We talk about Lyft vs. Uber a lot on the site and today, RSG contributor John Ince, takes a look at just how much it costs to compete with Uber. Let us know what you thought of this week’s stories in the comments below.
Today I’m going to focus on just a few articles that highlight two dimensions of ridesharing that deserve greater scrutiny – the financial outlook of rideshare companies (especially Lyft) and the international future of ridesharing. Bloomberg, Business Week was the first to break the big story about Lyft’s finances, based upon a presentation document they’d obtained. The presentation offered much more insight into Lyft’s finances and strategy than had been publicly available before. Many others including the Wall Street Journal, picked up on Bloomberg’s revelations and offered their own interpretations of the numbers, as I will also do below.
The Sum and Substance: Behind the friendly pink mustaches and fist bumps, Lyft is spending furiously to maintain second place in the U.S. ride-sharing industry, and steal market share from the distant leader, Uber Technologies. The expensive battle plan helped Lyft claim a fourfold increase in active passengers on 2.2 million rides in December 2014, but growth is beginning to slow, according to a company presentation to investors that was obtained by Bloomberg. Lyft estimates $130 million in revenue for 2014, according to the document. The presentation offers a revealing look inside a company that’s sweeping U.S. cities, and attracting the attention of venture capitalists and regulators. The presentation, compiled for its $530 million fundraising round announced on March 12, includes recent and projected revenue, ridership figures, marketing costs, and other data about the business.
My Take: If one takes the time to dig into these numbers there’s a lot to chew on – laying out clearly how much they’re making and how. In 2014, Lyft had gross revenues of $130 million. But, the document confirms a suspicion many of us have held about Lyft – they are not yet profitable and are able to sustain operations only on the basis of capital coming in from investors. The most fascinating number here is $530 – and not the $530 million they just raised. $530 is how much Lyft spends annually on “marketing” for every driver and 22 passengers in San Francisco. But it takes Lyft nine months to recoup those marketing expenses – not a good sign. What exactly they included in this figure is unclear, but we can be fairly sure that the signup bonuses are part of it. Since those huge, doubled sided, $1000 bonuses were announced after Lyft’s most recent $530 million funding round (for which the Bloomberg obtained document was prepared) we can assume that the marketing figure probably will be going up and not down, in the next report.
Lyft’s strategy is pretty clear – grow – grow – and grow some more. They recognize they’re in a life and death struggle with the bigger and better capitalized Uber in a game whose dynamics exhibit classic network effects. The more drivers Lyft has on the road, the less time passengers have to wait for pickups (emphasized in this report in seconds) and then more passengers request Lyft and then the more money drivers make and the more drivers they have on the road and so on in an upward spiral – or so Lyft hopes. The question is how long investors will be willing to believe Lyft’s story that they’re becoming more competitive with Uber.
The other big mystery mark in all this is why Lyft (and Uber) are willing to throw around so much money to recruit new drivers, and so little to retain them … Harry has written extensively on this, but it’s worth emphasizing. If a Lyft driver jumps ship to Uber or Sidecar, or is de-activated, whatever Lyft (or Uber) spent on recruitment is mostly burned capital.
When looking at the numbers in this document, we need to remember that they reflect business operations during a generalized period of prosperity, especially in the United States. The impressive growth takes place in an economic environment where passengers have a lot of disposable cash– so much that they seldom think twice about paying $5, $10 or $20 for a short ride in town. Whether these numbers will hold up, (or increase as Lyft projects) should the economy hit its inevitable downturn, remains to be seen.
So, how long can Lyft function using investors capital rather than sustaining operations through profits? That’s the big question. With most of the recent $530 million still in the bank, it’s not time for Lyft to panic. If the numbers continue their upward trajectory, as Lyft projects, they likely will start to turn a profit within a year. But in any case, Lyft is still in a race against time. It’s unlikely that investors will keep the faith, if within a year or two, Lyft has yet to turn the corner towards profitability. Should the economy tank, should Lyft continue it’s present burn rate for an extended period or should investors lose confidence – it would likely send Lyft into a downward spiral of fewer passengers – few drivers and lower revenues.
Another interesting takeaway from the numbers, is the dramatic increase in Lyft’s share of total revenues from 6.7% in July of 2014 to 25.7% in December. This is the direct result of Lyft phasing out it’s earlier policy zero commissions. I’m a little perplexed how they got to the 25.7% number since now Lyft takes a 20% commission on fares. Perhaps they’re making more than that with Lyftlines, but this counters word I’ve heard that Lyft was (and quite probably still is) subsidizing Lyftline so drivers don’t take a hit. Or perhaps, some of their other revenues sources through advertising or business partnerships are increasing.
The Sum and Substance: UBER WAS ROCKED late last year by the allegation that a driver raped a female passenger in India. The company responded by promising to revamp its driver screening process in the country. Now it’s updating an in-app panic button for users in India to beam real-time driver, passenger, and location information directly to local police. … Uber said today it’s tested the system in Kolkota and is in “advanced discussions” with authorities in multiple cities across India to integrate with the panic button, which also immediately places a call to police. The company expects to roll out the update widely in the coming weeks.
My Take: While Lyft has yet to expand overseas, Uber’s ambitions extend well beyond our own shores. Their international growth figures have been impressive, not withstanding rebuffs in Germany and other parts of Europe. Two articles this week highlight the unique challenges – business, regulatory and cultural – that Uber faces on the international front. The first article concerns Uber’s effort to rebuild its image in India, in the wake of rape allegations, by introducing a technological fix – “the panic button. One can only wonder that if this succeeds in India, how long will it be until it arrives here in the United States.
The Sum and Substance: China’s largest ride-hailing company is looking to move well beyond just taxis and limos to create a comprehensive transportation platform for the world’s most populous country. … Earlier this month, Kuaidi Dache and Didi Dache ended their pitched battle for the No. 1 spot and merged to create a united company estimated to be valued between $15 and $20 billion. … With its deep pockets and newly expanded footprint, the company … is exploring projects such as applying the mobile technology to hail buses — almost like a massive version of UberPool … Among the new ride-hail behemoth’s advantages are its deep pool of drivers — 2 million, by Lee’s estimate. … But the newly merged company also has another fundamental advantage over Uber: … Uber, otherwise known as “everyone’s private driver,” has been facing significant regulatory setbacks in the region.
My take: Yes, you read that right … China’s version of Uber has an estimated 2 million drivers and it’s got the blessings of local regulators – making Uber’s few hundred thousand drivers look puny by comparison. The ridesharing phenemenon is increasingly global and it’s only in the early stages. It’s going to be fun to watch the really big players slug this one out.
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-John @ RSG