
Lyft’s revenues double, losses quintuple and prospects darken - seagullz
https://www.economist.com/business/2019/05/11/lyfts-revenues-double-losses-quintuple-and-prospects-darken
======
chollida1
When Lyft was doing their road show there were a few analysts who had price
targets of $45 as Lyfts fair value at IPO with an acknowledgement that the
amount of shares available would double, and possibly triple when all shares
were off restriction, meaning that the $45 price target was a best case and we
would probably see far lower once people can sell.

This is a company that has maybe 33 million shares outstanding now with about
27 million of them being sold short. So they have an enormous short bet
against them. We see borrow rates as high as 30% for borrowing shares to short
with no real stable borrow available.

However, due to the enormous amount of those short shares being
rehypothicated(relent), Lyft is vulnerable to a quick upwards price run if
those long sellers ask for their shares back. That would cause a run on those
shares as they may be lent out multiple times by the same bank.

So whenever someone ask why you don't short an individual stock its always
valid to answer that you believe you are right in the long term but the short
term could wipe you out if you shorted.

As a quick edit, uber is now indicating its opening at a range of 45.50-46.50,
given that the IPO price was $45, it looks like the underwriters will have
some work to do and will almost certainly exercise their green shoe option.

So maybe wallstreet is wising up to money losing companies or Uber learned
from Lyft that a slow and steady approach to their share price would be better
long term for them?

~~~
LifeofPi314
Could you please tell me how do you find out what the borrow rates are for
short shares and how many are being shorted?

~~~
chollida1
Bloomberg terminal will give you a lagging number for SI(Short interest).

If you want a current indicator you have to pay for it from companies like
Markit that poll hedge funds. The idea being that if you want to know the
number you pay by including your own data that they can then show to other
funds in aggregate.

For the borrow rate you ask your prime brokerage(like a bank but for holding
equities/derivatives/etc). They'll go find you shares and figure out what rate
to charge you, while adding their own rate on top.

~~~
LifeofPi314
finviz mentions, the short float to be 7% and Short ratio is 1.05 which says
it's much conservative than the numbers posted. How to explain the difference?

~~~
chollida1
Lyft's float can be viewed one of two ways

1) Total Shares of 273Million this is what finviz is using. This includes
locked up shares that can't trade right now

2) the Currently tradable float, this is 32 Million and what I, Bloomberg,
Markit, and any non budget site will use as these are the only shares that
currently matter.

~~~
racecar789
Sorry, trying to reconcile the comments.

LifeOfPi mentioned the short float to = 7%. Chollida1 mentioned the 7% figure
was using 273mil shares as a base.

So wouldn't the total shorted shares equal 19mil? (19mil = 273mil X 7%).
However, Chollidal mentioned in the first post that 27mil shares are shorted.
Trying to figure out how to bridge the gap between 19mil and 27mil...

PS. Not trying to nit-pick. The comments are very useful. Maybe I'm missing
something....

~~~
LifeofPi314
Time of reporting matters here. Some report every 15 days. others with a
different time frame. Probably that's the reason for discrepancy?

------
wonderwonder
Very interesting process going on right now with Lyft & Uber both losing money
and some of their drivers trying to stage protests and strikes. The drivers
appear to rely on the company as their primary source of income and want more
money yet at the same time the companies are operating at a loss. Were they to
increase wages (as % of every ride) it stands to reason the losses would
widen. If they get to wide the company goes out of business and the drivers
lose their jobs. I understand that this same standard can be applied at any
company but this is a gig / 'work only when you want' job so it is different.

The strikes were small so the effects on both companies were negligible. I
would be curious to understand what changes the drivers (who work only when
they want) expect and how they think a company running deep in the red could
meet them. Not trying to pass judgement on the strikers just trying to
understand.

~~~
GCA10
Right now, Uber keeps 22 cents on each dollar paid by passengers, as its fee
for creating the app, keeping it working, etc. That's cheap relative to the
iTunes store, which keeps 30%. It's preposterous compared to the 3% that real-
estate agents get for buying or selling a home.

We really don't know what the "fair" rate is for running a ride-hailing
business. We know what's been collected to date in a venture-funded duopoly
with limited public disclosure.

But my guess is that 22% is not the long-term equilibrium. Lots of outside
pressures (regulators; new competitors) could drive Uber's share down. It's
hard to see any forces that would cause it to expand.

