Lyft’s revenues double, losses quintuple and prospects darken
economist.com
economist.com
This is a company that has maybe 33 million shares outstanding now with about 27 million of them being sold short. So they have an enormous short bet against them. We see borrow rates as high as 30% for borrowing shares to short with no real stable borrow available.
However, due to the enormous amount of those short shares being rehypothicated(relent), Lyft is vulnerable to a quick upwards price run if those long sellers ask for their shares back. That would cause a run on those shares as they may be lent out multiple times by the same bank.
So whenever someone ask why you don't short an individual stock its always valid to answer that you believe you are right in the long term but the short term could wipe you out if you shorted.
As a quick edit, uber is now indicating its opening at a range of 45.50-46.50, given that the IPO price was $45, it looks like the underwriters will have some work to do and will almost certainly exercise their green shoe option.
So maybe wallstreet is wising up to money losing companies or Uber learned from Lyft that a slow and steady approach to their share price would be better long term for them?
An example here, where everyone lost out https://ftalphaville.ft.com/2018/10/31/1540962002000/The-day...
[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
They might have edged their position by issuing an actual short, I'm only saying they don't necessarily have to.
From what I understand they make their money off of a deal like this by either taking a cut or fees.
If you want a current indicator you have to pay for it from companies like Markit that poll hedge funds. The idea being that if you want to know the number you pay by including your own data that they can then show to other funds in aggregate.
For the borrow rate you ask your prime brokerage(like a bank but for holding equities/derivatives/etc). They'll go find you shares and figure out what rate to charge you, while adding their own rate on top.
1) Total Shares of 273Million this is what finviz is using. This includes locked up shares that can't trade right now
2) the Currently tradable float, this is 32 Million and what I, Bloomberg, Markit, and any non budget site will use as these are the only shares that currently matter.
LifeOfPi mentioned the short float to = 7%. Chollida1 mentioned the 7% figure was using 273mil shares as a base.
So wouldn't the total shorted shares equal 19mil? (19mil = 273mil X 7%). However, Chollidal mentioned in the first post that 27mil shares are shorted. Trying to figure out how to bridge the gap between 19mil and 27mil...
PS. Not trying to nit-pick. The comments are very useful. Maybe I'm missing something....
As pointed out above, if there is then a subsequent increase in price, and this can be because short sellers are forced to buy back their short for any reason (short squeeze), prices can very quickly increase out of control. The best case of this was the Porsche-Volkswagon "infinity squeeze" - when mathematically speaking, absent intervention, the price would have gone to infinity.
https://moxreports.com/vw-infinity-squeeze/
Good times.
In regards to borrow rates, there are some sources that are fairly accurate, but usually only to prime brokers themselves. There is no public exchange.
Interactive Brokers is the only retail broker that I know of that is fairly transparent and fair in terms of borrow rates.
> A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected.
The way the greenshoe works is that, in the IPO, the underwriters sold 15 percent more stock than Lyft did. That is, Lyft sold the underwriters 32.5 million shares of stock in the IPO, but the underwriters placed 37.4 million shares with investors. (The underwriters sold the shares for $72, but bought them from Lyft at $70.02; the $1.98 difference is their fee for the underwriting.) The underwriters were short the extra 4.9 million shares. If the stock went up in the days after the IPO, stabilization would be unnecessary, and JPMorgan would cover that short position by buying the extra shares, from Lyft, at the IPO price. (This is called the “overallotment option,” or “greenshoe.”) If the stock went down, though, or threatened to go down, JPMorgan would cover the short position by buying back the extra shares in the market, which would have the effect of stabilizing the price, because JPMorgan would be a big buyer.[0]
[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
However, your commentary around quick upward price action is still valid.
This is technically true, but far away from what actually happens. What normally happens is that when borrow gets pulled the prime will notify the firm that they have to close the position for T+2 settlement.
There is a 3pm buy in window but you are correct that its not often that the prime is forced to do it because they make it clear to the firm that at 3pm they will send a market order for the required amount, this will almost always result in the firm buying back the position before this comes to pass.
Occasionally the prime will find other borrow but often that borrow has multiple issues that make it unsuited for holding a short position for more than a day or two.
1) unstable and could get pulled at any moment.
2) rates are much higher than what the firm was currently paying
So theoretically you are correct but practically speaking not so much:) The firm will usually just close out a position at this point unless they have a firm conviction that they can make a profit at the increased borrow rate and ride out the moentary pop.
And with borrow rates that can did approach 60% for lyft you are betting that Lyft will go down more than 60% inside of one year.
Possible but not very likely, you can be directional correct but still lose due to your borrow fees.
