Lyft’s IPO disclosure shows it’s not close to profitability

https://www.latimes.com/business/hiltzik/la-fi-hiltzik-lyft-ipo-disclosure-20190307-story.html

by howard941 • 7 years ago

210 298 7 years ago

chollida12• 7 years ago

Sadly for Lyft I think the best comparison will be Snap. And just one look at the SNAP chart will tell you why you should avoid the Lyft IPO.

It will go public at an inflated price and hold that valuation for a quarter or two and then people will start asking where either the profits or growth are and Lyft will need to start growing or erasing their huge operating losses right at the same time Uber is trying to grab as much ride share as possible gearing up to their own IPO.

So at a time when the market will be starting to really pressure them to cut losses, probably by cutting the driver's portion of revenue and raising prices, Uber will be trying their best to inflate their own ride share metrics by giving drivers more and cutting ride costs.

What is the story you can tell that paints Lyft as a good investment over the next 2 year period?

Then there is Lyft's dual share structure will get it kicked out of many ETF's. This locked in money is a godsend to most companies as they help buoy the stock price by having locked in holders of teh stock during turbulent times. I think MSCI will put Lyft into some of its indexes given that it just put in 8-10 Chinese companies with dual listing share structures

One thing I do like in Lyft's favour is that they could be a counter cyclical stock, ie they do well when the rest of the market isn't, due to people using Lyft to replace a second car or a lease that they've given up.

We just haven't had a recession while ride sharing was a main stream thing.

Zimmer, Lyft's cofounder, went on to assert that private car ownership would “all but end in major U.S. cities” by 2025.

Given that people are currently signing leases and payment plans for cars that won't expire by then I'd say this is a bit of a stretch:)

malandrew• 7 years ago

The US hasn't had a recession while ride sharing was a mainstream thing, but other markets have.

pishpash• 7 years ago

Car ownership will be cheaper during a recession. Driver pay can't go much lower, especially with various social proposals being put on the table for 2020.

ddingus6• 7 years ago

He is way early.

Functional, competent self driving cars are not here yet. As we get closer, I think we will find few will want to own them. Why bother?

There are reasons, but those are few compared to those readons for cars we drive ourselves. We are likely to find, people will question the number of cars and share them a lot more.

But that state is still a very long way off.

The current slump in sales is both economic (way too many Americans buying used because new is not worth it, given tepid income)

...and a wait for EV cars to really arrive at price points worth buying new.

Looks like private car ownership is on the wane, but not really, not yet.

My .02

jdsully3• 7 years ago

Physics says if I don’t have my own car I’ll have to wait for one. The rideshare could leave a ton in the parking lot but that negates all the projected cost savings from higher utilization.

jedberg4• 7 years ago

As we get closer, I think we will find few will want to own them. Why bother?

Out of curiosity, do you have children? I know that my desire to own a vehicle has gone up considerably after having children. Right now in my car I have:

- Diapers and wipes for the baby

- A change of clothes for both kids

- Car seats for both kids

- A booster seat for use in restaurants

- A stroller

- Some towels (just used one yesterday to clean up a wet kid)

- Snacks

- DVDs for long rides

- Spare jackets for both kids

- Shopping bags

Sure, I could carry all of that around in a bag, but that would be a huge heavy bag, and where would I put it when I got where I was going? To say nothing of the need for car seats. Even as the kids get older and I don't need all those supplies, I can still see the value in owning the car and having all their stuff in it, whatever that may be (sports equipment, musical instruments, etc.). I imagine I'll need my own car until they are at least teenagers.

gautamdivgi• 7 years ago

I think the rush of IPO's may be because of some economic clouds on the horizon. Investors are probably looking to cash out while the going is good.

bfrog• 7 years ago

It's a game of hot potato, last one holding is the sucker

linuxftw7• 7 years ago

It's a leading indication of recession, as is mergers and acquisitions. Easy money (credit) dries up at the end of the business cycle, companies can no longer raise capital in private markets (or traditionally, through debt), go seek money from the markets. Similarly, large companies cannot grow revenue because there are fewer startup businesses/businesses are not expanding, and to grow revenue they buy other companies.

leesec5• 7 years ago

Yeah except Snap didn't have nearly the revenue stream that Lyft does. I'm still not sure what Snap's main source of revenue is, but Lyft clearly has tons of revenue pouring in and you'd think they'd be able to dial back their rapid expansion at some point to become profitable.

bduerst6• 7 years ago

Not to mention Lyft's revenue is growing fairly quickly, faster than their operating expenses. The GP's comment here is why it may be selling at a discount at IPO and then go up once it turns a profit and people like GP jump in. The cash injection can definitely help secure the revenue growth too.

bunderbunder7• 7 years ago

The unstated major premise there is that Lyft would be comfortably profitable if not for money spent on expanding their business.

I haven't looked at the balance sheet, but it seems like, if their path to profitability were anywhere close to being as easy as that, then you wouldn't have Horan saying that there is, "nothing in the document that suggests how that could be fixed."

britch• 7 years ago

Lyft has plenty of revenue to be sure. It also has lots of fixed costs. You can't just "dial back" paying drivers.

I also get the impression that the costs of rides are artificially low right now. Lyft is subsidizing them to encourage use. If the true cost of a Lyft is about the same as a cab, I can say personally I'd be more inclined to take public transit or a cab than I am now.

fullshark• 7 years ago

What is the story you can tell that paints Lyft as a good investment over the next 2 year period?