~~~
astrodust
22% is really high for what's effectively a dispatch fee.

If you factor in the way Uber can dictate price, you may actually be "paying"
a higher fee versus what you could've made on your own. If they force you to
accept a 40% discount that's got to be factored in, too.

Apple takes 30% but they don't tell you what price you can charge.

~~~
hellllllllooo
Would be very interested to see the economics if drivers could set their own
pricing.

~~~
foobiekr
I don’t think it would work. This works for AirBnB but for Uber you need ride
flow in order to keep drivers on the road and riders bothering.

------
OliverJones
Fundamentals question: Can somebody explain how these ridesharing companies
expect to turn a profit, eventually?

If you lose 50 cents on every ride, how do you make it up in volume? Every
ride is subsidized by the Sand Hill Road crowd. They're a great deal. I took a
40-min ride yesterday for US$12.50 in a high-cost-of-living traffic-clogged
city. How can that make sense? A ride in a sketchy 1970s-era New York City
gypsy (no-medallion) cab would have cost more. And, without all the magic and
overhead of some app.

Oh, I get it. They're going to scale up using autonomous vehicles. But, that's
also a problem. Right now their business model relies on independent owner-
drivers. In other words, from the front office's point of view, their fleets
fuel, maintain, garage, and insure themselves. How's that going to work when
they replace the drivers' cars with their own capital equipment?

Why should I invest for the long term in these companies?

~~~
britch
The idea (urban myth?) I've heard for discussion's sake:

The long term bet is on them becoming THE way to get around and monopolizing
the market (or a chunk of it at least) and THEN jacking up prices.

If you undercut cabs and public transit long enough, they'll have to react to
lower ridership and reduce availability. Sorry, no late night buses, most
people are taking a very inexpensive and convenient Lyft home. Now that
there's no late night buses, we can charge 3X the cost.

~~~
asdff
Aside from NYC most cities do not have late night public transport past like
midnight in most cases, maybe if you are lucky 2am. On top of that outside of
NYC and maybe people commuting to DC, public transport ridership is pretty
abysmal.

Plus all the cabbies have to do is either assign drivers to third shift or
not, it can be done on a whim as demand dictates.

------
jmull
"...and prospects darken"

It doesn't actually sound like that from the body of the article.

I have no idea if this is true or not, but the story says most of the $1.14B
loss was due to booking employee stock based compensation of $894M. I'm
assuming that's come out of the IPO and is not a recurring cost.

With revenues of $776M, which perhaps are mostly recurring, doesn't that seem
to bode well for the future?

Of course, I'm not sure what we can expect their actual on-going costs or
revenues to be. I'm just not seeing any reason for concern in this article
fter the headline.

~~~
marcinzm
>With revenues of $776M, which perhaps are mostly recurring, doesn't that seem
to bode well for the future?

Isn't the majority of that going to drivers which gives them a lot less room
to maneuver financially?

~~~
jmull
Well, sure, maybe.

It would just be nice if the article backed up the headline rather than
leaving us to speculate.

------
strikelaserclaw
I don't know what the end game for these companies is. Most average people
would never use uber or lyft for transportation on even a semi regular basis
if those companies didn't heavily subsidize the rides.

~~~
jahlove
doesn't the ride cost go down substantially if they ever get autonomous
vehicles on the road? I believe that is the end goal.

~~~
CPLX
In short, no.

I read this in literally every HN discussion of ride sharing, but there's
literally no reason to think that ride sharing companies will have any special
role to play with autonomous vehicles if they materialize (which seems
extremely doubtful in the short or medium term) and there's even less evidence
that it will be cheaper.

I still can't figure out why people don't realize that low income humans are
_cheap_. An autonomous car, if such a thing is ever in the real world, will at
least for a long time be a complicated technically advanced computerized
machine.

