Lyft’s recent earnings mistake has shed light on the need for Wall Street to simplify its language. The error in Lyft’s press release caused confusion and could have been avoided if the company had avoided using complex financial jargon. Initially, Lyft projected a 500 basis points (5%) growth in its margin of adjusted earnings before interest, taxes, depreciation, or amortization (EBITDA). However, during the earnings call, Chief Financial Officer Erin Brewer clarified that Lyft actually expected 50 basis points of margin expansion, translating to 0.5% growth and implying a 2.1% expected margin for 2024.
The complexity of Wall Street jargon often hinders retail investors from quickly understanding important information. The use of terms like “adjusted EBITDA margin” further complicates matters. While these terms are used to avoid ambiguity, they can lead to confusion and misinterpretation. Lyft could have simplified matters by directly stating the actual margin target for 2024, without relying on basis points and growth rates. By doing so, the company could have avoided the entire fiasco.
As a result of the earnings mistake, Lyft’s stock experienced a roller-coaster ride. Initially, the stock surged by about 60% but most of those gains vanished once the correct margin target was shared. Ultimately, the stock finished up about 16% in the extended session. Lyft has yet to comment on the issue, but it is likely dealing with agitated investors.
It is unclear how long it took for Lyft to issue the corrected press release after verbally correcting the figure on the earnings call. The company also had to correct its filing with the Securities and Exchange Commission. Speculation arose that Lyft could face lawsuits from investors due to the blunder. However, an attorney who represents investors and consumers believes that such a case would be difficult to prove, citing a similar case involving Affirm Holdings Inc. in 2022 that was dismissed for the inability to show intent.
While Lyft corrected the error, it remains to be seen if there will be any fallout from the incident. Financial jargon continues to be used as an edge by big firms and embraced by companies looking to obscure their financial results. Lyft’s use of adjusted EBITDA has already been criticized, and this earnings mishap adds to the scrutiny. Investors will be closely monitoring the situation to see if any heads roll as a result of this significant mistake.
