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Lyft’s IPO disclosure shows it’s not close to profitability (latimes.com)
210 points by howard941 13 days ago | hide | past | web | favorite | 298 comments





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.


(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.


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.


That's a good point. Unfortunately I don't have much information on how the current valuation was calculated (and I wouldn't be allowed to talk about it even if I did)

Where I think Uber has a competitive advantage is the multitude of spin-off services it provides. Cab companies only compete on a fraction of the transportation market. Uber has its hands on a lot of different segments and it's a household brand at this point. We'll see what the market thinks when the IPO happens, I guess.


Any idea how much revenue & profit all those NYC cab companies we're bringing in?

It would have to be tons, based on market prices for medallions before Uber.

That was a result of a huge economic rent (caps on the supply of medallions in order to prevent competition) that Uber crushed.

Rides are a bit like diamonds: The only thing keeping the prices up was a cartel.


All of this talk sound surprising similar to airlines.

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.

Sorry, I was thinking of fatness as the symbolism for having money, but yes, that was poor choice of words on my part and it seems I can no longer edit it out. s/whatever bothers you/unicorns and rainbows/ and let's not derail on nitpicks.

> 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.


How is that different from any company using profits from one product to build another one?

Using the profits is OK (not considered monopolistic). Using a large marketshare in one area to gain an unfair advantage in another area is monopolistic.

They using profits from one area to reduce their prices and grow their driver fleet in another.

That's dumping and the source of funding is irrelevant.

So a startup shouldn’t try to gain market share with a free product?

Is Linux dumping on Windows?


Dumping is about selling at a marginal loss. For example if it cost you $7 to make a widget but you sell it at a loss for $5 because you’re trying to drive a competitor who can make a widget for $6 out of the market. Linux (like most software) has no marginal cost so unless you pay someone to use it dumping doesn’t really apply (Google did do that with Android). For Uber and Lyft I think a reasonable case could be made that they are dumping if they take a marginal loss on each ride to force a lower cost provider out of a market, but companies get a lot of leeway for money spent on “marketing”, eg the losses can be structured as “new driver bonuses” and “new customer discounts” rather than a cost per ride.

Microsoft is spending X per year on engineering. So Windows has a marginal cost.

Because I am overcompensated and have spare engineering time I can dump it into a free Linux product to force Windows out of a market.

Redhat is actually taking my free engineering time and monetizing it! The villains!!!


Local markets aren’t different products, to start.

But different products are often different markets. An author of science fiction could write a romance novel with 0 overlapping readers.

With that particular analogy example, you'd be surprised. Not really relevant to the real discussion, but I find the romance novel market pretty fascinating.

https://www.goodreads.com/genres/science-fiction-romance


I think we are getting close to machine generated pulp fiction :).

Eh, they're written by real humans, trying their best to write something that an audience will enjoy, same as most "pulp" (ie commercial) fiction, same as much SF (much commercial SF is pretty bad of course).

I find the romance sub-genres delightful; not so much to read them (although maybe I should), but just that they exist makes me smile and appreciative of humanity.

I think that romance gets so little respect even from people who appreciate other "pulp" genres like SF or horror, has a lot to do with assumptions about genders of readers. SF has a very "unsavory" past too, but has been "recuperated" somehow. Romance stuff is just books too. I like books, and I'm glad that people still read them!


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.


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.

And is something that I would presume Uber is just as happy to lobby against as the taxi companies are.

Uber could be willing, but there could be others trying to disrupt Uber who try and stop it.

Agreed, we're still left with the same fundamental problems.

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?


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.


You were looking at the wrong numbers, or you didn’t understand if those were the conclusions you came to.

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


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

If your cost per employee is approaching half a million dollars or more on average, you've probably messed up somewhere.

If you're a taxicab company and your non-driving staff is making that, you've definitely screwed up somewhere.


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

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

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.

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?


If done right, it's probably always preferable to own the fleet yourself. You can presumably get better economies of scale on purchasing, fueling, maintaining, and insuring the vehicles.

On the current market with human drivers, there are some odd incentives to the contrary though. Using driver-provided vehicles probably helps make the "they're independent contractors" legal argument. There's also the storage yard problem-- if you own a fleet, you're going to have to provide a place for the drivers to come to, park their own cars, and get into yours. I also suspect it lets them cast off the "unknown unknowns" -- damage and insurance claims, underpriced routes. And yes, there are likely opportunities to exploit new recruits by paying below their actual costs.

Once you have self-driving, many of those incentives vanish. Your biggest win comes from calling up GM and ordering cars 10,000 at a time, which a new-to-market entrant can't afford to do.


If the drivers made less than it cost them to maintain their vehicles, they wouldn't be doing it.

I know that a lot of people think the drivers generally are that stupid, but I'm skeptical.


Even if every driver knew for certain that the income wouldn't cover the longterm cost of wear, there would still be drivers who needed money now enough to trade the future value of their car.

Which I imagine happens a lot. I expect a lot of/most drivers have at least a vague sense that a decent chunk of their earnings are going to get eaten up down the road in new tires, maintenance, etc. But they have rent due next week so...

You miss the obvious driver who is not an Uber driver only but one who is an Uber driver as a side hustle. This person owns a car for their own reasons, they want to drive around and have access to a vehicle. They 'rent' that expense to Uber which comes out of their compensation.

Here is another way to look at it. Someone who rents their apartment on AirBnB for one week a month which generates enough revenue to pay their rent, and they live in the apartment the other weeks of the month. This arbitraging of costs is similar to what Uber drivers do.

If Uber were to shift completely to self driven cars, all of their arbitrage ability would be lost, as the full costs of the cars would then be on their books. Now if the business model of having cars available 24hrs a day and there was no drivers fee allowed them to be profitable, that would be an interesting model. Of course one of the things that is going to happen in self driven cars will be things like drunk people throwing up all over the car, resulting in the car being out of service while someone cleans it. Or being defrauded when someone steals a phone and tells a self driving uber to drive them to the next state so they can sleep in the back seat. Then you are back to a security guard who is watching cameras of cars, but how many do you need of those? What do they get paid, are they 'contractors' or employees?