Retail doesn't help much for larger firms with borrow as the market isn't near as large as the institutional market. Though maybe you just are used to trading in smaller share quantities than I am:)
However, while it may be true that in the long term lyft will loose value, something weird can happen in the short term:
Shorting requires borrowing shares. You pay a fee, borrow the share. If it looses value you make money. But if it gains value, and you are asked to return those shares back, you can loose a lot of money. Also, the act of asking for those shares back could raise the value, creating a negative feedback look. Disastrous for the short seller.
Why might we see lots of shorts being asked to return the shares back? Due to the large amount of shorting and the bank wanting those shares for other purposes.
Why might we see lots of shorts being asked to return the shares back? Due to the large amount of shorting and the bank wanting those shares for other purposes.
That's very interesting, are there mechanisms that prevent large shareholders like hedgefunds or banks from loaning out shares and then purposely pulling them back to create the negative feedback loop you mentioned? It sounds like a situation open to abuse.
Levine: "Here’s a pretty good statistic about Lyft Inc.:
Short interest in the No. 2 ride-hailing company has risen to 27 million shares, according to financial analytics firm S3 Partners, while Lyft’s public float is about 33 million shares in total.
Lyft has 285.9 million shares of stock outstanding (including regular Class A and high-vote Class B stock), but a big chunk of those are held by insiders and early investors who have agreed not to sell them for six months. Lyft only sold 32.5 million shares when it went public at the end of March. But now there are, apparently, some 60 million shares publicly available: 32.5 million from Lyft, and 27 million from short sellers. Short sellers have basically doubled the supply of Lyft stock. If you own a share of Lyft, there’s about even odds that you bought it from (someone who bought it from (etc.)) the company as part of its fundraising efforts, or from a short seller as part of her bet against Lyft.
Or, not necessarily her bet against Lyft. One thing that seems to be happening with Lyft is that some number of its pre-IPO shareholders have somehow managed to hedge their exposure, despite the lockups. The banks that are helping them hedge have shorted the stock. This means that some of the shares that are now publicly available are sort of phantom emanations of shares that aren’t yet publicly available; they are locked-up shares that have nonetheless been sold short. They are not new shares created by short selling, but shares that will be available in the future and that have been moved forward in time by short selling.
People always believe that there is some natural limit on the number of short sales, by the way, but there really isn’t. If there are 32.5 million free-floating shares of Lyft, then some enterprising short seller can borrow all of them and sell them to other people. But now those other people own 32.5 million shares of Lyft, and they can further lend them to another (or the same) short seller, who can sell them to yet other people, who will now own shares and be able to lend them, etc. This tends to peter out—some holders won’t lend the stock—but there is no physical requirement that it will. If enough people really wanted to short Lyft stock, and enough people really wanted to buy it, and also enough people wanted to lend it, then there could be 270 million short shares instead of 27 million. The stock market is not just a mechanism for financing companies and allocating their ownership; it is also a mechanism for betting on them. The financing and ownership things are limited by the actual size of the company, but the bets are not; they are limited only by the demand for betting."[0]
[0]https://www.bloomberg.com/opinion/articles/2019-05-10/the-un...
This is wrong. Not sure where you came up with this. I think you are confused because Matt talks about the shorts creating more shares..
There aren't really 60M shares, read the last paragraph you quoted to figure out why.
It seems to me as a layperson that they have both funded their growth by discounting rides at an unsustainable rate. The sustainable price seems to be pretty much what taxis charge. (No complaint here. I believe in paying my, ah, fare share. I’d be quite willing to pay that rate for Uber/Lyft because I don’t like taxis.)
Is that analysis unsound? What will keep them operating when they run out of investor money?
- Cut R&D cost
- Grow in scale
- Force people out of buying their own cars by providing rides
- Carpool at work programs
- Lyft Shared rides - which taxies could not exploit efficiently, makes it a win win for riders and drivers
- Imagining auto-driving cars in the near future, that can change economics
- Cities that were generally transit heavy, can exploit this alternative, since car usage was low to go to work
- Their partnering with Rideshare programs at work, leads to a very cheap commute on demand, which cuts into the vanpool market - with flexible timings
- Even with same prices as taxis - it's put so many people and cars to work that were sitting in the driveway. I see some form of Government subsidy here too as an option ( since good for the environment, and the economy in general)
- Markets to expand in - Commercial Freight( unused capacity transportation) - basically structuring and leveling the playing field wrt rates, policies, contracts and availability via a digital centralized experience
- Food delivery
- Many more sure I'm missing
Off-topic, but: thanks for teaching me a new word! I found that the correct spelling though is "rehypothecated". According to Wiktionary:
> (finance) To pledge hypothecated client-owned securities in a margin account to secure a bank loan; usually used for mortgages.
