Lyft Inc. (NASDAQ: LYFT) stock turned cheaper since its initial public offering on March 29, 2019, as shares dropped to a new low of $44.12 on Friday. Last month, the stock has been on the upward swing following upbeat second-quarter results and forecast.
Investors fear that the company’s concerns are mounting after receiving nearly 100 complaints of sexual assault by drivers in just one state over two years. A lawsuit was filed on Wednesday in the Superior Court of California for San Francisco County and alleges that the company hires drivers without completing a background check, fingerprint check or job interview.
In contrast, the company has laid out a set of screening criteria and procedures for making a new recruit as qualified drivers. The company has been facing a shortage of qualified drivers due to changes in certain laws and regulations, including immigration, labor and employment laws or background check requirements. The company relies on third-party background check providers to screen the records of potential drivers.
It is expected that the company’s reputation and brand will be adversely affected due to the litigation. The results of the lawsuit cannot be predicted with certainty. Any claims against Lyft could be time-consuming, result in costly litigation, be harmful to its reputation, require significant management attention, and divert significant resources.
For the second quarter, the company achieved a revenue growth of 72% helped by an increase in the number of active riders and the revenue generated on its platform per active rider. The number of active riders increased by 41.1% primarily due to the wider market adoption of ridesharing in addition to its initiatives to attract and retain riders.
Apart from the investments in new bikes and scooters, Lyft could face an increase in the litigation costs during the third quarter. However, the company is expected to continue experiencing growth in the future after the rapid improvement of its business since 2012.
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