I'm rooting for them to change the world for the better but I've been unable to guess at a business model that would allow them to be profitable yet.


The cost equation for AirBnB and robo-Uber--when used in the sense of renting out personal property as a side hustle--are different though.

If you're away for the weekend or a business trip, there's very little $$ cost associated with renting out your condo for the weekend (ignoring the risk of a bad renter). It's arguably (almost) free money, again, depending on how you quantify the risk.

The cost of a car, on the other hand, is mostly related to how many miles it's driven, not over how many years it's driven. There are some time-based costs (taxes, insurance mostly, rust in snow states, having older tech) but it's mostly distance.


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

Easily. They paid ~$8bln to drivers last quarter. They merely lost ~$2bln in 2018.


The payments they made to drivers included the cost of ownership of the car, fuel, insurance, etc. Labor is the most expensive piece, but is not the only piece of that.

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?


In a world where self-driving capabilities are in almost every car, car ownership will be vastly reduced. Most trips will happen through some variety of Uber. The exceptions will be people who need to store things in their car like car seats or work equipment.

Where exactly does Uber get the cars for this? Are they just going to maintain all of this, then they're literally a robot taxi company and I have no idea why that is so much more lucrative than being a human taxi company, especially given that urban traffic is probably not going to be fully autonomous for a long, long time.

what stops anybody from spinning up a p2p solution for car sharing that cuts out Uber?


Yeah, they (or someone who replaces them) are a robot taxi company. They own and operate a large fleet so their costs of acquisition and maintenance are much lower than a P2P solution.

if that's actually the plan then the next question is what the differentation is. Everybody can buy robot cars (and probably will), and they'll all compete themselves to death as they already do.

The problem is that there's no significant economies of scale to the taxi industry. You don't make drivers much more efficient by having more of them, and there's an induced demand problem where the limitations of cities and traffic mean that you just cannot scale up to infinity.

This is by the way why there's no enormous single individual taxi company in the existing market. Taxi business tends to be small and competitive for this very reason. It's an extremely ill suited environment for a technology startup.


Absolutely agree. I don't buy this whole 'Robot cars' will make Uber / Grab / Lyft profitable stuff.

If self-driving tech really becomes so good that it will make tons of money, then why let Uber etc have that market? There is zero that differentiates them. Everyone can put a booking app together and optimise it over a few years (see the many international copy cats who have done just that).

Then why wouldn't a self-driving-manufacturing leader (whoever that will be, Tesla, GM, BNW, a Geely or other Chinese player, doesn't matter) run fleets themselves? It's not like there's much human cost involved. (and manufacturers already got their service networks and charging networks together where self driving vehicles could go at night to be charged/serviced)


I'm guessing not a manufacturer. They haven't historically wanted to get into fleet management beyond some side investments. But the rental car companies (both long-term and short-term) seem likely players as soon as self-driving is reliable off-the-shelf tech. Which I expect to be a long while in the areas dense enough for taxi services to work well.

So you're saying my car will become vastly more powerful, and therefore I won't buy one? What? Is that how it worked with, say, cellphones? Or automobiles, for that matter? When automobiles became vastly better quality and more useful, people bought fewer of them?

> In a world where self-driving capabilities are in almost every car, car ownership will be vastly reduced.

We'll see how it plays out, but I don't think that's true. Maybe it's what Uber wants, but I think car companies and consumers will disagree.


It isn't going to be a immediate and simple switch with everyone suddenly having self-driving tech at their fingertips. It will come into the market slowly and very likely at the top of the market. There are going to be plenty of people who simply can't afford to purchase a new self-driving car but would be happy to use one through a ride-sharing app.

In the long term, self-driving decrease the need for even owning a car. Why make that huge investment when a car can always be available to you within minutes with a few clicks in an app? It then would make more sense for those large investments to be made centrally by the Ubers, Lyfts, Waymos, Teslas, Apples, etc of the world. In the distant future I would bet driving eventually ends up like flying is today with only the ultra-affluent and hobbyist owning their own vehicles and everyone else just paying per use.


Pretty sure Uber and friends will lobby lawmakers on why private ownership of self driving vehicles isn't safe. Forced maintenance and computer updates, proprietary car-to-car comms, etc.

Private car ownership is less of a threat. Currently connects many drivers with many riders. A competitor has reach critical mass one both sides. Getting rid of drivers would significantly weaken the current leaders network effect and thus make it a lot easier for competition. Windows mobile might still be alive if their app store wouldn't have been a wasteland :(

Uber could still lobby against competition, but that's a whole different level and we'd be pretty much back at a classical taxi situation.


Every single major car company is working on this tech. There is no way they can keep it to themselves. Plus put aside private ownership, those car companies will just become other Uber and Lyft competitors.

Maybe:

- You don't have a self driving car.

- You don't have a car, period.

- You're stranded somewhere or don't have your car with you.

- You don't want to deal with parking.


I didn't say nobody would use it, I'm just saying a large portion of people using Uber wouldn't need it if they had a self driving car of their own.

Also, with a self-driving car the driver doesn't have to deal with parking because the car can take care of it.


Why buy a 10-100k car when you can pay the incrementally per use?

You pay per use with AWS instead of buying physical servers right?


AWS is extraordinarily expensive when it comes to bandwidth pricing. The same could be applied to a car - it depends on your use case. Do you haul goods? Go in the mountains? Live out of a major city with poorly mapped roads?

Conversely, bulk buying saves money -- you buy toilet paper and paper towels in bulk, buy a bag of 20 lbs of rice instead of 2 lbs at a time, etc.

So it probably depends on the individual's financial situation and where a car ride falls in terms of buying bulk vs incrementally.

A lot of the expense about physical servers is also the maintenance and having employees' time to manage them. A car requires some maintenance but arguably less so than that, so perhaps not the closest comparison.


> Why buy a 10-100k car when you can pay the incrementally per use?

