
Lyft Loses $600M in 2016 as Revenue Rises to $700M - rayuela
https://www.bloomberg.com/news/articles/2017-01-12/lyft-loses-600-million-in-2016-as-revenue-surges
======
ChuckMcM
Back in the 80's when all the Semiconductor companies were losing money, Andy
Grove of Intel stated that because Intel was losing less money than everyone
else, it must be the largest semiconductor company. If Lyft can become
profitable while Uber isn't that will change the market dynamics tremendously.

~~~
jondubois
I don't think it's fair to compare Lyft with Intel in terms of innovation.

Ride-sharing is not an area that can be monopolized. As soon as companies like
Uber and Lyft stop subsidising rides, competitors will spawn up like
mushrooms.

Unless Uber/Lyft manage to create fully automated self-driving cars AND find a
way to OWN all those cars, they will never have a monopoly.

The people who own the cars will have the freedom to switch to any ride-
sharing network they like (or even multiple networks).

Then there will be new kinds of ride-finder apps which will allow people to
select between multiple providers/networks - A bit like how Expedia lets you
select between multiple airlines.

The Airline business is very competitive and low-margin these days, I think it
will be the same for companies like Lyft and Uber.

~~~
rogerbinns
> Ride-sharing is not an area that can be monopolized

It is very close. There are massive network effects and it will be hard to
unseat an incumbent.

The more riders there are, the more revenue is available for the service
provider (eg drivers). More riders means average waiting time is lower because
more vehicles will be around. More riders means less downtime between riders
since the next rider will be closer. More time in revenue service lets you
spread fixed costs over more riders, reducing the fixed costs per ride
(economies of scale).

This all means an incumbent will provide better service especially as reduced
waiting times, and will be able to provide that service more cheaply due to
greater utilisation. Their drivers/owners will also make more money due to
greater utilisation. Newcomers will end up providing worse service (longer
waiting times etc) and cost more!

~~~
chris_va
Many drivers will work for multiple companies in parallel, e.g. Lyft and Uber
at the same time. Even if they only get 10% of their rides from Lyft, it isn't
a huge cost to the driver. As a result, from the driver perspective, the
network effect protection is relatively poor.

This battle will play out city by city, which just reduces the barrier to
entry for smaller operators. All in all, I think Uber's defensibility is
fairly poor.

~~~
rogerbinns
> ... from the driver perspective, the network effect protection is relatively
> poor

I disagree. A driver will prefer as little time between the end of one ride
and the beginning of the next, since they don't get paid for down time.
Whichever service has the most riders is most likely to have the next closest
rider.

You are right that at the end of the first ride, the driver could examine all
services to see who has the closest next rider, giving a new service a shot,
although the new service riders are far less likely to be the closest one.
Uber (incumbent) for example already counteracts this by giving drivers
bonuses for picking up more riders in certain timeframes, so the driver
picking the less popular service will also be giving up on those.

~~~
JBlue42
>A driver will prefer as little time between the end of one ride and the
beginning of the next, since they don't get paid for down time.

There are also penalties it seems for not picking up the next ride that
requests you as soon as possible. I'm not sure how hard it is time-wise for
the drivers to switch between the apps and add up to consistent time and money
but I would think you would try and batch your time for each. An hour or an
hour there.

~~~
rogerbinns
As with any measured system, people will always try and game it for their own
goals. The first article I found is from 10 months ago:
[http://www.sfchronicle.com/business/article/Uber-
incentives-...](http://www.sfchronicle.com/business/article/Uber-incentives-
aim-to-lure-power-drivers-7089842.php)

"In one offer, Uber is now guaranteeing $2,000 a week in gross earnings for
new drivers who work 60 hours a week. Another, more-extensive program for
existing drivers promises bonuses based on how many trips they complete. For
100 trips in a week, they get an extra $350, for instance."

If a driver can already easily meet those then great. But it wouldn't be that
great to spread yourself amongst the services and avoid the incentives. And
remember the larger incumbents have more wiggle room in terms of incentives
and changing them based on real world driver behaviour.

------
abalone
Basic question here, but what happens when the war's over and the subsidies
end? Prices jump by several dollars a ride? Or is there some kind of economy
of scale or lower overhead that the winner enjoys?

~~~
th3rooki3
Uber and Lyft don't make money until they're able to replace their drivers
with autonomous cars. 80% of an Uber fair goes to the driver, so once they are
able to replace the driver with an autonomous car, there's no reason why
competition between the two companies would not drive fare prices down.