There's only one: it gets acquired

notyourwork4• 7 years ago

Given that people are currently signing leases and payment plans for cars that won't expire by then I'd say this is a bit of a stretch:)

Anyone who is signing up for payment plans that stretch 6 years is crazy and buying a vehicle beyond their means.

rootusrootus• 7 years ago

Or getting the money for cheap. At sub-2% interest I will take as much money as you're willing to lend me.

thatfunkymunki• 7 years ago

I got a 0% loan for a 6 year term on a new car in mid 2016. I think it was a great idea, effectively was given a discount on the car on top of the negotiated price at that rate.

esturk• 7 years ago

I don't consider car leasing to be car ownership. It's like saying leasing a house is home ownership.

With that said, car leasing is on the rise.

https://www.fool.com/investing/2018/06/08/why-rising-car-lea...

So Zimmer's prediction is still at play here.

ghaff8• 7 years ago

Leasing is just a financing model that may have implications for how assets are carried on a balance sheet.

sp332• 7 years ago

Snap had a good product and plenty of customers but was crushed by Facebook. What competitor will tower over Lyft like that?

chollida12• 7 years ago

Snap had a good product and plenty of customers but was crushed by Facebook. What competitor will tower over Lyft like that?

Well Lyft ha a good product and plenty of customers and is currently being crushed in terms of market share.

Wait till you hear about this company call Uber. They are 5x the size of Lyft and are capable of outspending Lfyt until Lyft is bankrupt.

rb808• 7 years ago

That would just mean its a zombie company that's going down sooner or later. If making it public makes it fail quicker, that is good thing. Keeping it out of the light and pretending its a good company just prolongs the inevitable.

temporalparts• 7 years ago

An investment thesis for Lyft is if you expect Lyft to get acquired. If profitability is nowhere in sight, then the end-game is acquisition. Companies that might want to get into ridesharing is long, and Lyft is the fastest (and probably cheapest if the stock tanks) path towards competing against Uber in the US market.

Any company that is working on self-driving cars will want to acquire Lyft: Google, Apple, Tesla, GM, etc

Any company that is in logistics space will want to acquire Lyft: Amazon, DoorDash, Grubhub, etc.

Any ridesharing company will want to acquire Lyft: Uber (defensively), Didi, Ola, probably not Grab, etc.

There will likely be a bidding war for Lyft because that's the only reasonable path towards competing against Uber unless you think self-driving car is < 5 years away.

mrnobody_67• 7 years ago

Why in the world would someone doing self driving cars want to acquire them?

Self driving car companies be able to offer competing service for 70% cheaper per mile. Riders will migrate for the drastically better price.

There's no long-term defensible asset in the Lyft driver network, and switching costs for riders are minimal.

benatkin2• 7 years ago

Any company that is working on self-driving cars will want to acquire Lyft: Google, Apple, Tesla, GM, etc

To me this is like expecting Netflix to want to acquire Blockbuster ten years ago. The investments Lyft has been making into self driving cars are mostly for show. Blockbuster was investing in the web back in 2009, but they were never close to catching up. If Lyft was far along in building self driving cars, they would be far along in other AI applications too. Everything Google and Amazon does that pushes the boundaries of AI makes them more capable of building a network of self driving cars. Google, Amazon, Apple, Samsung, Microsoft, or IBM might not build a self driving car network themselves, but if they're the kingmakers, will they want to help Uber or Lyft or other companies with more resources?

jonathankoren2• 7 years ago

This is all predicated on someone thinking that the rideshare buisness is profitable. It hasn’t shown that it is. Uber is also losing money on every ride, isn’t profitable, and still has multiple rideshare options, and side hustles of food delivery and freight. Same is true with every other similar company the world over. Nowhere is there the indication that the industry will be profitable anytime soon. People have assumed that if you could just stop paying drivers, the profits will come. They might, but fully autonomous cars don’t exist, and also, they seem much further off than they did just two years ago. Even Andrew Ng publically suggested that pedestrians should just change their behavior, because the AI doesn’t work, and won’t work for a very long time.[0] So betting on magic cars to save the industry is a bit iffy.

It’s certainly plausible that at some point, the companies simply burn through all their cash, and investors give up on expecting a return. That would kind of suck, but why keep throwing good money after bad?

[0] https://www.bloomberg.com/news/articles/2018-08-16/to-get-re...

opportune3• 7 years ago

A lot of these companies (GM, Tesla, all ridesharing companies except Uber, Doordash, Grubhub) can't/wouldn't acquire Lyft anywhere close to its current valuation though. Maybe some of those companies could grow to the point where they could, but I doubt it. Realistically the only company which could and would acquire Lyft at its current valuation is Google - Lyft doesn't mesh very well with Amazon now, Apple won't get into rideshare, Tesla and everyone else doesn't have enough money.

onlyrealcuzzo• 7 years ago

Google or Apple don't need to acquire Lyft. They can just -- wallet style -- add an OS component to hail rides (using their own maps app). And they can even force it to be on the home screen at all times.

Boom. They instantly have a bigger market share than Lyft. And, for Google, maybe even Uber.

I would say Uber's biggest challenge is if Google and/or Apple decide to commoditize the ride hailing marketplace. The ride itself is already a commodity.

They're both more or less testing this already.

I could definitely see a foreign company buying Lyft, though.

remote_phone2• 7 years ago

Lyft wasn’t bought 2 years ago at $5B. What makes anyone think that they would pay $25B now? The only difference between two years ago and today is increased market share which is at best ephemeral. It can be taken away as easily if competitors drop their prices.

benatkin2• 7 years ago

On Facebook this morning, I was shown an ad from a page called "Uber Assault", which was about a (potential) lawsuit over riders being assaulted, and there were a bunch of people chiming in that they didn't feel safe being Lyft/Uber drivers so they quit. It seems that perhaps drivers are more at risk than riders because even though the approval process for becoming a rideshare driver is very weak, it's much weaker for becoming a rider. Either way, people who had a bad experience were likely to avoid using it. I don't think Uber/Lyft is going to replace car ownership anytime soon, maybe for the six foot tall man like me but not for everybody.