Agreed.
The biggest disconnect here is simply not understanding how the short mechanism works. It is not simply a bet against a stock and call it good. There's a chain of events that have to occur, culminating in someone's previously-held security of said stock.
The strikes were small so the effects on both companies were negligible. I would be curious to understand what changes the drivers (who work only when they want) expect and how they think a company running deep in the red could meet them. Not trying to pass judgement on the strikers just trying to understand.
Uber's costs of providing a specific ride are: Driver's cut, maps licensing, cloud charges, data transfer. That is rarely more than the cost of the ride. Remember, Lyft took flack for the outrageously high 14 cents a ride in cloud costs.
No, I'm (correctly) excluding it from the list of things they have to pay for to provide one more ride.
>It’s like saying a gigabyte of data on a wireless carrier cost them pennies in electricity and bandwidth.
It's more like:
Verizon is unprofitable.
People keep repeating the claim that, "lol, Verizon mobile actually loses money for every byte of data they transmit to you."
I reply that, "No, Verizon loses money in the aggregate. The cost of sending one more byte of data, on average, is less than they charge for it, but not by enough to cover their fixed costs."
I get it that WhatsApp and StackOverflow and Instagram have/had a lot less legal, financial, and marketing requirements. But Uber has almost 1000 times the amount of employees WhatsApp, Instagram, and StackOverflow had when they reached similar scale.
I get it that there's a lot more analytics and geospatial complexity in Uber. I get it that they have to manage tens (hundreds?) of thousands of drivers.
It just seems like there's a LOT of unnecessary fat that could be cut.
Facebook only had 4k employees when they IPOed. Google had only 1,900!
That's where a lot of the 22,000 employees are, and if Uber could thrive without them, it surely would have already done so. Among the tasks I see listed in a current Uber job ad:
--Walk driver-partners through the onboarding process and all of the tools they need to be successful on the Uber platform
-- Help existing driver-partners troubleshoot any issues they experience (i.e. a delayed payment)
-- Help brand the Uber name and get driver-partners excited to be on the road
-- Assist with events and promotions as needed (occasionally off-site, during off-hours or weekends)
That's uber's position, that doesn't make it so.
Why is this essential? It seems like a fluffy marketing position to me.
Just get one of the engineers to write code to get driver-partners excited to be on the road. Seems like an easy weekend hack.
The more interesting figure to me would be how many of those 22k are developers.
Here are some calculations:
Currently per mile cost of car (fuel, vehicle, insurance) to driver is about $0.50. Uber/Lyft typically charge $2.00 per mile so $1.50 goes to driver. Subtracting cost of car, driver pockets about $1 per mile which translates to $30/hr in urban areas.
One issue however is upper limit on the business. There is probably demand for 100,000 cabs each hour in US. That translates to may be 2-3 million miles per hour. if Uber can capture 30% of this, then their US revenue would be at about $4B. The international revenue perhaps adds another 2X so we are looking at total revenue of about $12B @ 30% market share. There is room to grow by almost 100% here in terms of market share so with $24B revenue and $2B of minimally needed fixed cost for operations, this seems fairly sustainable and astoundingly profitable business to me.
Average depreciation cost per mile driven is ~ $0.6 [0]. Commercial insurance is ~ $0.2 Cost of gas per mile (in CA at 20 mpg, since most cars are non-hybrid) ~ $0.2
So cost of driving per mile is ~$1 to the driver
So really driver makes ~$15/hour when it is busy, less most of the time
Additionally the average occupancy for an uber/lyft is much higher than typical privately used cars. Adding hundreds of pounds of passenger weight for a shared ride will yield below average MPG on a typical car, making expenses above average.
[Edit: Is that incorrect? Why would this be down-voted.]
Lyft has bled money from day 1, so justifying stiffing the workers on the basis of accelerating losses isn’t logical at all.
Now that the investors have cashed in, perhaps they can double down on patents on robo-cabs and stop bleeding money on tech that will probably arrive too late to save them.
Minimum wage is the floor. If tips don’t bring your cash wage up to minimum, the employee has to get paid.
This is not how the minimum wage works currently. This is not all Uber/Lyft's feet, it's a broader problem in the economy. I understand this is more complex than Uber flipping a "fair wages" switch.
That's Lyft's problem, not the drivers'. They could always find more money by charging higher fares and maintaining a fleet of identical cars for drivers to rent, but then they'd just be a taxi company, not a "tech platform." If they want to keep offering VC-subsidized rides, that's fine by me. And when they run out, they can decide whether they want to stiff their drivers even more, or raise their fares.
And yes, the American tipping system needs to die.