Because it's cheaper over the long run.


Not if you have access to public transit but need "last mile" support.

Uber is an alternative not just to driving but to owning a car. Why bother owning a car when you can just uber?

If I wanted to use Uber to commute to work five days a week, the average ride even with UberPool would be around $19 one way. Assuming I go somewhere else that's of comparable cost just once a week (in practice, I tend to go out for dinner several times a week and go fairly long distances on weekends, but never mind), that's 26 days a month spending ~$37 per day, for nearly $1000 a month. My car payments, insurance, and fuel per month are almost certainly hundreds less than that.

"Why own a car when you can just Uber" makes sense for people who live in areas where they don't have to (and don't want to) drive very much, but I think the assumption that most people fall into that group is pretty shaky. I think it's probable this will change over time, but that time span is almost certainly going to be decades, not a few years.


a very San Francisco way of thinking which would already break down in LA, let alone other places with long driving distances and lower parking costs than SF (and hence a wayyyyyy different value proposition between owning a car and ubering)

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/

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:)


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.


> 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?


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...


People are convinced that autonomous vehicles are a 'data problem' and if we just log enough miles and 'train' our 'ai' enough, they'll be perfectly safe.

I'm of the opinion it's literal fantasy. Maybe in 50 years, heck, maybe in 30. 5-10? I can't see it.


That is a very strong statement -- what odds would you put on a "literal fantasy"? One in a thousand? One in a billion?

I'd back "self-driving, in-traffic, no-safety-driver taxi service available to the public in 5 cities in 10 years" at even money any day of the week (so long as it doesn't mean losing half of any money in escrow to inflation...)


If we define "city" to include real cities like New York, Philadelphia, Boston, and DC, I'd take the other side of that bet. Two things will make closing the "last 10%" gap extremely difficult if not impossible.

1) Navigation. The D.C. street grid literally changes daily due to closures, detours, and construction. Google Maps does not keep up with these changes in real time. If self-driving tech can't understand when a construction worker is hand signaling drivers through a single lane for both directions of traffic, it won't work at scale.

2) Weather. Apparently, self-driving tech relies on following lane markings, which routinely are invisible during/after snow.

I don't think it's a strong statement. I'm taking the other side of the "everyone will be flying in supersonic airliners in 10 years" bet in 1960. There is a huge difference between tech that kinda works, and tech that works reliably enough to serve as a basis for transportation infrastructure.


On public streets with other traffic and no driver? I put it about 0% chance within 10 years.

My estimate is 30-35 years, about 10-15 for the technology and another 20-25 for the law to adapt.

Minicab firms are profitable.

Using VC money to subsidise minicab rides (which for some reason is called ridesharing) isn't.


It strikes me as analagous to Amazon. Several years beyond its IPO it did not turn a profit, as all revenue was used toward growth. These companies still grow above 30% per year. Losses are narrowing, not increasing.

That said, I doubt that self-driving technology will be their AWS (the way that Amazon ended up being profitable). Self-driving technology is incremental as it is dependent on extensive, expensive mapping.


No. Amazon didn’t turn a profit, but the way to make the company profitable was obvious. Amazon is a mail order catalog. There are multiple examples of ver profitable mail order catalog businesses for literally a hundred years when Amazon started.

There are no examples of the working rideshare buisness anywhere in the world. It’s very strange, given that cabs are well understood. It’s even more surprising that rideshare companies are promising profitability on autonomous vehicles that don’t exist, and won’t exist anytime soon.


No ride sharing company is claiming that it will be profitable once self-driving tech occurs. They all claim that the platforms themselves will be profitable.

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.


A customer base has value. Consider that Google bought YouTube for $1.65bn. There is little doubt that Google could build the necessary video streaming tech, but they still bought YouTube, and it was their best acquisition to-date.

Only after Google Video has been around and failed to reach the critical mass that Google hoped for.

Customer acquisition in ride sharing space is a fairly well-trodden path - start with a high promotional credit for signups/referrals, gradually lower those as desired metrics are met.

I guess in that sense an acquisition makes sense when the target is priced below the cost of customer acquisition, but I doubt that is the valuation Lyft/Uber are hoping for.


Lyft, Uber, and Taxis aren't as sticky as YouTube though, the majority of both drivers and riders readily use all 3 varying only on convenience.

Google even promotes this by having the ride hailing part of maps.

The scooter business amplifies this even further, very few users or charges have a strong preference to a single brand.

While YouTube had advantage in content, Vimeo had targeted commercial content, but very low stickiness.


They bought youtube because their video service was a big flop.

Google might have smart engineers, but their user experience leaves a ton to be desired IMO.


So less than a tenth of what Lyft would probably want them to pay and only a year and a half of what Lyft loses (only half a year of Uber losses). Google isn't going to buy Lyft's customers for $20 billion plus the $1 billion a year that those customers are costing Lyft to keep.

They already had built it. Google Videos (was that it's name?) was a thing and I remember it being turned down not too far from the YT acquisition.

I thought YouTube is still not profitable? Like it provides a lot of value for their larger, long scale strategy but is bleeding money short term?

I'm no expert, I just see this narrative parroted all the time.


As far as I can tell, Google hasn't disclosed whether YouTube is profitable. What we know is that most analysts predict YouTube makes ~$10BN in revenue, is growing 30%-40% per year, and is valued at somewhere between $75BN-$150BN (much more than Google paid for it.) But those are just analyst predictions, it's very hard to tell when Google's not saying anything.

Lyft/Uber have 3 assets that I can see:

1. Driver network. This will go away with self-driving cars.

2. Rider network. This might take some time for Google etc. to acquire, but probably not nearly as long since they'll have a one-sided market (while Lyft/Uber had to deal with a two-sided one.) This might sell for a pittance relative to their current market cap.

3. Routing technology. Lyft & Uber have gotten much, much better at routing than they were just a few years ago – especially when it comes to multiperson rides. I could see this being pretty valuable, there's no need for Waymo to spend years duplicating the same thing when they could just buy it.