Like here's a pretty straightforward machine that rents for $125 a day:
[https://www.adoramarentals.com/p-~nkd4skit/NIKON-D4S-KIT](https://www.adoramarentals.com/p-~nkd4skit/NIKON-D4S-KIT)

For reference that's about the same price as the cost of hiring a minimum wage
employee for an entire work day.

Now tell me if the guts of a self-driving car are going to be cheaper or more
expensive than a standard DSLR camera.

~~~
Domenic_S
There are a ton of factors that make your DSLR to Autonomous Car comparison
flawed.

The utilization rate of the camera is going to be far lower than the rate of
the car. The camera may sit on a shelf for weeks before being rented for a
single day, so the per-rental price must be relatively high. The market is
small. Also, cameras are comparatively easy to break, and the technology goes
out of date extremely quickly as compared to a car.

I think the greatest fiscal advantage to autonomous car fleets is the likely
high utilization rate.

~~~
CPLX
> There are a ton of factors that make your DSLR to Autonomous Car comparison
> flawed.

Indeed. The biggest one of course being that there’s no such thing as an
autonomous car.

~~~
vlovich123
Snarky but inaccurate reply. They do if you're a resident of Phoenix. Prices
are equivalent to Uber but it's still too early to conclude what's behind
those prices. Are they sustainable at scale? Is it just to avoid having the
price floor drop out from them if they're viewed as purely a discount option?
Is it to dissuade having too many users on the system all at once?

~~~
CPLX
The way you can tell if you're looking at a driverless car is to check and see
if there's a driver in it.

------
jkubicek
> Most of that was down to booking stock-based compensation plans for
> employees, who earned $894m from Lyft’s initial public offering

Could someone help me understand what this means? Is this compensation above
and beyond employee stock options? If not, that means employees own ~5% of
Lyft, which is much less than I would expect.

As an employee of a pre-IPO startup, I'd love to get a better handle on the
realistic value of my stock if we do reach an IPO.

~~~
nytesky
0\. It’s a lottery ticket. To be realistic. Esp with the DOW down 300 today.

~~~
jkubicek
Yeah, I've always considered it a lottery ticket, but I'd love to get a sense
of whether I'm holding a $10k or $10mm lottery ticket.

FWIW, I've done the math based on my percentage ownership, expected
valuations, timeline to IPO, etc. The big unknown for me is dilution. I don't
yet have a good sense of how much dilution I should expect as we move through
rounds of funding into an IPO.

~~~
razwall
Dilution is a red herring. It doesn't change the value of your shares
(theoretically). What will matter is how the company spends the funds that it
raises, and whether it does so in a way that generates a positive or negative
return on investment.

~~~
jkubicek
Here's how I'm thinking about it with example numbers: I own 0.1% of the
company. Based on our market and performance and valuation of peers I expect
us to be worth $10b.

With no dilution my stock is worth $10mm (minus taxes, strike price, etc.)

With 10% dilution per round and 4 more funding rounds, it's now worth $6.5mm.

~~~
razwall
You expect the company to be worth $10b at some point in the future, but the
question to be answered is how much you think the company is worth today.
Let's say you think the company is worth $10m now, which makes your stock
worth $10k. Suppose the company then raises $90m in funding and gives the
investors a 90% stake. Now your shares are only 0.01% of the company, and you
think "Oh no, I got screwed by dilution!" But the company is now worth $100m,
because it has its previous $10m worth of assets plus $90m in cash. So your
0.01% is still worth $10k.

What matters now is how the company spends the money. Hopefully they spend it
smartly and the value of the company increases 10x. Now your stock is worth
$100k. You didn't get screwed by dilution, you got a $90k bonanza because the
company was successful.

------
temp1292832
I don't know what the bull case for Lyft is at all. They haven't expanded into
other products or markets outside of pure U.S. ridesharing, which had already
been plateauing for some time. Uber, OTOH, has years of experience operating
and expanding internationally, has built UberEats into it's own mult-bil
vertical on it's own, and owns substantial shares of dominant ridesharing cos
in other markets like Grab, DiDi, now Careem, etc.

------
nabla9
Once the ride-sharing matures, 5-10 years from now, Uber, Lyft and new
competitors are not going to take 20 to 25 percent per cent of drivers’ fare.
If I had to guess, 10 years from now they take just 1-3% per ride and maybe
ask few $100s upfront for each registered driver to cover fixed cost of
handling new drivers.

These valuation include hopes for fully autonomous cars and the fear of
missing out.

