24 minutes into the call, in response to a question from Nikhil Devnani of Sanford Bernstein, Brewer clarified that the press release was wrong.
- The shares ended the after-hours session having given up most of their gains.
For the record: Lyft CEO David Risher said on Wednesday that Brewer and her team were taking the error "incredibly seriously" — notwithstanding the nonchalance with which it was treated on the earnings call.
Be smart: The whole reason why companies report earnings after the market closes is so that investors have time to take a good look at the details, and listen to management's discussion, before trading reopens.
- In reality, however, the after-hours market can be extremely active.
- Bloomberg's Matt Levine reports that some 45 million Lyft shares were traded in Tuesday's after-hours market. That's a huge number for a stock that typically trades less than 15 million shares in a day.
My thought bubble: The participants in after-hours markets tend to be short-term volatility junkies rather than considered value investors. If they got to trade Lyft up and down in a single hour, that's twice the potential profit (or loss). A gambler's paradise!
The bottom line: If you think the regular stock market is scary, you'll want to stay well away from after-hours trading.