> "Lyft & Uber have gotten much, much better at routing..."

i had to chuckle at that. i've had multiple experiences where my driver had to loop hack toward my origin to pick up someone else, literally passing my pickup point in some cases. other times drivers were expected to swerve off of a freeway with seconds' notice to pick someone else up.

i think they have some ways to go in that regard. sure, they have a lead on an unprepared/undercapitalized competitor, but i'm not sure they'd have a lead on google (who also owns waze).


Lyft's and most of Uber's maps for routing are driven by the Google Maps API.

Google's track record for consumer-facing services is abysmal. Acquiring Lyft is a deft business move for Google's Waymo unit. At the very least, a partnership agreement is in order.


Google already has great routing technology, much better than Uber's according to their own drivers.

And don't forget Google maps. They can just add a button on ride sharing tab in Google maps in cities where Waymo is launched (whenever it launches)

So often I sit down in an uber and the driver instantly switches to Waze.

Yesterday, I booked a cab to go home, and rather than taking a right turn from the main highway to my home which was around 2.5km away, and there was no traffic (it was 1 AM), Google Maps recommended a route which essentially took an inward spiral route to my home (crossing one other highway, two main roads). And then charged me double the amount. I disputed the charge, and they instantaneously refunded the extra charge (wtf? Why charge in the first place?)

As I go through your list, only routing seems to be in favor of Lyft? If that is the case then the question is whether the routing technology alone will be worth billions of dollars ie Lyft's eventual valuation.

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.

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.

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.


There are already Google Maps integrations to hail a Lyft or Uber. Have you ever used them? I disagree they've got a ridesharing network in-a-bottle.

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.

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."


For starters, Horan is not a "transportation expert", he's never worked outside of the airline industry. His entire claim to fame is writing a multi-part story on why Lyft and Uber are never going to profitable, long before he knew anything of their finances.

Not saying he's wrong, but I would take anything he says with a grain of salt. Especially considering it's pretty clear that Lyft is in a hyper-growth state, with huge revenues and their only major overhead is labor, hardware and the cost of entering a new market.


> their only major overhead is labor, hardware and the cost of entering a new market.

Two of those are not going to go away. And the cost of entering a new market should be relatively low for a company like Lyft. The nature of the business means they don't need to make any huge up-front investment in new real estate or equipment. It's mostly just running promotions to attract business and drivers in the new market.

Last year they lost $911M on $2,160M of revenue. If handing out incentives really represents over 30% of their costs, which is what would be implied by the "they'd be fine if not for trying to grow so quickly", that would be pretty worrisome. It would imply that they're in the business of selling dollar bills for $0.75. That's not the kind of business that becomes more profitable as you attract more customers.

One of the big subtexts here is that the standard tech "hyper-growth" business strategy is designed for businesses with very high fixed and very low incremental costs. Lyft has just the opposite: Low fixed and high incremental costs.


> And the cost of entering a new market should be relatively low for a company like Lyft.

That's 100% incorrect. Entering new markets is insanely expensive, because they can't get drivers unless they guarantee income until the market is successfully built.

> The nature of the business means they don't need to make any huge up-front investment in new real estate or equipment. It's mostly just running promotions to attract business and drivers in the new market.

Again, you're missing the biggest expense in entering a new market: labor. Nobody is going to drive around in a Lyft with no customers. So Lyft guarantees them some degree of pay while they expand. That can take time and is addition to the promotional costs with entering a new market, particularly one already saturated by Uber.

> Last year they lost $911M on $2,160M of revenue. If handing out incentives really represents over 30% of their costs, which is what would be implied by the "they'd be fine if not for trying to grow so quickly", that would be pretty worrisome.

Worrisome? That would be ideal. Growth companies should be spending money quickly. We have a name for it (burn rate). I think a lot of people seem to be confused on what an IPO is. It's a funding round, unless the company is doing it because they have to (investor count is too high).

> It would imply that they're in the business of selling dollar bills for $0.75.

The implication is that when they go to a new city they are selling dollar bills for $0.05. What remains to be seen is whether a saturated market can be a profitable market.

> One of the big subtexts here is that the standard tech "hyper-growth" business strategy is designed for businesses with very high fixed and very low incremental costs. Lyft has just the opposite: Low fixed and high incremental costs.

They only have high incremental costs when they expand into a new region. What are their incremental costs when they've successfully saturated a market? Labor (which gets cheaper as a fixed cost over time, as your market size increases) and hardware, which does the same.

Again, I'm not suggesting they are going to be profitable, I'm suggesting that the idea that they should be making money while entering as many new markets as they are is a crazy position. In order to do that they would have to slow growth substantially, which is literally just dying to Uber.


Lift is hardly the first company to discover that you have to pay your employees from the day you open up business in a new location. That's how it works for everyone.

What is different about Lyft is that they've structured things such that they don't have to pay their drivers much when business is really slow - they're guarantees like, "If you complete 5 rides in one day, we'll guarantee you earn at least $100 on those rides." When you consider that drivers have to pay for their own cars and fuel, that probably doesn't even come close to minimum wage where I live. Meaning that their initial labor costs are probably cheaper than McDonald's.

I stand by my claim: The cost of entering a new market should be relatively low for a company like Lyft.

Similarly for the rest: You're trying to think about Lyft as if it were a tech company, and that seems to be leading to a distorted view of how their business works. Lyft is not a tech company. It's a taxi company that happens to be based in San Francisco.


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.


I think you mean variable costs. Fixed costs are costs that are fixed regardless of the amount of goods or services provided.

In the US, I'd prefer rideshare over taxi in most situations. Part of this is vehicle quality, route quality (guaranteed to use maps). The other big part is lessened tipping culture for now (if Uber and Lyft start suggesting 15+% I'd leave pretty rapidly.)

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.

Even if they ever turn a profit (which is unlikely if they continue down the 'we're a self driving car company!' road), that doesn't make them a good investment.

There are plenty of actually profitable companies that return decent dividends. There's no proof that profitability will result in an increase in share price.