It's not clear that they'd actually end up with more money as a company or more money for drivers this way. I'd expect they could pay many fewer drivers somewhat more, but total payments to drivers would be much less.
The trick is essentially that at the end, the loan (or the shares that replace it) goes into default(become worthless).
This is an old, old game, and one that can be run for a few short years, before it all ends in tears, and "whocoodanode" (to coin an americanism). Let´s just hope there isn´t too much pension fund money tied up in all this.
Overall, they are losing money as a company. And if you divide that out by the number of rides, you can make it seem like they are losing money.
So to think they couldn't be cheating drivers because of that is like saying we know Donald Trump never cheated anyone in business from 85-95 because he lost money for every year that decade.
Drivers are subcontractors, and if they are looking at striking, that's a signal that their pay isn't sufficient. Ride sharing providers encourage their contractors to perform accept tasks in a way that resembles full-time employment, but the message they recruit with is that "you're making extra money with your car, which is "free"". It's a bad deal because they pay $0.85/mi, and operating the car costs around $0.58/mi (which is a lowball estimate for livery use, and $0.23 of that is depreciation). When you factor in additional wear and tear, brakes, etc, full time drivers probably have another $0.10 of expense.
It's inherently exploitive, as Lyft subcontractors are working for cashflow and operating at a loss.
Where the money comes from is Lyft's problem. They can cut operational overhead, raise prices, reduce R&D science projects, take measures to eliminate unprofitable routes, etc. The usual reply is "robot cars are coming and this goes away"! That's not really right either -- there are no sentient robots driving around looking to be exploited, so they will need to own or lease those assets, which will depreciate at something like $0.50-0.75/mi (your robot cab isn't going to be cheap), and they will need to manage, insure and maintain the assets, which isn't cheap either.
Congrats to the folks who cash out. As amazing as ridesharing is, it's a fucked business.
Of course Grab gets a share of the income, but I’d guess it’s less than or equal to 30%.
I few of those trips a day should be decent income to the average Thai.
This is not 'a work only when you want' job. People do it full time to feed their families and after doing it for years find it difficult to move to a different role for a variety of factors. I'm sure they would go get a better paying job elsewhere if it was easy.
It used to be a 40 hour job when they joined but Uber/Lyft have gradually reduced earnings. Now it's 60-70 hour a week job. That's the problem. The gig work/contractor aspect of Uber/Lyft is a smokescreen to avoid paying minimum wage. The drivers are doing it because they have to but the work conditions are pretty bad. Hence the strike.
We really don't know what the "fair" rate is for running a ride-hailing business. We know what's been collected to date in a venture-funded duopoly with limited public disclosure.
But my guess is that 22% is not the long-term equilibrium. Lots of outside pressures (regulators; new competitors) could drive Uber's share down. It's hard to see any forces that would cause it to expand.
Are they really, in addition to all their other costs, going to stock up on millions of expensive autonomous vehicles? That's unrealistic. And if they don't, what stops for example peer-to-peer solutions to emerge that let's people rent out their cars directly? It's very possible we don't need a middleman here when autonomy is ready.
I'm usually sceptical of all the decentralised, smart-contract stuff, but renting your car to some agreed upon destination or for some time through a open-source free application sounds actually doable.
People talk about being "a Ford family". "This is a Chevy household". They cheer on their favourite brand in races.
I don't hear much in the way of "we bleed Uber blood".
No comparison to other businesses is exact, but the basic point is that if we make the rounds of commissions charged throughout the economy, not many fields have settled out at the above-20% level that Uber is currently defending.
The Eventbrite comparison honestly makes 22% sound reasonable. Uber does a lot that Eventbrite doesn't do:
- Make the market (you don't go to Eventbrite to find an event to go to, you find an event you want to go to and get routed through Eventbrite)
- Provide a form of ID verification on both buyer and seller
- Resolve disputes (Eventbrite probably does something like this at much lower volume).
- Navigate the regulatory environment.
- Provide real time assistance throughout the transaction (ie navigation for both buyer and seller)
Not to mention, event at that 14% Eventbrite stock is down nearly 50% on the year.
If you factor in the way Uber can dictate price, you may actually be "paying" a higher fee versus what you could've made on your own. If they force you to accept a 40% discount that's got to be factored in, too.
Apple takes 30% but they don't tell you what price you can charge.
A RE agent has to put in significant work for each commission they earn.
I paid a broker $8k to rent an apartment I found online on my own. The landlord paid them another pile of cash, probably comparable to that. I'm not sure that constitutes "putting in significant work"
Given the dynamic, I'd expect people to charge the company more for their time for gig work than for a stable job.
How would you feel if your boss took a part of your salary and spent it on new technology intended to eliminate your job?