Another problem is waiting for a car. I got robbed once while waiting for an Uber. One solution might be to wait for the Uber driver to arrive and then go outside. I tried this once the other day, not for safety but so I could hang out with friends. The Uber left less than a minute after I got messaged, and I got charged the $5 fee, so that isn't practical. It feels safer to be walking to a bus or rail stop, or to be waiting at a stop, than it does to be standing on a corner waiting for a car.

The idea that Uber/Lyft is going to replace private car ownership for everyone because it's replaced it for some is ludicrous. Public transit has done more to replace it for me (car-free by choice for 5 years) than Uber/Lyft. I usually only use Uber/Lyft when I'm in a hurry, and the cost Uber/Lyft rides just about cancels out the time savings.

Self driving cars might one day replace it, but I don't think that Lyft or Uber is going to be at the forefront of it. If they are it will make me more frustrated with how the tech industry operates, because it will show that the value of investment and brand far outweighs expertise. Uber/Lyft contain a tiny fraction of the deep learning, automotive, and transportation expertise that will be needed to pull off such a thing.

Finally the term "major cities" brings up the "no true scotsman" fallacy a lot. "Rent is high in major cities." Oh yeah? Dallas isn't a major city? If I don't live in a high rise downtown I'm not really living in Dallas? Eventually every major city will be eliminated in an argument and it will turn out that for the sake of the argument, there aren't any major cities in the world.

asabjorn2• 7 years ago

I agree. In addition to this its main competitor Uber has many other business units (eats, freight, etc) and can reinvest revenue from other countries where it is the leading rideshare provider.

The S1 shows that Lyft on the other hand is loosing a significant amount of money on all trips through its position as the second player in all markets its in.

How is it supposed to decrease that loss?

hopler5• 7 years ago

"major us city" is quite a weasel term. Manhattan? Queens? SF? San Jose? Phoenix? Austin?

throwaway-12832• 7 years ago

Basically what will happen is that in some month X after IPO the company will be forced to pull back on new driver incentives (the thing that is really making these companies bleed cash), which will slow driver supply growth, which will increase rider wait times and/or make prices spike, which will lower demand, and thus slow growth, and kill the stock price.

I wouldn't touch this at all. Or short it if you're brave :)

linkregister9• 7 years ago

If/when Lyft decides it can't grow any more, it will dump the unprofitable cities and focus on the cash cows: LA and New York, etc. The large cities are quite profitable and will be enough.

That said, it's better for society if the unprofitable cities are served by competing ride sharing services. It's kind of like how the US Postal Service makes money in the cities and loses it in rural areas.

annon• 7 years ago

Giving the founders 20-to-1 voting rights over regular investors while losing as much money as they are is insane. This really looks like a lemon, and the VC's want to cash out and leave public investors holding the bag.

I don't see how self driving cars are going to help them. Waymo and Tesla are both the farthest along, and they're going to run their own networks - competing against Lyft and Uber.

nfriedly• 7 years ago

I don't really disagree with you, but I think (or, at least, hope) that there will be room for more than 2-3 players in the "self driving taxi" market.

erikpukinskis3• 7 years ago

The thing that would cause that is if there is some requirement for massive amounts of difficult to obtain data that is required to build a competitive system.

I do think data is a competitive advantage right now. But I find it really hard to believe that 10 years from now it will be harder to build a self driving system than today. That's just not how tech is. Building YouTube was a herculean endeavor 15 years ago, but today you can hack a YouTube clone together in hours.

Not just will we have more off the shelf software and hardware, but maybe you can license the data too.

In the end, I don't see the moat around a self driving cab company. If someone has a good app and a single car that operates in my area, why not switch to them?

Sure there are wait times and availability in odd places. But that doesn't inhibit a startup getting early adopters. You could literally just do the same commutes every day and have a profitable business.

Lastly, I expect the variety in vehicles and "mobile spaces" will provide a huge landscape of opportunity that a single company will not be able to fill. Just like there is not one "housing" company, there won't be one mobile housing company either. Too much variation in taste and preference.

notyourwork4• 7 years ago

There might be but the point is that Lyft and Uber valuation is deflated if you assume they are not the dominant forces in a self-driving car industry.

lambda_lover• 7 years ago

Their share structure prevents them from ending up in ETFs, so one of the largest segments of investors literally won't be able to invest in them. Seems more like VC wanting to cash out and leave employees who can't sell their shares yet holding the bag.

elliekelly4• 7 years ago

Their share structure prevents them from ending up in ETFs

I've seen several people say this but I don't understand why, can you explain a bit further?

ProAm2• 7 years ago

The problem with both Lyft and Uber is they have MASSIVE VC investments they need to pay back, and while the business model is good its not nearly good enough to payback VC within the 10 year window. Uber will be in the exact same boat next year.

thcsa• 7 years ago

It's not the companies (and their earnings) who will pay back investors. Other bagholders will do that once they go public.

throwaway-12832• 7 years ago

What do you mean "pay back"? If you're talking about liquidation preferences those all go away in an IPO.

ProAm2• 7 years ago

All the investors that 'purchased' a percentage of the private company with their investment during funding rounds will want to see ROI when the company goes public (or if the company is insanely profitable while private). Most of these VC's expect to start seeing ROI around the 10yr mark. The company isnt remotely profitable still privately held, so lets go public and get other suckers to buy in so the early investors can cash out and hopefully make a buck or two or at least breakeven.

robot• 7 years ago

I get a lot of promotions from lyft that make me think they're desperate.

sumitgt• 7 years ago

I think it's just part of the blitzscaling process.