~~~
jjeaff
It won't get that low. That wouldn't cover cc processing.

They also need to cover insurance and several other costs. But I could
definitely see it settling around 10-15%

------
olivermarks
I previously submitted 'Uber’s enormous, vague IPO prospectus is an outrage
(ft.com)' Well worth reading and quite ominous in light of Lyft performance
IMO

[https://www.ft.com/content/60ab80e2-6a8b-11e9-9ff9-8c855179f...](https://www.ft.com/content/60ab80e2-6a8b-11e9-9ff9-8c855179f1c4)

~~~
SilasX
From the summary in the child twitter link:

>We hope in the future there will be driverless cars and that we can then make
money because no drivers but other people are developing them too.

Nice! It's common to think that self-driving cars will be Uber's salvation,
but even then, they'll have to come with other SDC providers, so there's no
moat. They'd have lower costs, but so would everyone else, and so they'd have
to cut fares proportionally.

In theory, they can have such a lead time on a workable SDC that they get a
great moat until everyone catches up. But that would be ~2 years at the
absurdly optimistic end; not enough to pay back the costs of the program and
throw off the huge returns investors demand. And in reality, Uber is lagging
on this.

~~~
mimixco
The self driving car idea won't help Uber or Lyft for two reasons. First,
neither company has the tech experience to build one. Second, and more
importantly, both companies would have to _buy and maintain_ the cars which
isn't financially viable.

~~~
bduerst
They're hoping you'll buy a self-driving car and then let them pay you a
minimal fee to use it when you're not.

The problem is that self-driving cars will change car ownership needs, and
that there could be entirely different companies in the space when it does
finally come around.

~~~
erikpukinskis
I'm not sure I buy that scenario...

Is there any other market where random consumers are basically acting as
financiers for a commercial fleet of equipment? What's the reason for the
fleet operator to involve those customer-owners at all?

In terms of immediate cost, it will be cheaper as a customer just to use the
ride sharing service yourself, since you won't have to pay car payments you'll
just pay the rideshare fee. Especially if the self driving software gets
priced in the $10,000+ range as Tesla has suggested it will end up.

So anyone in the "budget" category will just be buying rides not vehicles.
They'll have to wait 5 minutes for a vehicle, and they won't get to have their
vehicle of choice, but they also won't have to deal with the hassle of running
a mini carshare business, whatever that will entail.

Most people in the "premium" category isn't going to want random drunk people
fingerblasting each other in the back seat of their nice car, so that cuts out
the top of the market.

That leaves what... people who want to save some money but also really want to
own their own car, but also are comfortable sharing it with random people?

Seems like a weird segment. Why wouldn't the fleet operator just buy cars and
own them? They're going to be burning through these vehicles every 5 years
anyway, what's the point of parking them in a random owner-operator's garage
and having them taking it out of the fleet when they feel like it?

~~~
mimixco
Indeed. And surprisingly, no one[#] has brought up that there is no such thing
as as a national (or even regional) taxi service. And why is that? It's
because the economics of fleet ownership don't scale to that size. If they
did, we'd have a single nationwide taxi service already. In 100 years of
taxis, no one has done that.

[#] Except Hubert Horan who destroyed all their BS with his series, "Can Uber
Ever Deliver?"

~~~
SilasX
Yeah, but arguably smartphone technology reduced admin costs and raised the
size of the economically optimal taxi provider. _That_ has been around for
less than a hundred years.