If they're not profitable today, I don't think they'll ever be profitable. It's a signal from the marketplace that 'on demand ride services' business segment is over saturated for market demand. They are not meeting an unfulfilled niche in the market, they are losing money to trying to become a dominant player.

Unless the landscape drastically changes and people no longer actually have their own cars (which is their near-term pipe dream), they're going to lose a bunch of other people's money.


A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

Why not also just hand wave that Lyft is a mere messaging app company that provides communication between people who need rides and drivers willing to give them?

You can criticize the company many ways, but whatever they're doing is working because they're making $2.2B in revenue and growing rapidly. They're positioning themselves as a demand-provider to service the upcoming self driving markets, which is smarter than vertically integrating like some other hype machines out there.


It's not working. Anyone can spend $1 to make $0.50.

> Why not also just hand wave that Lyft is a mere messaging app company that provides communication between people who need rides and drivers willing to give them?

If this was their actual business model, they might actually be able to turn a buck. Drivers can pay a small monthly fee to be enrolled in the service, lyft takes a small cut + payment processing fee. Drivers paid weekly or after X amount of revenue, whichever comes second.


> Anyone can spend $1 to make $0.50.

And very few can scale it to spend $0.50 to make $1.00. We aren't talking about a company selling a product for half what they pay. They are investing overwhelming amounts of money into growth.

> If this was their actual business model, they might actually be able to turn a buck.

Yes, just oversaturate the market with drivers and not enough passengers and you'll for sure make tons of money, constantly dealing with overages and shortages since you aren't managing supply in any way.


They're subsidizing the cost of rides. Lyft and Uber are already an extremely expensive transportation option. If the costs start to approach traditional taxi-cabs, then the default hypothesis should be that the market opportunity shrinks down to whatever the size of the taxi market was pre-ridesharing. There's a reason nobody gave a shit about the taxi market pre-ridesharing.

I’m not sure that’s quite true. App-enabled ride hailing is a much better service in many cities than taxis were pre-Uber. That in itself probably increases the size of the market.

But I do expect you end up with pricing similar to taxis.


Fair caveat. I'll just re-iterate that taxis are really fucking expensive. So expensive, IMO, that cost becomes the most significant factor in utilization.

Definitionally, only a small chunk of the population can afford to hire other people to perform services for them. The miracle of industrialization was figuring out how to make physical goods with extreme efficiency. Part of that was by reducing the amount of materials used. But mostly it was about reducing the amount of labor that went into manufacturing an object. Henry Ford's autobiography is a revelation on this topic. But ride-sharing is fundamentally about utilizing 100% of another human being's time to take you from one place to another. That can work in several situations: 1) you're in the top several percent of earners, or 2) you only utilize it for occasional trips. But those situations don't come close to covering the vast majority of transportation that takes place.

Hence everyone pinning ride-sharing's hope on self driving cars. But, uh, then you're just an auto rental company. Last I checked, those were not great businesses. And they certainly don't enjoy network effects that can take hold when you control a two-sided market, which is what's driving the current ride-sharing marketshare death march. So it's this weird thing where the opportunity sucks until self driving cars are a reality, but then the opportunity transforms into a car rental company, where you're basically deploying and maintaining equipment in order to chase single digit margins.

Anyway, I'll end my rant there. As you can see, I'm not a fan of ride-sharing business models.


I don't disagree with a thing you say. I'd just add that super-short-term rentals that are mostly available when you want them aren't going to be super-cheap either. You're taking a minimum wage driver out of the equation. That's all.

You do have to ask expensive relative to what though. I was at an event in SF a few weeks back and ended up staying with friends rather than staying at a hotel. Which saved something like $2K and was pretty easy given Lyft--and still would have been a bargain at 2x. (Local Muni was under construction.)


> There's a reason nobody gave a shit about the taxi market pre-ridesharing.

Other than medallion Lords and the city governments taking auction proceeds?


>It's not working. Anyone can spend $1 to make $0.50.

Citation needed on how this statement is applicable to lyft. At least go look at their financials to see how, again, their billion dollar revenue is growing much faster than their operating expenses.

And a subscription model charging the drivers is a terrible idea unless you're trying to squash growth. In two-sided markets you don't charge both.


>It's not working. Anyone can spend $1 to make $0.50.

That's not what they're doing. Their numbers for 2018 are spending $1 to earn $1.05. Of course, they also spent $0.80 to tell people about it and another $0.30 in R&D to develop new businesses which puts them firmly in the red. But there's at least a business there that is generating positive cash flow. It's an open question if they can cut R&D/Advertising and/or expand their revenue enough to become profitable.


> Their numbers for 2018 are spending $1 to earn $1.05. Of course, they also spent $0.80 to tell people about it and another $0.30 in R&D to develop new businesses which puts them firmly in the red.

So their numbers for 2018 aren't spending $1 to make $0.50, they're spending $1 + $0.30 + $.80 = $2.10 to make $1.05, which is, I believe: $1.00 to make $0.50.


If you treat their R&D and advertising as having zero residual value, sure. But that's obviously nonsense.

> A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

This line of thinking is the reason a lot of people lose money investing. If investors are confident a company will one day be profitable, the price will trade at a value that is very close to what it will be when it hits those numbers. The market takes into account future cash flows.

In order to beat the market, you have to either know, or guess correctly, something that the rest of the market doesn't know. So, usually, you need luck or insider trading.


>A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

No it's not because the market takes this into account.


Lyft is the second player in two markets. In Canada a distant second. Contrast this with Uber that not only has more business segments (eats, freight, etc in addition to rideshare), but is also the largest player in most markets its in.

I simply don't see how Lyft can turn profitable without loosing marketshare when competing against a rival that has profitability it can reinvest from elsewhere.


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.


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.

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.

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

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


> 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.


Oh yes! I raised four, and right now, appear to be doing it again with my granddaughter. My youngest totally failed to launch, despite my best efforts. He and his girlfriend are a mess. So, yeah. I have a kid, after having 4.

Owning a car is a big deal with kids, and you are spot on with why.