Invictus0• 7 years ago

They're not really promotions. All those 20% off emails only give you 20% off Lyft's fee, not the whole fare. It saves you a total of maybe $2 on an average ride.

popz412• 7 years ago

I disagree, my email yesterday said "50% off your next 10 rides. You have 10 rides remaining. Max savings of $6 per ride. Discount applies to the fare, Prime Time charges, Service fee, tolls, and taxes only."

throwaway0827294• 7 years ago

Once Waymo has fully autonomous vehicles on the road, they'll look to acquire Lyft for a decent price. Lyft has the brand value and the infrastructure for ride calling (intentionally not using ride sharing) except that drivers will no longer be needed. Profits will be through the roof when that happens.

leesec5• 7 years ago

There are 1.4 million Lyft drivers in US and Toronto.

Waymo is going to buy and retrofit and provide 1.4 million cars?

i_cant_speel• 7 years ago

Those 1.4 millions drivers aren't all driving at the same time. They would only need a fraction of that many cars and they could be built over an extended period of time.

obmelvin• 7 years ago

1) The transition doesn't need to happen overnight nor does the transition need to entirely replace human drivers

2) 1 human driver != 1 autonomous car. While cars need servicing, they don't get hungry or tired or have a family to spend time with

treis3• 7 years ago

Once Waymo has fully autonomous vehicles on the road, they'll look to acquire Lyft for a decent price

Google would have no need to buy Lyft. Google Maps has a much bigger install base and already has ride share integration. Lyft does have technologies that would be useful like matching riders and drivers and Lyft Line. Creating that back end is not trivial task for Google but it not a 20 billion dollar one either.

willart4food2• 7 years ago

Well same for Uber and we all knew that. It's just the business model (for now).

So, in a world where we are all used to Uber/Lyft and there's no turning back, the only way forward is for fares to go up, close to - if not the same - to conventional cab fares. Which will decrease usage, which will decrease the size of Uber/Lyft and therefore their market cap. Sounds like 1999

ghaff8• 7 years ago

I honestly, albeit naively, expected that when Uber put in a new CEO, they’d take that opportunity to raise prices to break even levels which presumably end up around where taxis are. Take the volume hit; customers who are only interested in VC-subsided rides aren’t customers you want. But I guess everyone decided to continue to pretend that the current business is sustainable.

djsumdog4• 7 years ago

They're probably still holding on to the dream of the self driving vehicle ... which is practically at least 15 years out at this point .. probably more like 20~25.

willart4food2• 7 years ago

It's an interesting "Game Theory" type game. The VCs keep finding Uber/Lyft because... they have a lot invested already, and the paper valuation is high; but each round is higher and higher stakes. Once these unicorns IPO's, after the lock-up period the VCs are somewhat free to exit (be careful about dumping). Once IPO'd and the VCs are out, who cares if they crash and burn!

But on the consumer side, we're used and hooked to the Uber/Lyft experience and prices. The experience can be duplicated with tech, the prices... not so much.

Here's an interesting blowback twist: let's say that on unrelated news TSLA crashes (I am a TSLA investor, so.. not wishing it), it would have ripple effect on the entire tech segment, closing the IPO window for a while. So, then what for Uber/Lyft?

We live in interesting times!

JohnJamesRambo• 7 years ago

It's almost like cabs were already charging as low as the business model would allow...

pochamago2• 7 years ago

What are the big expenses that cost Uber and Lyft so much? The driver takes the cost of owning and maintaining the vehicle, and they're only paid a fraction of whatever rides they get. Aren't the companies just running an app?

mosdl2• 7 years ago

They hired a lot of engineers working on internal stuff. Probably will have a large layoff round to reduce costs.

EpicEng3• 7 years ago

They don't lose billions each year on engineering. Not even close.

lhorie5• 7 years ago

Biggest expenses are keeping driver supply high in new cities until the service adoption gets traction among consumers, and customer support / fraud mitigation (again, primarily in new cities).

For the most part, established cities are profitable (at least for Uber, I don't know the story for Lyft).

pochamago2• 7 years ago

That makes sense, but it makes me skeptical, then, of the article's claim that they have no path to profitability.

blang• 7 years ago

I wonder how much litigation is costing them.

shereadsthenews• 7 years ago

Because of churn and driver recruitment incentives Lyft pays the driver more than it charges the rider. For example a new driver gets 80% of the fare plus $8 per trip in the first month. If you can pick up 155 people per week, Lyft also eats the entire cost of your vehicle. Also, Lyft is paying 100s of millions of dollars to Amazon and Google to run their app.

notyourwork4• 7 years ago

I'd be really interested to know what resources they are using in cloud and why it is so expensive. I don't disagree they need resources but 100s of millions seems a bit on the wasteful side.

bonestamp2• 7 years ago

If it's the same as uber, they are subsidizing the cost of rides. They also spend a lot on advertising and promotions, which is necessary for awareness in new markets and to attract more drivers. Or in the case of uber, to convince people they're safe, respectful, etc.

dmitriid• 7 years ago

The main expense is driving out any competition by price dumping: rapid expansion, subsidising trips for (1-3-6-12 months) etc.

Since they have infinite investor cash (for now), they can do that in many countries at the same time (hence the costs).

All this will eventually crash, and/or Uber will be forced to comply with labor/taxi/etc. laws.

samstave3• 7 years ago

What level of equity are Uber and Lyft drivers given in the company? Any?

Are they "earning shares per mile" or anything like that?

If not - then screw both companies, and I hope they do poorly in the IPO -- even though ridesharing is such a wonderful service - I really hope they do right by the literal foundation of their existence, which is the drivers.

kbutler• 7 years ago

How much of their cash compensation should come in the form of stock instead?