Edit: Dangit, I thought my reply got eaten, but I was looking at a different
branch. See the rephrasing here:
[https://news.ycombinator.com/item?id=19880565](https://news.ycombinator.com/item?id=19880565)

~~~
mimixco
Smartphones didn't reduce the cost of dispatch. Look what Uber spends on app
development! The big costs in taxis are maintaining the fleet, a cost which
Uber externalizes to its drivers, some of whom now have to sleep in their
cars.

~~~
SilasX
They most certainly did. As expensive as that software is, it’s very little
when amortized over the rides. It eliminates the overhead of finding a
location and transmitting the info, and delivers higher value in that it gives
real time data about where the car is, and lets you pay more conveniently.

Also: while the drivers have _physically_ taken over maintenance, Uber can’t
push the economic cost on to them, because they have to pay enough that
drivers want to continue to work even given those costs. If anything,
maintenance is cheaper when handled by a big org.

To the extent they realize a savings, it’s because they’re using the spare
hours of existing vehicles and don’t have to take on all the dead ours they’d
have from owning the cars _not_ because they’re getting maintenance free in
any meaningful sense.

------
hellllllllooo
Is the plan for the original investors to sell their stock to regular
investors before the whole thing tanks? They make their money and whoever
followed is left holding the cheque. Seems like a Ponzi scheme as it's been
clear for years these companies are not going to be profitable any time soon.

------
whoisjuan
The problem with Lyft is that they are in a poorly understood market, in
second place and burning cash at neck-breaking speed. Even if they manage to
start making progress towards profitability, they might need more than that.

The reality is that ride-sharing probably needs another lustrum or so to
solidify and that seems excessively long for Lyft in its current state.

Uber faces the same challenges but its way more diversified and can scale down
from certain markets and verticals. Lyft on the other hand has only one market
(N.America) and only one vertical (ride-sharing).

Doesn't take a genius to understand that scenario looks risky as hell.
Especially when you're in a business with nominal differentiation.

~~~
jonathankoren
Uber’s multiple markets maybe an advantage. If they’re all equally
unprofitable, perhaps not, but at least that’s plausible.

Uber’s multiple verticals are dogs, and reek of money madness. Eats is small
time and loses money. I don’t know it’s financials, but I find it hard that
this ancillary business is in a healthier state than a competitor who has it
as their core buisness.

Uber ATG is as bad off as any other autonomous car program. There’s a growing
realization that technology won’t be ready anytime soon. (See Andrew Ng’s
comments about just redesigning cities to limit autonomous vehicles’
interactions)

Uber Freight is a ghost town.[0]

The of course there’s the buisness if renting and then discarding Xiaomi
scooters. (Or is that not a thing anymore? I honestly don’t remember.)

Sure, I understand the logic behind all of these. Once you have a system to
tell a person “Go here, and take this here,” then you can plug pretty much
anything into those slots. However. No one has shown that the way they’re
doing it is a sustainable business model, and it looks like it’s not.

[0] [https://www.forbes.com/sites/stevebanker/2018/04/10/is-
uber-...](https://www.forbes.com/sites/stevebanker/2018/04/10/is-uber-freight-
on-the-verge-of-going-out-of-business/)

~~~
darkwizard42
Uber Eats is making money... the financials are clearly listed in its S-1,
[https://www.sec.gov/Archives/edgar/data/1543151/000119312519...](https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm)

Uber Eats is currently 2nd/3rd place in market share for food delivery at
around 20%, [https://qz.com/1549084/doordash-overtook-uber-eats-in-us-
onl...](https://qz.com/1549084/doordash-overtook-uber-eats-in-us-online-food-
delivery-second-measure-finds/)

There is a lot more out there on Eats financials as listed in the S-1 and in
previous "leaks". Definitely seems like a healthy business where I agree its
revenue is much smaller than the overall ride-sharing business, but from a
technology standpoint they are likely better than their competitors BECAUSE of
having a core ride-sharing business with which it overlaps a lot of ideas like
pricing, dispatch, ETA predictions.

~~~
jonathankoren
Thanks for the qualification about Eats. However, I don’t think the issue in
food delivery is a technical. I think it’s financial.

------
deevolution
All these ride sharing companies are here to carry us seamlessly into the
driverless future. Unless they're capable of pivoting to driverless technology
they are mostly matching services for riders and drivers and Honestly, I dont
think it should be uber or lyft's responsibility to build driverless
technology - they should just focus on making the experience of getting a ride
as excellent as possible. Leave driverless technology to other experts.