If you lose 50 cents on every ride, how do you make it up in volume? Every ride is subsidized by the Sand Hill Road crowd. They're a great deal. I took a 40-min ride yesterday for US$12.50 in a high-cost-of-living traffic-clogged city. How can that make sense? A ride in a sketchy 1970s-era New York City gypsy (no-medallion) cab would have cost more. And, without all the magic and overhead of some app.
Oh, I get it. They're going to scale up using autonomous vehicles. But, that's also a problem. Right now their business model relies on independent owner-drivers. In other words, from the front office's point of view, their fleets fuel, maintain, garage, and insure themselves. How's that going to work when they replace the drivers' cars with their own capital equipment?
Why should I invest for the long term in these companies?
The long term bet is on them becoming THE way to get around and monopolizing the market (or a chunk of it at least) and THEN jacking up prices.
If you undercut cabs and public transit long enough, they'll have to react to lower ridership and reduce availability. Sorry, no late night buses, most people are taking a very inexpensive and convenient Lyft home. Now that there's no late night buses, we can charge 3X the cost.
Plus all the cabbies have to do is either assign drivers to third shift or not, it can be done on a whim as demand dictates.
The most discussed is the hope of autonomous vehicles. It seems that predictions about the imminent arrival of autonomous cars were a wee bit optimistic, so that makes this plan dicey. Furthermore I don’t see any evidence that Lyft was pursuing their own autonomous cars, meaning that they were in extreme risk should Uber or Google succeed.
The other plan might be to gain total market dominance and then raise prices. I personally suspect that this plan would either trigger a regulatory response, or is exposed to the risk of someone doing to Uber what Uber did to the yellow cabs.
For my part, these ride sharing services appear to be quite similar to a public transit system, only for car obsessed America. And one thing we do know from public transit is that it is very hard to run them at a profit, which makes me doubt the ability of any ride sharing company to ever be profitable.
The pitch for Uber is that operating at a loss and aggressively capturing the market for point to point transit eventually puts their competition (mostly Lyft, often regional startups since the real opportunity cost to make an Uber competitor is so low) out of business that lets them jack up their prices.
Basically, aggressively monopolize markets and then drive prices up until competition resurfaces, run in the red until competition dies first from less cash on hand, then resume exploitation.
Its also hedging that self driving tech is far out enough to keep reaping profits from this cycle for some time. In the same way people go to Amazon first to buy something in many cases, Uber predicts with enough domination of the market for long enough people will just always go to Uber first for transport regardless of if actual better options exist at some point.
This should be illegal. It's detrimental to society
They "lose 50 cents" per ride at the current volume but their fixed costs only go up slightly for each ride, so at double the volume, they could be turning a profit instead of a loss.
The number isn't really related to their actual marginal cost of providing the service.
Early on, they hoped to become monopolies and raise prices, reaching profitability.
One other option would be self-driving cars. Looks like we hit a self-driving winter though.
Another one is lobbying for less parking in towns, both improving the area and creating a captive audience and an environment where people are likely to share the ride. It's ambitious, kind of like terra-forming North America, but hey!
There is also something to be said about novelty. When Uber/Lyft started there were many people just doing it for fun and beer money, but that sort of fun wears out and what you have is a different demographics - people who actually try to make a living. If Lyft/Uber were not doing demographic analysis of their driver cohorts they might have gone to sleep expecting profits with a bunch of yahoos driving others around for fun, and woken up with a bunch of blu-collar worker demanding rights and wages.
In NYC, a 15-min Lyft ride would cost me $18-20, comparable to the yellow taxi (but more convenient). A 40 min ride, e.g. JFK to midtown Manhattan, would easily be $60 (higher than taxi).
I think that on a market like this, Lyft is pretty viable. It could downsize to major metro areas, and become a luxury service in less prosperous places — and become actually profitable.
It doesn't actually sound like that from the body of the article.
I have no idea if this is true or not, but the story says most of the $1.14B loss was due to booking employee stock based compensation of $894M. I'm assuming that's come out of the IPO and is not a recurring cost.
With revenues of $776M, which perhaps are mostly recurring, doesn't that seem to bode well for the future?
Of course, I'm not sure what we can expect their actual on-going costs or revenues to be. I'm just not seeing any reason for concern in this article fter the headline.
Isn't the majority of that going to drivers which gives them a lot less room to maneuver financially?
It would just be nice if the article backed up the headline rather than leaving us to speculate.
I think eventually for Lyft & Uber prices will creep up, discounts & marketing decrease and plenty of money will be made on a small spread.
You don't make money on Wall Street by "knowing a lot" you make money by knowing one thing that one person opposite you doesn't.