EpicEng3• 7 years ago

That seems completely unreasonable. Lyft contracts with more than 700k drivers. How in the world could they give each driver a meaningful share of options while also maintaining a controlling interest in the company? Let's also be real here; the supply of drivers is endless. It's about as far from a skill position as one could imagine. Would you be ok with their pay being decreased as well?

Marsymars• 7 years ago

How in the world could they give each driver a meaningful share of options while also maintaining a controlling interest in the company?

Not commenting on the practicality, but when choosing between traditionally cab companies, I preferentially go with ones that are driver/employee owned.

ptero• 7 years ago

Giving drivers equity in the highly speculative company strikes me as a strange requirement. It may be attractive to some, but irrelevant for others. If I worked for Lyft or Uber I would much prefer any earned money given to me in cash which would let me decide what I want to do with this money: invest in IPO or post-IPO shares, invest elsewhere or spend it on something different. My 2c.

plink• 7 years ago

They shouldn't for the same reason that McDonalds doesn't give equity to cows.

scarmig2• 7 years ago

That's likely how investors think of the chumps who drive for them, but that doesn't mean that workers shouldn't get an equity stake.

kelnos• 7 years ago

I expect that the average Lyft or Uber driver is much more interested in putting food on the table than engaging in ridiculously-speculative and -risky private-company investing.

fargo• 7 years ago

Would it be wise for someone to go work for lift given this information? Asking for a friend...

lukewrites• 7 years ago

I think both Lyft and Uber are pursuing IPOs because the private market has soured on them. The VCs want to get their payout and are starting to fear a down round…so the companies will go public, the investors will get their payouts, and whoever buys will eventually regret it.

Animats2• 7 years ago

"The dual class structure of our common stock has the effect of concentrating voting power with our Co-Founders, which will limit your ability to influence the outcome of important transactions, including a change in control. Our Class B common stock has 20 votes per share, and our Class A common stock, which is the stock we are offering by means of this prospectus, has one vote per share."

No-voting-power stock for a company that's losing money? No. Companies that have done that before, such as Google and Facebook, were profitable before the IPO. That's when you want to keep the management team. With Lyft's numbers, firing the current management might not be a bad idea. They've had their growth phase; now they need to move to profitability.

If you haven't read an S-1 before, you skip all the happy talk and go directly to "Consolidated Statements of Operations".

djsumdog4• 7 years ago

To be fair, I doubt any management could make ride-sharing companies profitable. The sooner they go under, the sooner drivers start making livable incomes again.

dnautics2• 7 years ago

The sooner they go under, the sooner drivers start making livable incomes again.

Have you actually been a driver? I can assure you that having been one, in the Bay area, even, the income was quite livable.

EpicEng3• 7 years ago

The sooner they go under, the sooner drivers start making livable incomes again.

What do you imagine they'll do? Are there other, better paying jobs these people can be doing? If there are, what are they waiting for? Would the collapse of ride sharing somehow create new, better paying jobs elsewhere?

midnightclubbed• 7 years ago

My impression is that many drivers are not using ride-sharing as their main single income. Of the last 10 rides I took I think only one was using Uber as their main income. Of the rest there seemed to be a mixture of ride-sharing filling in between jobs (truck driver, real-estate agent) and as a way to make money and socialize during 'free' hours.

djsumdog4• 7 years ago

Lately my phone will die at 30% charge. I've ordered a new battery but last week it went out while I was looking for a Lyft. I normally don't use taxis but it was cold and I was tired.

Luckily I was near a train station and it was still early enough the buses were running, so I knew which transfers to make and which bus to get on without needing a map.

Still I thought about how only a decade ago, I could be on this same street and hold up my hand and flag down a Taxi. Today if I really wanted a taxi, they're pretty much only in the city. I'd have to hunt around for a payphone and would need change too.

If I didn't know my public transport routes back home or if it was late enough the trains stopped running, I'd be kinda SOL. I realize Taxis not just driving around saves on fuel consumption, but have we lost something by simply not being able to hail a cab without a charged phone or laptop with a Wi-Fi point?

I wonder if Uber or Lyft will start putting out kiosks people can use to flag down rides when their phones or out.

RomanPushkin• 7 years ago

Yes, we've lost it. However, it can be fixed. I created app so everyone can be a taxi driver. It's PoC, but actually works. There are tons of problems, no critical mass, security. But anyway, I was once able to find a ride back home from San Francisco.

This app is for everyone at https://libretaxi.org (non-profit, open source)

Disclaimer: I'm founder

coolspot• 7 years ago

Interesting that your app is Telegram bot instead of separate application. Will try it given the chance.

jon-wood• 7 years ago

As much as I love to see Open source solutions to problems having looked at the website this seems like a disaster waiting to happen without any sort of driver vetting. You’ve effectively made an app where people can broadcast to random strangers that they’re waiting around in the street, carrying cash, and far enough from home to need a lift. Sadly we don’t live in a world where something like that isn’t going to be flooded by people with ideas other than making a few bucks driving people home.

BeetleB• 7 years ago

Still I thought about how only a decade ago, I could be on this same street and hold up my hand and flag down a Taxi. Today if I really wanted a taxi, they're pretty much only in the city. I'd have to hunt around for a payphone and would need change too.

You just happen to live in one of the few cities where this used to be possible. For most of the country, even a decade ago, it would be very unlikely to find a cab by just waiting on the street. Maybe in downtown areas, but not on most streets.

I've never lived in a place where I could rely on a taxi driving by when I need one. It's always been "Call a taxi on the phone".

pastor_elm• 7 years ago

Three words: Ads, ads, and ads.