~~~
tuna-piano
I really don't think this view holds any merit. I can't possibly see how this
would be Uber's strategy.

Assume that in year 20XX, when autonomous cars finally become a thing, there
are two companies. Uber, which has accumulated $X billion in debt while
growing it's driver network, and brand new company NewAutonomousCompany, with
no debt.

What possible advantages does Uber have in that situation that makes that debt
worthwhile? It will have some software and the fact that users already
downloaded an app - but will that really be worth the subsidies?

~~~
ams6110
Uber can simply declare bankruptcy and reorganize at that time.

~~~
kgwgk
I guess Uber shareholders expect its business plan to be more solid than that.

------
hkmurakami
>The company aims to become profitable by 2018, the people said.

This would appear to reflect a difference in philosophy from Uber [1]. "This
will be a monopoly market and we must gain market share now at all costs" vs
"This will be a market with multiple big players".

[1] Of course, Lyft does not have the warchest to pursue a strategy that
aligns with the first philosophy, so you could say that they must adopt this
line through necessity.

~~~
prostoalex
It seems like in reality such monopolies are limited geographically. Being the
leading transportation service in Barcelona doesn't really get you any
discounts or brownie points in Beijing or Cleveland.

In theory such economies of scale would result in various supply-side margin
improvements for the operators (cheaper gas, cheaper car washes, cheaper
tires, cheaper insurance, all due to bulk purchasing power) but so far we have
not seen that happening either.

~~~
JumpCrisscross
> _Being the leading transportation service in Barcelona doesn 't really get
> you any discounts or brownie points in Beijing or Cleveland_

It wins you brand loyalty with travellers. I've come to expect Uber just
works, everywhere. Sometimes Lyft or Juno or Careem or Hola are marginally
better somewhere, but they aren't minimally competent almost everywhere, and
that's a big difference.

That said, I agree with you. Few foreign governments will permit an American
company to see where their citizens are, where they're going and with whom
they are meeting for how long.

~~~
matt4077
> Few foreign governments will permit an American company to see where their
> citizens are, where they're going and with whom they are meeting for how
> long.

Of course they will. See Google, Facebook and hundreds of others. The EU –to
use an obvious example– also doesn't discriminate non-EU companies but only
requires them to implement the same safeguards expected from EU companies.

But I just don't see how "data" even plays any major role in the future of
Uber. It's ultimately a commodity dominated by the costs of a driver's time.
Cost/risk of switching is low. Barriers to entry are almost nonexistent.

When Uber eventually goes Under, net effect will have been the transfer of a
few million passengers from a to b, and a few billion dollars from whoever
owns stock when the ride ends to the drivers (and possibly earlier investors
who had the good sense to see it as the ponzi scheme it is).

------
thomasthomas
do ride sharing companies become airlines or cereals?

 _Over the years, we 've tried to figure out why the competition in some
markets gets sort of rational from the investor's point of view so that the
shareholders do well, and in other markets, there's destructive competition
that destroys shareholder wealth.

It's easy to understand why air travel is so unprofitable....

Munger: If it's a pure commodity like airline seats, you can understand why no
one makes any money. As we sit here, just think of what airlines have given to
the world - safe travel. greater experience, time with your loved ones, you
name it. Yet, the net amount of money that's been made by the shareholders of
airlines since Kitty Hawk, is now a negative figure - a substantial negative
figure. Competition was so intense that, once it was unleashed by
deregulation, it ravaged shareholder wealth in the airline business.

But why is the cereal business so profitable?

Munger: Yet, in other fields - like cereals, for example - almost all the big
boys make out. If you're some kind of a medium grade cereal maker, you might
make 15% on your capital. And if you're really good. you might make 40%. But
why are cereals so profitable - despite the fact that it looks to me like
they're competing like crazy with promotions, coupons and everything else? I
don't fully understand it. Obviously, there's a brand identity factor in
cereals that doesn't exist in airlines. That must be the main factor that
accounts for it. Maybe it boils down to individual psychology....

Munger: And maybe the cereal makers by and large have learned to be less crazy
about fighting for market share - because if you get even one person who's
hell-bent on gaining market share.... For example, if I were Kellogg and I
decided that I had to have 60% of the market, I think I could take most of the
profit out of cereals. I'd ruin Kellogg in the process. But I think I could do
it. In some businesses, the participants behave like a demented Kellogg. In
other businesses, they don't. Unfortunately, I do not have a perfect model for
predicting how that's going to happen._ [http://www.valueplays.net/wp-
content/uploads/The-Best-of-Cha...](http://www.valueplays.net/wp-
content/uploads/The-Best-of-Charlie-Munger-1994-2011.pdf)