I will counter with a lot of that stuff consolidating into carry bags and backpacks. Once I worked that out, getting people into and out of cars was not such a big deal.

And in the end, a lot of that stuff goes with them. Set the norms for people to carry their stuff, manage it, and a lot of good effects come from that.

Kids prep for the day, grab their bag and jump into a car. Happens all the time now.

Now, your list:

Diapers, wipes, clothes treats, other goodies go in the road bag. And that bag goes where the kids go.

I won't put a DVD in a car. When they get older, they can have a phone. Otherwise, long rides are car game, interactive time. I did that and am very glad I did. We had a lot of fun on those, and the conversations! Awesome.

One of our favorites was, "What is worth what?" and or "Nothing is free." Those chats were often wide ranging and sometimes profound.

So, it's not quite the benefit you are putting here, not that I'm disagreeing. I am not.

What I am saying is people can and will find options. With self-driving cars available to call, many will call them.

If the cost makes sense, that is. It may not. In that case, owning cars will still be the norm.

This time around, the only pain in the ass is the carseat and stroller. Those are nice to have in the car, but they also get moved more than one would think too. Who rides with who?

As they pass 3, you don't need the stroller anymore, leaving the seat.

Road or day bags work well, and my little one has her own backpack. She's got stuff she wants in there, and we make sure some necessary items are in there too. She will actually check her bag at 3 and very frequently gets it right when it's not properly stocked.

Lastly, if the cars are self-driving, the ownership is less of an attraction. If they remain human driven, people will continue to own cars, with the slump right now being more largely related to the wait for EV and such making used cars a lot more attractive right now.


I agree that most of the problems can be solved. People in Manhattan have kids and manage without cars after all. I'm just saying is so much more convenient to not have to worry about it. :)

One place where I think we'll have to agree to disagree is on the attraction of ownership of a self driving car. I like having my own car that is my space. It's got my dirt and germs and the seats are the way I like and I understand all its quirks. I don't see how self driving changes that.

My car already has adaptive cruise and lane keeping. It only makes me enjoy the car more. The more it "self drives" the more I enjoy it.

In fact, when it is self driving, that just means even more stuff in the car that I will want to be customized to me, because I'll be spending more time using the amenities in the car instead of driving it. I'll want my own blankets for sleeping, my own books for reading, my own movies for watching, my own keyboard for typing that isn't covered in other people's grime, and so on.

Sure, once we get to a point where self driving is ubiquitous I suspect owning a car will only be for the ultra wealthy as it just won't make sense otherwise, but none the less I will still want to own one.

It's like with planes now. I'd love to own a plane that someone else flies where I want it to go with my stuff inside. But it's just not cost effective.

I think the best argument you can make against ownership is that it will be far more cost effective to rent instead of own. But the desire to own will always be there.


We agree on space. I honestly think we will have cars we drive for a very considerable time yet.

While that is true, yeah own a car.

Leasing is kind of like that now, as is apartment living.

I dislike both because I can't generally do what I want.

In a home, I will build, modify, etc... same for a car, only just modify. I love better quality used cars for this reason.

I do not want to worry about resale value, just use value.

Good exchange here.


Maybe there is some innovation that would help. Firstly pools of cars with car seats. Perhaps car seats that can do all of 2-8 years and are easy to adapt. Can come preloaded with wet wipes etc. Maybe the car is cleaned by robots after each lease. Sports and music stuff probably needs to be stored in the house but I guess most of the time that is more desirable anyway

Maybe, but for example the value of the diapers and wipes isn't during transit, it's while I'm at my destination and have an emergency to respond to. Same with the change of clothes and the towels. The car would have to be waiting for me the whole time, or there would have to be a service that could bring me those things in a couple minutes.

I feel obliged to comment because I berated a similar comment on a thread about public transportation.

The poor already live in a life with children and a lack of vehicles. So, ~30% of parents do have children and are getting along.


So you would want a car for 15 years out of your 50+ years of adulthood? That would be enormous drop in the number of cars owned since now we're averaging more than one car per adult.

You make an excellent point. I hadn't done the math like that in my head. Although point of order, in my particular case it would be 17+ years because of the delta between my oldest and youngest, and others would have a larger delta.

But other than that, yes I see your point. As long as fleets are ubiquitous, I can see car ownership falling.


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.

In most cases, having your own car will mean driving it too.

I have been asking people about this. Many will just build the wait into what they do, and will count on software minimizing that with predictive behavior.

Personally, I have zero desire to own a self driving car. I could potentially own one with that option, but the expense will get in the way. Just not worth it.

Younger people will just adapt, meaning longer term ownership trends will not be good.

Except for classic, you drive cars. Demand and value will grow nicely as people maintain them.

Frankly, they will have to be legislated off the road.

Well off people will own, but that will be a minority case.


Most people like leaving crap in their car and having it ready at a moments notice. I definitely think people will want self driving cars - but as a feature in the car they buy.

The exception will be those in the city where it’s a pain to find parking.


And how much of the population is in city zones?

I agree with you having it as a feature. People will want to own the car.

When they no longer control the car, but make requests, that subtle difference will cause a lot of things to play out very differently, IMHO.


Do you think Ford, GM, Toyota, etc will just give up and say Google owns the car market now? Nobody is going to have a monopoly on this technology.

If there’s no monopoly then you want to sell as many cars as possible and that means personal ownership.


Well, did Ford not just basically quit cars, but for one model?

Watch GM do a similar thing.

Yes, they want to sell and for the reason you gave.

I am saying they will not do anywhere near as well with fully self deiving cars. The ownership incentives are very different.


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.


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

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.

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?


> 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


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

> 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.


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

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.

> 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.


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

I'm going to guess you are an outlier in the demographic of consumers getting 6+ year car loans.

+1 - I got a 6 year car loan from my CU a couple of years back for next to nothing and at this point, my savings account at the same back has a 2x higher interest rate.

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.

