Shares of Lyft, Inc. (NASDAQ: LYFT) lost a fourth of their market value in late trading on Tuesday after the ride-sharing company reported its first-quarter results.
Reacting to the earnings, an analyst at Wedbush took down his price target for Lyft shares by about 36%.
The Lyft Analyst: Dan Ives maintained an "outperform" rating on Lyft shares and reduced the price target from $50 to $32.
The Lyft Thesis: Lyft's March-quarter results were solid, characterized by an impressive EBITDA and a top-line beat, analyst Ives said in a note.
A big ramp in expenses in the second quarter and possibly for the remainder of the year impacted market sentiment, he added.
Lyft does need a ramp in expense to bring drivers back onto the platform, the analyst noted.
As opposed to the investor expectations that driver incentives were now a thing of the past, the company is continuing to invest to bring in more drivers to capitalize on a potential spike in demand, he added.
Lyft, the analyst noted, is also investing in its core platform, and this will likely build the company into a broad transportation network.
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"As a negative, Lyft is spending money like a 1980's Rock Star and this will have a violently negative reaction from investors in an already jittery market," Ives said.
"This quagmire of spending to get drivers back onto the platform is a necessary evil to propel the Lyft story into its next stage of growth."
The analyst termed the after-hours stock plunge as a "severe overreaction," given the core story is intact, including the company's cautiously optimistic view that revenue will accelerate faster in 2022.
The analyst attributed his price target reduction to the expense guidance.
Price Action: In the after-hours session on Tuesday, Lyft shares plunged 25.72% to $22.85, according to BenzingaPro data
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