~~~
stale2002
Ugh, so the answer why other industries have so much profit is because of
oligopolistic collaboration.

~~~
thomasthomas
if uber/lyft can't differentiate their product in any way it seems a race to
the bottom imo unless some cooperation happens. i bet thats why lyfts been
running these commercials about how great their drivers are; to create some
perceived differentiation.

i guess one of these companies could go the amazon route and make margins so
small to make entry into the market less attractive. ride sharing seems less
capital intensive though so not sure that'd work.

~~~
sdenton4
I only use Lyft unless there's like a ten dollar price difference. The amount
of just terrible behavior coming from uber corporate makes me avoid them.

~~~
reacharavindh
Same here. I consciously choose Lyft and feel good about encouraging
competition and voting with my money against all the evil things Uber does
recently.

Oh that, and I refuse to give Uber my location 24/7\. Uber App went to trash.

------
didibus
Isn't the perfect economy one where all business's have the minimal possible
margins? Like if all the business just cut even? I know that's not ideal for
someone looking to make a lot of money out of their business or investment,
but isn't it ideal for the overall economy?

------
FabHK
It's really quite an achievement - Lyft and Uber screw traditionally taxi
companies, they screw their drivers, and they screw their investors, too. Sign
me up.

~~~
Narkov
At least riders seem to win?!

~~~
gjm11
Right up to the point at which the traditional taxi companies go out of
business, the new ones' VCs stop subsidizing them, and prices go up to higher
than the taxi fares would have been if Uber and Lyft had never existed.

~~~
FabHK
That's what I suspect... So, for now we customers enjoy the convenience, and
then we'll be screwed, too.

------
matt4077
Lyft & Uber must be largest top-down wealth redistribution schemes currently
operating.

~~~
motoboi
Probably Brazil had the biggest one from 2002 to 2015

------
danieltillett
Is there anyone pursuing the lowest cost per mile ride share strategy? Things
like choosing a common car type, low fuel cost, centralized servicing, etc
(i.e. Taxi) combined with the improved customer service and security that Uber
and Lyft offer? One would think it would be a winner.

~~~
astrange
That would literally be a taxi app, so Flywheel. (Haven't tried it.)

Literal ride sharing like UberPool is the only actual cost advantage of apps
over taxis, and if you picked the right vehicles for that you'd have a kind of
bus/jitney system. Sounds good to me.

~~~
CalRobert
It's long forgotten, but literal ride sharing is how Lyft got started. They
were called Zimride at the time, and it connected people genuinely going
places (a bit like craigslist ride shares) who wanted others to chip in
towards expenses.

Lyft was released as an app to make finding a ride on Zimride easier, and
quickly eclipsed Zimride.

------
hodder
It is hard to think of a business in which I couldn't make 700m in revenue
given I burn 600m in losses.

Clearly prices are going to go up.

~~~
phamilton
Buy $13 widgets and sell them for $7 on eBay. Repeat 100 million times.

------
npx
Speaking only for myself, I'm not surprised at all about this. I use Lyft
exclusively, the app is much better than Uber and I've had much better
experiences with the drivers (possibly just by chance).

I'm eagerly awaiting the day when we have fully autonomous self-driving
electric cars and fares fall through the floor. It seems that this should be
much cheaper than the current system of drivers and gasoline powered cars,
although time will tell if the savings are passed on to customers.

It's very exciting to me. I don't like to drive.

------
awinter-py
Talked to a yellow cab driver about this last week. His perspective is that
uber's market share and the resulting price power lets them set the market
price for rides below what constitutes a living wage for a driver.

Uber is simultaneously lower rates & raising the margin they take from the
driver. This means drivers are loaning uber money out of their savings to
operate a money-losing business.

Only question is whether drivers will run out of savings before uber can roll
out driverless.