That means you have to know a lot of things that won't make you rich, just to prevent becoming poor.
Intel and Nvidia have a hardware advantage. Ford, GM, Tesla etc have the advantage of making their own vechicles. Google is Google.
What do Uber and Lyft have that makes it likely they can figure it out before the market is conquered by others?
Maybe their assumption is that if driverless tech is widely available then their brand names will get them more business?
But they're sinking tons of money into self-driving, which means they would bear the costs of buying and maintaining their fleet. That's a completely different business model, and seems like a tough pivot. And as mentioned elsewhere in this thread, other companies are better-positioned to do this, with better manufacturing, more sensor data, more experience, or all of the above.
I read this in literally every HN discussion of ride sharing, but there's literally no reason to think that ride sharing companies will have any special role to play with autonomous vehicles if they materialize (which seems extremely doubtful in the short or medium term) and there's even less evidence that it will be cheaper.
I still can't figure out why people don't realize that low income humans are cheap. An autonomous car, if such a thing is ever in the real world, will at least for a long time be a complicated technically advanced computerized machine.
Like here's a pretty straightforward machine that rents for $125 a day: https://www.adoramarentals.com/p-~nkd4skit/NIKON-D4S-KIT
For reference that's about the same price as the cost of hiring a minimum wage employee for an entire work day.
Now tell me if the guts of a self-driving car are going to be cheaper or more expensive than a standard DSLR camera.
The utilization rate of the camera is going to be far lower than the rate of the car. The camera may sit on a shelf for weeks before being rented for a single day, so the per-rental price must be relatively high. The market is small. Also, cameras are comparatively easy to break, and the technology goes out of date extremely quickly as compared to a car.
I think the greatest fiscal advantage to autonomous car fleets is the likely high utilization rate.
Indeed. The biggest one of course being that there’s no such thing as an autonomous car.
This is far too broad a statement to possibly be true. It really depends on the situation.
A Nikon 4DS is also almost the cost of a LIDAR sensor while the cost of the LIDAR sensors are dropping quickly & will probably continue to do so due to economies of scale; the cost of the 4DS has reminded at 6k even long after being discontinued. Additionally, the 4DS has direct user wear & tear handling meaning on average it will wear out faster (drops, throwing it in a camera bag, etc) than a LIDAR mounted to the car.
Why? Is there some reason someone else couldn't make a basic app-based service to get taxi rides?
Either they have huge margins or they don’t. If they do have large margins someone will come along and attack the most profitable segment of the business. That could be airport rides, or having extra cars outside the end of a sporting event, or whatever.
As long as switching costs for customers are low then they can’t defend high margins. For monopoly to work you either have to corner supply somehow or lock the customers in. There’s no plausible mechanism for either with taxi services.
At their current scale uber and lyft don't need to have huge margins, they just need to break even and can make up for it with volume. Like amazon they could undercut any new competitor and play the long game. Their marginal costs are so low that they could win out any city with competition by aggressively cutting their 25% of the fare.
No, they don't. They could just hang out outside of big crowded events, like the end of a stadium concert, or rush hour at the airport. Or whatever the peak crunch point is for the existing service. It would be trivial to make at least some money doing only that.
Then the existing service sees its margins eroded. And so on.
There's just a ton of handwaving here, but there's no mechanism for a monopoly. Burden of proof would be on your side to demonstrate it. It's absolutely trivial for customers to switch, there's no way to lock them in. At least some people would do it literally to save $10 on a single ride to the airport. And you don't need a fleet to take one person to the airport. Or a couple. Or to strike a deal with one large company, or airline, or whatever.
Acquiring a monopoly is pointless if you can't defend it. And you can't unless you can constrict supply or lock in demand. Uber and Lyft can't and aren't ever going to be able to.
The alternatives I’ve tried in Canada succumb to failing miserably to even get the app experience right. There’s an extra level of competency needed to get an alternative to be considered competition.
Driver acquisition isn't cheap.
Then there's the question of which city you start in. The mega corp could probably just cut prices in that city until you give up.
Uber's big competitors, on the global front, aren't really competitors. Uber, Grab and Didi all own each other, and Masayoshi Son has massive stakes in all 3, it's an oligarchy. The global rideshare companies aim to bring accountability and logistics supremacy to ad hoc and inefficient transportation networks all over the developing world.
I expect profit margins will forever be slim, but if it's a safe bet that rideshare is here to stay, then I believe over the long run Uber is a safe bet. I won't be investing in Uber myself because I have morals.
Much like, I am arguing, the market for taxi hailing will continue to be.
Could someone help me understand what this means? Is this compensation above and beyond employee stock options? If not, that means employees own ~5% of Lyft, which is much less than I would expect.