You think, but anyone who walked into that dealership with cash would have gotten a better deal on exactly the same car, and so would someone who goes for non-zero-% financing. There is no free lunch; you're not going to get a better financed deal than someone who pays and waves goodbye. There is no 0% financing without a catch.

A large part of the bank's equation is that the average American will miss a payment (changing the 0% rapidly)

Also that these are full recourse loans, the bank gets the auction value of the car and has the defaulter in collections for at least the remaining (before depreciation) amount


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

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.


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.


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.

> They (Uber and Lyft) radically reduce drunk driving in every city they enter

This is cool if true. Does it show up in accident statistics?


> 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.


Yeah, stirring up some competition in the taxi industry is the good thing about Uber & co, though i hope we don't forget in exchange for what we gave those taxi companies their monopolies in the first place.

> Why are people driving/tasking/delivering for these platforms?

Everyone acting according to their self interest doesn't necessarily lead to overall optimal outcomes. See e.g. prisoner's dilemma. I'd hope we as a society strive for something better. Worst case would be power imbalances getting so bad we'd have a race to the bottom occur on the labor market with people competing to starve less slowly. Thankfully that seems far off. And not that this would be caused like Uber & co, they're probably more of a symptom.

But hey, maybe it is like you say and those drives actually don't want reliable income and value their freedom more than having to by themselves shoulder all the risks and investment that a company usually embraces for its employees. I wonder what hourly rate Uber would offer on an employment contract. But them not doing so gives me a good guess who is getting ripped off here... and I have a hard time than seeing this as anything better than another step towards the bottom.


Reality is somewhere in the middle. Most people aren't driving for ride sharing services because they just love it. I agree that a more equitable system would include a safety net for drivers. Maybe regulation will step in to solve this; the companies surely won't do so without strong market or regulatory pressure.

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.


You actually missed:

* May cause public to lose their hard earned money

because of the hype surrounding the IPO.


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.


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.

> 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?


There has been a lot of discussion about this issue in the last years. Dual-class setups (at least for new IPOs) are penalized now by some index providers.

https://citywireusa.com/professional-buyer/news/crown-duals-...


Ahh, thank you. That makes much more sense. So it's not that ETFs are specifically prohibited from purchasing them. Rather, if index providers exclude issuers who have a dual-share structure from their indices then any funds that track to an index wouldn't be purchasing stock in those issuers.

I think it's important to note that many ETFs aren't index-tracking so even though index providers may exclude the issuers with several share classes that doesn't mean the stock will be shunned by all ETFs.


Dual-class share setups are typically prohibited by most ETFs. That's why companies that do want to have more than one share class will trade them under different tickers ($GOOG vs $GOOGL).

Edit: Prohibited was the wrong word, looked down upon was probably better.


Thanks, can you explain a bit further? (Nerdy curiosity here, I've done a lot of legal work with mutual funds & hedge funds but have no experience with ETFs so I'm both clueless and curious.) Prohibited by what? The prospectus? And what exactly is prohibited that assigning a different ticker gets around the prohibition? SNAP has a similar structure but I don't remember hearing the same buzz about that being an issue for ETFs when they went public.

A lot of it seems to come down to voting power. I linked a few articles that dive into it in this comment: https://news.ycombinator.com/item?id=19341955

Do you knwo why that is? It seems like having the two tickers would have all the same issues.

Agreed, and now that I think about it a bit more the ticker symbol is largely meaningless. Institutional investors trade by CUSIP, not Ticker, and a unique CUSIP is assigned to each security (and each share class of a company's stock is a unique security) regardless of whether they share an issuer.

Different classes always trade with different tickers. When they trade, of course: Google has also a non-traded B class. (By the way, I don’t think the first statement is correct.)

Prohibited was the wrong word, you're right. Institutional investors that run ETFs have become averse to dual class stocks ($SNAP, $LYFT) because they don't have the same voting power per share that they do with other share class setups. Indexes like S&P 500 have also stopped including listings that are dual-class -- this is changing though, see the articles I've linked below.

- https://www.cii.org/dualclass_stock - https://citywireusa.com/professional-buyer/news/crown-duals-... - https://www.washingtonpost.com/business/dual-class-shares/20...


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.

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.


> Building YouTube was a herculean endeavor 15 years ago, but today you can hack a YouTube clone together in hours.

Ha, good one.

Would your clone have large scale spam, fraud, and abuse systems in place? Would it work on all browsers, mobile devices, TVs, set-top boxes, etc? Is your streaming tech cost-efficient and can it deliver reliability across all regions? Will you be able to respond to DMCAA takedown requests and comply with IP laws across states and countries?

I can go on and on.

Simply put, serving a video over the internet isn't rocket science. Building YouTube...is much more like rocket science.


You don't need those things until after you hit scale, so I wouldn't include them in an initial quote.

Personally, I think that Tesla could own the entire market, regardless of operator, if it were to develop the defacto standard rideshare vehicle, and financed it as such a % of the rideshare market.

See every yellow cab in NYC, as an example, is the same make/model of car.

Make a tesla Y vehicle and have the rideshare payment subsidize the car. So X% of every single ride goes to tesla to finance the car. And guess what they get as defacto: the data.

Let people qualify as a driver and put down a deposit, and the car must meet a quota of rides per month, which is tracked and displayed as the car is simply a 'device' at that point... and must be used to pay it off. Tesla doesnt care where the rider bookings come from, lyft, uber, whatever.

If the car is used for private purposes - then the owner is charged some function of the car's time as his "car payment"

Simple.


Part of the reason rideshare works is because it puts the capex and credit risk on the driver, not the ridesharing company. Taxis are nice and all but that model didn't grow out of the most densely populated markets for a reason.

This model would be better suited for car rental companies, not manufacturers, to utilized unused assets (which I think some have already piloted).


Does my model still not work? Whereby instead of a "car payment" -- a price per mile/slice of your rideshare cost is automatically garnished from your services? And tesla pushes that particular vehicle as a vehicle that must be used as a rideshare vehicle - regardless of if its uber or lyft or whomever - and they reap the data and 'users flocking to their mobile devices'.