~~~
asdff
And what happens to uber/lyft when the experts make their own rideshare app?
Why license your tech to them? These apps can be cloned.

------
angel_j
They should charge a service fee to the rider, for however much they need to
be profitable; and let the drivers charge whatever they want (baseline
auction). Now the customer knows how much they are paying to whom.

Imho, Taking a cut of earnings is borderline unethical for a automated
services, whether its lyft, upwork, or patreon. Charge a fee, know your
numbers, give both sides of your service's users confidence in the service's
stability.

------
dd36
They just went public at $80b but are raising $8b, so per the chart in the
article, quite a few recent investors are getting a haircut? Pre-money $72b
valuation?

~~~
jartelt
The investors from the last funding round paid about the same share price as
the IPO price, so they haven't really made or lost any money. It certainly
wasn't a good investment for them (0% return), but I don't think they have
taken a haircut yet. It will ultimately depend on where the stock price goes.

~~~
dd36
What’s he hold period? 45 days? Seems like the $79b investor got a 10%
haircut.

------
return1
Uber and lyft look like a charity set up by VCs to provide people with cheaper
transportation. Who knows what will happen once they increase fares as they
promise to investors

~~~
swarnie_
As soon as one of them increase prices to generate profit ill just move on to
the next ride sharing app, then the next, then the next.

You'd need a price fixing scheme worthy of British Airways make this work.

~~~
adventured
It doesn't actually work that way in reality. If it did, there would already
be another massive Uber undercutting Uber in eg the US market and raising $10+
billion in VC money to do it. Because hey, a $75 billion valuation is sitting
right there, so it's really easy: just put $10 or $20 billion into the
company, undercut Uber, IPO, easy return. Everbody can do it, just add $20
billion.

What's actually the case, is the next clone will need $20 or $30 billion to
fight and undercut Uber's entrenched brand, functioning system and scaled up
position. And even in that case, the odds of winning against the large
incumbents is low. It will cost even more to beat Uber via the undercut game
than what Uber has already spent, because you have to take the market away
from them - always a dramatically more expensive and difficult proposition.

VCs are not going to continue to burn massive amounts of capital trying to
fund the next loss-making ride hailing company. The next $10 or $20 billion to
put into an Uber clone in its major markets, does not exist and it will never
exist.

Few things would scare a VC more than having the pitch that your plan is to
destroy twice as much capital as what Uber did, to unseat Uber's entreched
position, with nothing to differentiate you other than the speed at which you
destroy capital.

That's why nobody is doing it right now. There isn't another Lyft, much less
another Uber. Softbank isn't looking to drop $20 billion to fund the next
Uber, to fight with Uber, in the US and similar markets that Uber dominates
now.

~~~
JMTQp8lwXL
The company that delivers fully autonomous vehicles would have no trouble
securing funding to not have to operate within Uber's walled garden and give
Uber a 22% cut of profits, and make their own app. Remember, when the
independent contractors go away, you don't need offices in every city to
onboard drivers, you don't need a big legal team to fight the ongoing "are
they contractors or employees" debate, etc.

In other words, the company that delivers autonomous won't need $10B to make a
cloned Uber app. Since the driver is the biggest cost for Uber, riders will
gleefully switch to the clone at even cheaper prices.

~~~
rbranson
Someone is going to have to put up the money to buy the fleet of autonomous
vehicles.

------
dwags
now you need a new side gig to support your old side gig (main gig)

------
simonebrunozzi
It's fun watching these "smart" economists trying to tell you what's going to
happen, with Lyft and with the upcoming Uber.

The reality is that many people will feel they're able to "beat the market",
and they will try to get a chunk of the glory, mostly losing in the effort.

~~~
mimixco
Indeed. A few at the top will get rich from both companies with lots of
regular middle-income folks taking the fall. Reminds me of Enron.