As an employee of a pre-IPO startup, I'd love to get a better handle on the realistic value of my stock if we do reach an IPO.
FWIW, I've done the math based on my percentage ownership, expected valuations, timeline to IPO, etc. The big unknown for me is dilution. I don't yet have a good sense of how much dilution I should expect as we move through rounds of funding into an IPO.
With no dilution my stock is worth $10mm (minus taxes, strike price, etc.)
With 10% dilution per round and 4 more funding rounds, it's now worth $6.5mm.
What matters now is how the company spends the money. Hopefully they spend it smartly and the value of the company increases 10x. Now your stock is worth $100k. You didn't get screwed by dilution, you got a $90k bonanza because the company was successful.
These valuation include hopes for fully autonomous cars and the fear of missing out.
They also need to cover insurance and several other costs. But I could definitely see it settling around 10-15%
https://www.ft.com/content/60ab80e2-6a8b-11e9-9ff9-8c855179f...
>We hope in the future there will be driverless cars and that we can then make money because no drivers but other people are developing them too.
Nice! It's common to think that self-driving cars will be Uber's salvation, but even then, they'll have to come with other SDC providers, so there's no moat. They'd have lower costs, but so would everyone else, and so they'd have to cut fares proportionally.
In theory, they can have such a lead time on a workable SDC that they get a great moat until everyone catches up. But that would be ~2 years at the absurdly optimistic end; not enough to pay back the costs of the program and throw off the huge returns investors demand. And in reality, Uber is lagging on this.
The problem is that self-driving cars will change car ownership needs, and that there could be entirely different companies in the space when it does finally come around.
It is unrealistic to expect that to be a moat-profitable income source for Uber, when you can rent that same SDC to Lyft -- or Tesla, for that matter [1] -- who will offer competitive terms.
[1] If they offer it for their own cars, they could probably extend the platform to allow outside cars, perhaps with different branding.
Is there any other market where random consumers are basically acting as financiers for a commercial fleet of equipment? What's the reason for the fleet operator to involve those customer-owners at all?
In terms of immediate cost, it will be cheaper as a customer just to use the ride sharing service yourself, since you won't have to pay car payments you'll just pay the rideshare fee. Especially if the self driving software gets priced in the $10,000+ range as Tesla has suggested it will end up.
So anyone in the "budget" category will just be buying rides not vehicles. They'll have to wait 5 minutes for a vehicle, and they won't get to have their vehicle of choice, but they also won't have to deal with the hassle of running a mini carshare business, whatever that will entail.
Most people in the "premium" category isn't going to want random drunk people fingerblasting each other in the back seat of their nice car, so that cuts out the top of the market.
That leaves what... people who want to save some money but also really want to own their own car, but also are comfortable sharing it with random people?
Seems like a weird segment. Why wouldn't the fleet operator just buy cars and own them? They're going to be burning through these vehicles every 5 years anyway, what's the point of parking them in a random owner-operator's garage and having them taking it out of the fleet when they feel like it?
[#] Except Hubert Horan who destroyed all their BS with his series, "Can Uber Ever Deliver?"
Edit: Dangit, I thought my reply got eaten, but I was looking at a different branch. See the rephrasing here: https://news.ycombinator.com/item?id=19880565
Also: while the drivers have physically taken over maintenance, Uber can’t push the economic cost on to them, because they have to pay enough that drivers want to continue to work even given those costs. If anything, maintenance is cheaper when handled by a big org.
To the extent they realize a savings, it’s because they’re using the spare hours of existing vehicles and don’t have to take on all the dead ours they’d have from owning the cars not because they’re getting maintenance free in any meaningful sense.
Uber/Lyft both hope they can get to self driving cars before the drivers figure out the true cost after the car they provided to Uber for free is involved.
They have the experience to distribute software to millions of devices on a regular basis and run a logistics platform and a consumer app.
That's something automakers will struggle to do.
Automakers can build cars.
That's something Über will struggle to do.
Seems like a fairly straightforward partnership to me. There are many automakers and most of them (anything vaguely in the budget category) will be struggling mightily if robotaxis ever work.
Mightily struggling automakers like to make deals where they get to make autos.
Uber can't afford to run a national taxi service at scale for the same reasons no one else has ever done so. The economics of a taxi fleet don't scale to that size. Owning their own autonomous vehicles would only further erode their non-existent business model.
> The economics of a [self driving] taxi fleet don't scale to that size.
I'd be interested in hearing your analysis! I haven't heard that one. Tesla claims these vehicles will pay themselves off within two to three years once they can operate fully autonomously.
Although I've often speculated if you could have had an Uber-like service in the 80s, where you register with your credit card on file, and then call a number with a location to get an estimate pickup, and then they page a driver to get you, perhaps with an authentication code.