Who is paying for the cost of the car up front? That is the person who is carrying the capex and credit risk of this operation.

Even with leases, the lease holder is paying with debt up front and is on the hook to fulfill payments, otherwise they're legally liable and their credit suffers. A rideshare rev split (or affiliate model) doesn't ensure the driver will cover the cost of the car and the manufacturer is on the hook with the risk of a depreciating asset not making money. If you do tie this to credit: - i.e. the driver pays in debt and loses if they don't fulfill rideshare payments - then you're just creating a lease with more strings attached.


> Who is paying for the cost of the car up front? That is the person who is carrying the capex and credit risk of this operation.

Banks, ostensibly. That's what banks do, buy credit risk.

Or Tesla might just take the risk themselves, they continue to be in a reasonable position to raise cash. That's not typical for them though, they've traditionally relied on banks for consumer financing.

This is speculation now, but I get the vibe from Elon that he is interested in a revenue share in the ridesharing world, but that he doesn't think Tesla should be own its own fleet. That puts them into a much more airy fairy financial model, and I think Elon likes the economics of selling cars. Tesla is already a hard enough sell on Wall Street as it is, without a big fleet of cars depreciating on the books.


That is fundamentally not how banks work - they lend money to the manufacturer or the driver, meaning the latter two pay the cost and carry the risk. Banks are not paying the cost.

Tesla has issues with cash and liabilities at the moment, and I highly doubt that any type of scheme like you're describing would be floated by them in the near future.


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.

"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".


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.

>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?


> 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.


There’s the common impression - misconception? - that driving for rideshare companies is a losing game, and that drivers end up making very little money after fuel, repairs, and depreciation. For a while, it seemed like every day there was another article breaking this down and “exposing” Uber and Lyft.

Having never driven for them, I can’t verify whether this is true, but just a quick back-of-the-envelope guess seems like drivers in the Bay Area could average $40 - $50 an hour. That doesn’t seem like minimum wage level to me.


The weird thing is I almost never get a driver with more than 1-2k trips. If the job actually paid well, you would think there would be a lot of people doing it full-time for more than one year. Maybe the skew is due to the rapid growth of rideshare in general but I suspect the main reason there don't seem to be seasoned super-drivers is that the job simply isn't as good as it seems

It's been said is some of the articles I mentioned that Uber's business plan is to profit of drivers who are financially illiterate, until those people either wise up or break. That seems like hyperbole, but if there is a kernel of truth to it, that would explain your observation.

I live in the NYC suburb, I see 3+ year drivers more often than not.

40-50 an hour is a bit on the high side. If you're doing a back of the envelope guess based on what you're charged, keep in mind that there is a sampling bias; you're probably riding hours where other passengers are also making requests. Nonetheless, I would say 35-40 an hour is not unreasonable. There are of course probably lots of drivers who are exceptionally bad at finding rides (let's say 20-25 an hour) who are making less than that. Without tooting my own horn too much, let's just say that there are a lot of really stupid folkways that go around the driver community. There was literally one guy who once said (paraphrased), "I drive a circuit between these five points until I get a ride". Also, he drove a truck. I tried to point out to him why this was a bad idea, but he seemed resistant to the idea of changing his tactics.

Bear in mind that the cost of operating a car is about $0.61/mile.[1]

[1] https://newsroom.aaa.com/tag/cost-of-operating-a-vehicle/


That's for all vehicles, including ones that are expensive to own and uncommonly used for rideshare. "Small sedans", which are pretty common for rideshare, cost 42c/mile.

These costs also assume depreciation based on buying cars new. Costs would be quite a bit lower if they were based on buying 3-5 year old used cars, for example.


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.

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.

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.


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.


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

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.


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.


3M is not even close to enough for retirement in Silicon Valley. Also... 1.6M after taxes.

You don't have to retire in the Valley. Why would you want to retire in the Valley? Everything there optimizes for bilking outrageous sums of money from overworked young people who are getting paid said outrageous sums of money.

Actually, I could think of dozens of places I'd rather retire in, over the Valley.


Would they not get long term capital gains rates?

I thought the usual track was Move to SV -> Get rich -> Retire somewhere cheaper. ~1 million is plenty almost anywhere on the planet. Especially if they go the FIRE route.

$1M isn't plenty for everywhere. Even in India, $400-500k is what you would need to buy a new 3-4 bedroom apart in a good area of, say, New Delhi. In Mumbai, $1M is the bare minimum

yeah some guy who just sold a multi-billion dollar company is going to retire with a $40k/year withdrawal rate? lmao

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.


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.


Really? I can’t think of a more empowered group today than software engineers. You can work at a large company and get predictable compensation. Alternately, you can work at a startup with the promise of a multi million dollar IPO. I’m each case, you can leverage multiple offers to negotiate higher compensation in equity or salary.

If neither of those appeals to you, you can start your own company. There are ideas that generate predictable income comparable to a day job, or you can go for your own start up home run.

If you think the Lyft founders are undeserving, then go out and start your own Lyft!


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 :)


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.


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


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.

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!


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.

Note that holding onto a dream and making public statements to sucker investors are not necessarily the same thing.

I agree with your basic point, especially in the areas dense enough to make taxi-like services work well.


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

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.


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).


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.

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.

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.

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?

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.

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.

It's running in hundreds cities in tons of countries with huge pools of drivers. The server costs alone are going to be big. Plus you have to hire and pay for really good reliability engineers. Any outages are going to cost you a lot of confidence, and a lot of money. This is a really big amount of data, more than most people realize.

Lyft only operates in the US and a few cities in Canada.

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.

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.


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).


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

The better analyses I've seen say that Lyft could be profitable, if they stopped subsidizing growth via their profit centers, but then they have to somehow overcome the one-trick pony problem and it's not very clear how.

Uber, on the other hand, has several verticals, and also enough muscle to be able to strike profitable deals w/ local competitors, as it has already done in various countries.


Many investors are extremely short-sighted.

I wonder how much litigation is costing them.

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

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

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