------
jasonwilk
To me these losses could be completely justified. It's a simple calculation of
two companies (Uber and Lyft) who perceive customer LTV to be huge so they are
tripling down on acquiring customers, drivers, etc.

The only way I see this as a disaster scenario is if rides are operating at a
negative margin in hopes automation will eventually solve that problem as it's
not clear either of these companies will even win the automation race.

------
soufron
I can't tell if it's a lot, or not...

... but wouldn't it be a hint that there is a market for a cool P2P share
riding system?

~~~
JeremyBanks
It seems to indicate the opposite, if you can't compete for customers without
running a massive deficit.

------
rdslw
So Lyft spends 1 billion 300m, in a quest to monopoly.

How can I short them? /honest question/

~~~
calvinlh
You can't, they're a private company. Can't short Uber either.

~~~
mamon
Ok, but who owns them? If the investors are some hedge/mutual funds that
invested significant (more than, say, 5%) share of their total capital in Uber
or Lyft then you probably can short those funds instead.

~~~
wayn3
sure you can, but lyft is very likely already written off. meaning you can
short the fund (probably not because those funds are private, as well) but the
lyft losses are already priced into their "stock price".

edit: maybe its more obvious in a different industry: assuming a hurricane
wrecks florida. now you want to profit from shorting that event, so you short
disaster insurance providers because you know they will have to pay for the
damages. but the public market was faster. the losses are already priced into
the stock, although those losses havent been realized yet. you can short it
all you want, but you will be "too late" with your "unique insight".

~~~
mamon
What you are saying might be right in principle: markets usually factors in
risk in current prices. However, it seems to me that technological startups,
like Uber, but also Airbnb, Twitter, etc. are market's blind spot.

There is a lot of hype in media, everybody is seeking new unicorn to invest
in, so it might be the case that all the funds managers are still in denial
about the true worth of technology companies.

It wouldn't be uprecedented, in fact current market situation looks a lot like
just before dot-com bubble bust: 8 years of bull market, and a lot of money
invested in companies without viable business model, like Uber.

~~~
wayn3
the idea that uber is not viable is a bit of a stretch. it is certainly a good
service used by many millions of people.

you seem to lack a solid grasp of economics. the reason uber is "losing money"
is because it is competing in an oligopoly and tries to get rid of its
competition. the reason it is being funded to "lose" billions of dollars every
year is because it is clearly valuable, not because some "hedge fund idiots"
dont know what to do with their money.

once uber turns into a quasi monopoly, it will be able to fix its pricing
structure. if it goes too far, it will be regulated. uber is already more of a
public utility than "just a company".

calling something that millions of people love "not viable" has never worked.
and never will. uber and airbnb are solving the major problem of "you have to
own a house and a car". thats a major achievement and costs a lot of money to
establish. especially due to regulation trying to prevent people from becoming
more mobile and less enslaved.

------
cflewis
Honest question: Lyft has just started up in my area. Uber appears to be done
with the shady nonsense that dogged them at the beginning. Why do I choose
Lyft over Uber?

~~~
joncalhoun
What you get with each company varies from city to city so it is hard to know
exactly what your experience will be with Lyft, especially if they are just
starting out in your area as drivers might be a little harder to find at
first.

On top of this, there isn't really much one company does that the other
doesn't. Lyft line in SF is great, but I believe Uber has something similar
there so it's not very unique.

That said, the biggest reasons I would support Lyft are:

1\. Lyft doesn't appear to be run by immoral people. One of the reasons I
would be hesitant to work at Uber and don't want Uber to monopolize the
industry is that they have shown that they are willing to do shady things that
hurt others to achieve their goals. I would hate to see another Comcast come
to power where we are all stuck with them despite hating them. Right now Uber
gets away with not being hated mostly because people paint taxi companies as
even worse, but if those go away I wouldn't be shocked if Uber suddenly
doesn't look like the saviour we thought it was.

2\. Having competition and alternatives helps you as a consumer. If drivers
find a way to game the Uber surge pricing (I read about this happening but I'm
unclear how true it is) to cause fake surges then having other options for a
ride means you aren't stuck paying 3x the normal fare because all the drivers
shut off their Uber apps to drive up surge pricing.

You may not choose Lyft over Uber every time. You might not even choose Lyft
for your next 10 rides as finding drivers in a new city may be tricky, but I
would at least suggest you install both apps and give Lyft a try.