Ads is how you make money. All lyft needs to do is incorporate ads into its platform and it will start printing money.

tgeo• 7 years ago

At this point I'm convinced this is a troll account

justfor1comment• 7 years ago

For me the saddest thing is that even if Lyft stock tanks after the IPO the founders Zimmer and Green will have very little impact to their personal finances. The founders along with the investors will be able to move most of their stock through the markets making them billionaires. It's mostly the Lyft employees stuck in the post IPO lock up period who will be hurt by the dip in stock value. Another reason why the rich keep getting richer.

puranjay2• 7 years ago

Isn't the founders' holding severely diluted? They've gone through, iirc, over a dozen rounds of funding and own very little in the company

Sohcahtoa822• 7 years ago

Even owning 1% of a $15B company still makes you worth $150 million.

Dumping even 2% of that $150M would give you enough to retire.

adventured• 7 years ago

The two founders will each own between 3% and 4% of Lyft after the IPO (so $600m to $800m at a $20b market cap). Recode pegged the number at a combined ~7%. Even in a bad scenario in which the Lyft stock dumps in the 6-12 months post IPO, the founders will be very wealthy (consider that its value could collapse to $3.5b and their stakes are still worth roughly $100m each).

More interestingly, despite the relatively small ownership stake they nearly majority vote control Lyft through dual-class shares with a very unusual 20 to 1 vote ratio versus the normal shares.

nostromo• 7 years ago

Eventually this will self correct.

Snap was valued around $20b in its F round in 2016. And it's valued now around $12.5b.

For a long time the public market has been viewed as the dumb money -- but for some of these companies it may actually be the late round investors that are caught standing when the music stops.

linuxftw7• 7 years ago

The public market is dumb money. How many people have their 401k's allocated in 'growth stocks' of which surely lyft/snap will fall?

It's almost like it's a rigged system. Someone in Wall Street gets paid off, you IPO at such and such a price, that gets you into the institutional holdings.

marcell2• 7 years ago

Let me propose another analysis which shows this is perfectly fair.

The founders created a company which delivers value by connecting over 1 million rides a day. Those riders benefit from Lyft. Additionally, riders on Uber benefit from lower prices due to competition. The IPO profits to the founders and investors are their reward for delivering this value.

If you assume each ride has $1 of consumer surplus, then they are delivering over $350M a year of consumer surplus a year.

As for the employees, first of all they all received base salary and benefits. They may not receive millions in the IPO, depending on when they joined, but that is the risk of working at a pre-IPO company. They all had the option to work at Google for a more predictable income.

mattmanser• 7 years ago

This sort of nonsense is why there's such a gap growing between the rich and the poor.

It sounds logical, but it's in fact just another way of a few marginally deserving people taking a disproportionate amount of the proceeds of a group effort.

popz412• 7 years ago

In the past two weeks I've been receiving offers for discounted rides from Lyft. First was 30% off for a week, then yesterday I received a code for 50% off this week. It seems they're trying to inflate their ride numbers quickly. I have not received any promotions prior to this, and I've been a member for over a year.

scottnyc• 7 years ago

No question. It's pretty evident they are aggressively spending on acquisition to boost their top line numbers. Timing wise, this effect will probably show up after they IPO and for their first publicly reported earnings announcement. Which will hopefully keep the stock price high long enough for the employee lock-up to expire.

FireBeyond• 7 years ago

Every day for the past week I've got a "$5/$10 off your next ride" discount email. They all have different codes and expiry dates, so absolutely they're doing this, considering it's the first time in multiple years I've gotten any such thing.

ChuckMcM3• 7 years ago

Yeah. And while this says a lot about Lyft, for me it really really says a lot about Uber too.

It has never been impossible to run a company by injecting money into it to cover the difference between how much customers 'value' the product versus what it costs to provide the product. But the dot com days showed that without a point in the business model where the value exceeds the cost by enough margin to keep the business going, such businesses don't survive.

What neither Lyft, nor Uber, has yet provided is a credible 'size' at which they would be a going concern (covering all their costs), nor a really good idea of how being larger scales revenues more than costs in sufficient measure to become profitable.

I would love to see a document that describes the 'per driver' costs that these companies incur on a location basis (so costs per driver in Los Angeles CA, and per driver in Minot ND) vs revenue expectations per driver vs total available livery miles (how many people would have to want to go somewhere to support those numbers). Then you could at least see if there were any islands of profitability in that solution space.

So far, I've yet to see anything where the answer is net positive. Worse, any positive solution will be very fragile by definition because the barrier to entry is zero and so a third party can unilaterally drain profits out of a ride share company by starting up an unprofitable competitor and funding it out of pocket until it has done the required amount of damage.

bunderbunder7• 7 years ago

To your last point, my read on the history of taxis in the USA is that that was roughly what was happening during the early 20th century, until some regulation came along to create artificial barriers to entry. Uber broke down those barriers to entry, which allowed them to disrupt the incumbent taxi companies. But it also means that there's not much to protect them from being disrupted themselves.

The taxi situation in most cities was awful before rideshare came long, and the taxi cartels' rent-seeking behavior produced produced some gross externalities (the lack of any train lines going to LGA comes to mind), so this has perhaps been a net benefit to consumers. But Uber and Lyft are not charities, and that fact has no bearing on their viability as businesses.

xvf222• 7 years ago

The lack of any meaningful rail / subway connection at LGA is something I have to deal with on a regular basis. Probably won't change anytime soon either which is unfortunate.

slg2• 7 years ago

These ride-sharing companies are still in their mailing DVDs phase of their business. The ultimate goal is clearly to use self-driving tech to cut the costly human labor out of the system and that remains the most obvious path to eventual profitability. The questions then just become which is the first company to get this tech safe enough to deploy to general consumers and which players can survive being unprofitable long enough to make it there. It remains to be seen which companies in the ride-sharing space are the Netflixs and which are the Blockbusters.

jlarocco4• 7 years ago

Won't self-driving cars only make the problem worse?