The reality is that ride-sharing probably needs another lustrum or so to solidify and that seems excessively long for Lyft in its current state.
Uber faces the same challenges but its way more diversified and can scale down from certain markets and verticals. Lyft on the other hand has only one market (N.America) and only one vertical (ride-sharing).
Doesn't take a genius to understand that scenario looks risky as hell. Especially when you're in a business with nominal differentiation.
Uber’s multiple verticals are dogs, and reek of money madness. Eats is small time and loses money. I don’t know it’s financials, but I find it hard that this ancillary business is in a healthier state than a competitor who has it as their core buisness.
Uber ATG is as bad off as any other autonomous car program. There’s a growing realization that technology won’t be ready anytime soon. (See Andrew Ng’s comments about just redesigning cities to limit autonomous vehicles’ interactions)
Uber Freight is a ghost town.[0]
The of course there’s the buisness if renting and then discarding Xiaomi scooters. (Or is that not a thing anymore? I honestly don’t remember.)
Sure, I understand the logic behind all of these. Once you have a system to tell a person “Go here, and take this here,” then you can plug pretty much anything into those slots. However. No one has shown that the way they’re doing it is a sustainable business model, and it looks like it’s not.
[0] https://www.forbes.com/sites/stevebanker/2018/04/10/is-uber-...
Uber Eats is currently 2nd/3rd place in market share for food delivery at around 20%, https://qz.com/1549084/doordash-overtook-uber-eats-in-us-onl...
There is a lot more out there on Eats financials as listed in the S-1 and in previous "leaks". Definitely seems like a healthy business where I agree its revenue is much smaller than the overall ride-sharing business, but from a technology standpoint they are likely better than their competitors BECAUSE of having a core ride-sharing business with which it overlaps a lot of ideas like pricing, dispatch, ETA predictions.
Imho, Taking a cut of earnings is borderline unethical for a automated services, whether its lyft, upwork, or patreon. Charge a fee, know your numbers, give both sides of your service's users confidence in the service's stability.
You'd need a price fixing scheme worthy of British Airways make this work.
What's actually the case, is the next clone will need $20 or $30 billion to fight and undercut Uber's entrenched brand, functioning system and scaled up position. And even in that case, the odds of winning against the large incumbents is low. It will cost even more to beat Uber via the undercut game than what Uber has already spent, because you have to take the market away from them - always a dramatically more expensive and difficult proposition.
VCs are not going to continue to burn massive amounts of capital trying to fund the next loss-making ride hailing company. The next $10 or $20 billion to put into an Uber clone in its major markets, does not exist and it will never exist.
Few things would scare a VC more than having the pitch that your plan is to destroy twice as much capital as what Uber did, to unseat Uber's entreched position, with nothing to differentiate you other than the speed at which you destroy capital.
That's why nobody is doing it right now. There isn't another Lyft, much less another Uber. Softbank isn't looking to drop $20 billion to fund the next Uber, to fight with Uber, in the US and similar markets that Uber dominates now.
Once prices get back to a sustainable level it will be more appealing for other entrants and they won't need to burn that much money.
Users seem to go with whatever is cheapest. Uber doesn’t have entrenched anything
Even Lyfts subscription plan seems tailored to people who take one to work every day, and how many jobs really compensate you well enough to hail a private vehicle 10+ times a week? Maybe if you make north of 200k a year it seems great, but if I took one to work I'd be blowing $70-100+ a week on commuting alone, about the going rate of a bicycle on craigslist, and over twice as much as an unlimited NYC metro pass.
In other words, the company that delivers autonomous won't need $10B to make a cloned Uber app. Since the driver is the biggest cost for Uber, riders will gleefully switch to the clone at even cheaper prices.
Uber is "the first airline" for ride sharing service. Lyft is "the second airline".
The way that you beat an airline is not to copy it's service. It's to figure out it's most profitable routes and provide cheaper service on only those routes. Ignore the unprofitable routes.
If Uber can make a good profit in one city, and loses money in hundreds of other cities, someone will come along and compete with them in just the one city.
You don't need $20 billion to beat Uber. You only need to compete in their 5 most profitable cities.
Imagine getting Uber Black upgrade for free if you've done 100 rides with them in a year....
Even American Airlines declared bankruptcy in 2011 and emerged from it in 2013... Delta in 2005. United in 2002.
[0] http://airlines.org/dataset/u-s-bankruptcies-and-services-ce...
https://www.sfchronicle.com/business/article/Uber-drivers-dr...
The reality is that many people will feel they're able to "beat the market", and they will try to get a chunk of the glory, mostly losing in the effort.