Many people use Uber because they don't want to drive when they go out, but if their car can drive itself, why bother with Uber?

ChuckMcM3• 7 years ago

So let's stipulate for now that this idea (all self-driving cars) is their "end game" for the sake of argument.

If you take their current numbers, and set the amount of money they pay drivers to 0. Are they profitable?

While you could imagine that money going to the service instead, the missing piece there is that the drivers own (or lease) their cars and absorb that cost, so does what the driver makes cover the costs associated with owning the vehicle? (gas/energy, depreciation, maintenance, insurance)

Does doing this at scale have better margins than say an individual offering their self driving car as a livery service during the 'off hours' and keeping all the money it generates?

lhorie5• 7 years ago

(disclaimer: I work at Uber, but opinions are my own, etc)

On my employee orientation a few years ago, we were shown charts from the finances team with breakdown of gross income vs the various cost centers and they were talking about how established cities were profitable and new cities were not due to various reasons (see my other comment downthread)

My personal take on this is that eventually the world will run out of cities for Uber to expand into and every city will either be profitable or deemed not worth entering.

I don't really buy the argument that any fat slob willing to burn money can displace Uber in an established market in any significant way. The stealing marketshare strategy only works while all parties are still growing in a given market. Once the growth stops, it's a race to the bottom, and I don't think any investor wants that.

Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale, and at some point, the law of diminishing returns will probably make it not worth for someone else to try to be the third or fourth competitor in a given market.

At that point, if I were investing, I'd be pressuring those companies to either partner up, be acquired or cut some sort of exclusivity deal, giving Uber a share of profits.

And from history, that's exactly what has been happening. Uber left China by cutting a deal to take a cut of the pie, it partnered in Russia, and now there's the rumour about the Careem deal.

vkou2• 7 years ago

Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale

So, the end-game is driving competitors out of local markets, by using profits from other markets?

This sounds like a great argument for Uber getting broken up, as a monopoly - if it actually achieves this endgame.

Retric• 7 years ago

Profit in a city is not enough to ensure a high valuation. They can clearly survive as a ~1 Billion dollar company, but that would represent huge investor losses.

The risk is not an unprofitable competitor it’s a lower margin competitor. Large cities have long supported multiple cab companies which caps Uber’s profit per city, and worldwide their are not that many large cities.

Really, they would need to be making 100+ million in profit just in just NYC to avoid that crash. But, those kinds of profits would clearly attract competitors long term.

hopler5• 7 years ago

I don't see how being a "fat slob" is relevant to the discussion in any way. It's just toxic for no reason, and it doesn't belong here.

bane2• 7 years ago

What's really interesting, and I think what's unclear is this: what's costs these services so much that they can't turn a profit?

Their costs, other than taking a haircut on the ride, doesn't seem entirely clear, or obviously large.

A 2017 number says Lyft completes about 360 million rides per year. For fun, let's say they make $1 per ride, are they really not able to run their front-end operations with around 1,000 employees? (assuming an employee costs about $250k-300k/yr)?

That seems crazy to me, but I don't know what hidden costs there are. From an outside PoV it appears they need to run a more or less static website, about 4 smartphone apps with some back-end routefinding and accounting systems.

What am I missing?

hopler5• 7 years ago

Lyft charges $2/ride plus some wiggle around discounts and surge pricing.

mosdl2• 7 years ago

Which is why I expect massive layoffs at uber/lyft, they have too many employees for the simple things they do.

lazyasciiart2• 7 years ago

I'd guess you're underestimating the cost per employee by about half, is one factor.

nabaraz2• 7 years ago

Last I looked at Uber's financials, 90-95% of their expenses was driver earnings. And then you have operating expenses that includes employees, promotions, r&d, regulatory fees, marketing, support, new investments etc.

Uber's margin is probably under 5% which simply isn't enough.

wonnage• 7 years ago

AWS/Google Maps/Foursquare etc. bills probably add up.

Customer service - Uber seems to have decided it's cheaper to just allow a few no-questions-asked refunds for cancellations than actually getting humans involved every time

Office space (in SF!) to hold all those employees

"some back-end routefinding" becomes hideously complex once you factor in:

- real-time road closures

- lyft line matching

- traffic modelling

- time-of-day turn restrictions

- normalizing data from various regional map providers

- routing itself is NP-hard

em3rgent0rdr• 7 years ago

And there's little profitability when your business model could be easily replicated with a simple open-source IRC bot, similar to https://libretaxi.org/

jeffdavis• 7 years ago

This article seems excessively negative about a company:

* Which provided $8B worth of rides in a single year

* Didn't hurt anyone

For crimes which amount to:

* May cost some IPO underwriters money

* May not make all of the employees rich

* May cost VCs money

The worst thing to really say about such a company is "I enjoy their convenient rides but I won't buy their stock".

Instead, the article attacks the founders for their age (too young), ridicules their visions of the future, and compares them to other young founders. Bewilderingly, the author compares the founders to Zuckerburg, which doesn't fit the point of the article at all. Not content with all of that, the author takes a shot at Musk for selling fantasies, when he has done more than many people thought possible.

themagician• 7 years ago

Didn't directly hurt anyone in an easily quantifiable way.

It's not clear that Uber or Lyft are net positives to society. They are disruptive, but not necessarily in a good way.

Yes, they provided $8B worth of rides. But before that people still got around. What the world might have been like without Lyft is impossible to know, but the way it's changed the job landscape isn't exactly a huge net positive. It's put a lot of cars on the road and it's set to new "floor" for jobs in general. Uber, Lyft, Taskrabbit, DoorDash have created a new kind of serfdom.

I'm not saying it's a bad thing, necessarily, but I wouldn't say that they didn't hurt anyone. They definitely hurt social progress.

googlemike• 7 years ago

They (Uber and Lyft) radically reduce drunk driving in every city they enter. They also radically simplify access to transportation for people of color, women, etc.

linkregister9• 7 years ago

Uber, Lyft, Taskrabbit, DoorDash have created a new kind of serfdom.

Why are people driving/tasking/delivering for these platforms? They all have their reasons. The value of just doing some work casually to get some quick cash is amazing. It can mean the difference between getting evicted and supporting one's family. They don't need to negotiate a schedule with an employer, apply for a job, get fired if they need to miss work. They just log in or don't.

One group of people who are universally harmed are taxi drivers. Their outcomes as rideshare drivers are worse, e.g. they must drive for 20% more hours to make the same amount of money.

all_usernames• 7 years ago

In SF, most of the drivers I've met have been commuting from places 1.5-2 hours away to drive in the city all weekend. Is this a good thing? Depends on your point of view.

Certainly the crush of additional cars double-parking in bike lanes, making illegal turns constantly, and driving poorly on unfamiliar streets has reduced the quality of life in SF -- speaking as someone who has lived there for nearly ten years.

thisisit3• 7 years ago

You actually missed:

* May cause public to lose their hard earned money

because of the hype surrounding the IPO.

badinsie• 7 years ago

they are the literal definition of a parasite how are they not profitable?

duderific• 7 years ago

I would gladly pay more than a cab to continue to have the convenience of being able to get a ride when and where I need it.

I remember back in the pre-rideshare days, trying to call a cab ahead of time, and having them simply not show up, with no warning or notification.

mattnewton2• 7 years ago

I’m bullish on ridesharing as a segment but bearish on uber and Lyft, simply because I think both have been run like landgrabs - large VC backed pushes to jumpstart demand and find drivers. In this case though I think the land won’t stay “grabbed”.

Every driver I have seen is driving for both services and would add a third if someone told them about it and it payed equitably, so I think all the work uber and Lyft have done to make a market can be leveraged by third party competitors if they start dialing up prices to become more profitable. And I think they will need to do that to meet their valuations.

This isn’t like Facebook where a larger network acts like a moat keeping competitors out. Instead, I think it actively makes a market for competitors- the friction for drivers is pretty small, and I don’t know the friction involved for getting users to download another app but I imagine it’s pretty low. Because the drivers are the same it’s a commodity, and switching between apps costs me nothing.

Disclaimer: I probably don’t know what I am talking about.

millisecond• 7 years ago

I think you’re totally right, until you consider the shared/pool options. Those can be both really cheap and really profitable if you have the density.

linkregister9• 7 years ago

I agree that neither riders nor drivers have any affinity toward the ride sharing platforms beyond cost and availability. That said, the incumbent in an area typically wins due to the chicken and egg problem of riders and drivers. Didi vs. Uber, Grab vs. Uber, Uber vs. Juno, etc.

Lyft's market share is as high as it is because they invented the ride sharing category. Uber's market share is higher because the Uber Black service was present in more cities, so it could use its existing operations staff and rider network (and lobbying presence).

mattnewton2• 7 years ago

But the chicken and egg problem is partially solved by having lots of chickens already around laying eggs for other services. So I only have to convince people already driving to download my third-driver-app, and then riders have chickens. There is some evidence of this happening in places like Austin.

angel_j• 7 years ago

I'm trying to think of some way a large equity firm could make money on shares that are almost certain to go from high to low...

thisisit3• 7 years ago

I have been reading Lyft S-1, especially their risk factor assessment. While it is full of normal warnings like limited operating history, competitors etc. One of the warnings stood out for me.

Our results of operations vary and are unpredictable from period-to-period, which could cause the trading price of our Class A common stock to decline.

If this is the case, I wonder how do they can they even predict their future growth? How much credence can be given to the data they present or expect about their growth?

aiisjustanif2• 7 years ago

All of this talk sound surprising similar to airlines.

- LCCs (Low Cost Carriers can come in and disrupt your fragile net profit, if you get close to it in a quarter)

- Always pretty much operating in the negative.

- Consumers find a lot value in the company even though the operating cost are insane.

- The only way to solve the issue of airlines being in debt for years was time to slowly cut operation cost and scale, massive scale (albeit, there are a couple exceptions today now).

- Local market competition in cities are hell to forecast and balance out operating cost to how profitable you can be vs competitors. Which create cities you grow dominant and via reputation and government policies.

- They piss off investors because they have to trade off and invest in the operating cost (fleet or employees) some years, which can effect the companies earning for years.

I get they the rideshare industry is vastly different than the airline industry in many ways (for example, oil price influencing one more than the other), but I think they are similar in important ways.

Uber and Lyft will have to start taking out pages from LCCs in Europe to get ideas on how to become profitable (and probably piss off customers by nickel and diming them) and any ideas they haven't from the taxi industry that they may have over looked. Hell maybe even adapt into the rental space. I don't know the answers, but just sounds like an industry I've seen before that will have to move mountains to been profitable.

Sidenote: I will not be surprised just like American, Delta, and United that Lyft and Uber will soon see government sponsored competition (China, Russia, Middle East countries) in future and be pissed because of how unfair they are because they can operate in the negative without consequences of failing.

Lyft’s IPO disclosure shows it’s not close to profitability

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