I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind.
The end game was supposed to be autonomous taxis (cutting the driver out). I don't see how that's going to happen before they run out of money unless they 1) significantly raise prices or 2) take increasingly bigger cuts from drivers.
Right? Even if autonomous taxis _is_ their endgame, why couldn't companies that actually produce the cars do it cheaper? Almost all of them are heavily investing in it right now, some are even partnering up with companies that know how to do a lot of it.
I don't see how this works out for Lyft or Uber. To me it just looks like they'll both eventually run out of money and get squashed. Maybe I'm missing something?
Auto companies are not service companies, those are very different things.
That said, given the dynamism of markets, there's nothing to indicate that Lyft/Uber will have any huge advantage when the time comes.
But this is a game of musical chairs - early investors need to create the biggest, most miraculous but 'believable' story so they can pass the bag onto retail investors long enough to cash out.
If retail investors were able to do their homework, or rather, if their advisors at Morgan Stanley etc. were to do their jobs, I think that they'd see there is far more risk in these things than the valuations imply.
The problem is of course is that Morgan Stanley private wealth managers, managing for all those doctors, dentists, lawyers etc. only make money if there is buying action. And the emotional excitement of 'getting in on an IPO' is just too much to ignore.
The 'bragging rights' value of your dentist in Akron Ohio being able to tell to his buddies on the golf course that 'he has an 'in' on the Lyft IPO' (not really of course, he's at the tail end), is just worth more than a scrutinized deal.
Also - notice the PR/branding for Lyft, it's so funny, like the opposite of Uber - and yet they are for all intents and purposes the very same thing.
My thoughts exactly. My understanding is that Tesla plans on including a clause to prevent their autonomous cars from being used on other ridesharing platforms and simultaneously launching their own service.
I believe Lyft has significant financial ties with GM, who has Cruise, so maybe they'll be able to navigate it from a partnership angle.
Why couldn't companies that actually produce cars just rent them out? I'd really like to have a mono-brand short-term rentals, but they just don't exist. Why is the case different for taxis?
Currently renting cars could be seen as a distraction from car makers core business. The idea is self driving taxis becoming so cheap owning a car will be uneconomical. In other words they drastically have to revamp their sales product anyway. Worst case they'll be a the whim of very few big ai taxi companies... so cutting them out in the first place seems quite realistic.
FYI, Toyota bought a 500m stake in Uber. Some of these car companies just consider the internal combustion engine to be their core competency; then just outsource everything else. Usually to India, Japan or H1B bodyshops.
> I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind.
Are you saying taxis can't exist?
As far as I know, any taxi dispatcher take a similar cut (30%) as them and their cost seems way higher (no automation at all, require people on phone, etc..).
Theses loses are either because they are considered unlawful somewhere (I never heard of this issue with Lyft but I guess that's may be happening) and have to fight for it, or because they are trying to expands. If they stop both of theses (operating everywhere they are considered unlawful and stopping to expands) then their cost remaining are pretty similar to any Taxi dispatcher but they require much less staff.
The difference is taxi companies are profitable (or at least break even) -- and by virtue of necessity. There's no nationwide taxi company. Each tends to be local to their municipality. As such they can't absorb big losses and aren't subsidized by VCs or public markets. Taxis charge more than the service costs to deliver, Lyft and Uber don't.
Lyft and Uber have higher cost basis than taxi companies because they don't leverage economies of scale of car ownership and insurance via shared fleet as taxis do. Then they also charge less to riders. There's also no guarantee people would continue to use Lyft or Uber if they raised their prices to above the cost to provide the service, particularly when that number is actually higher than a taxi.
To my knowledge, Uber has a -61% profit margin. You give them $10 and they spend $16 to provide you the service.
Right, but the market for taxi dispatchers is a much smaller market than the market for taxis. Riders aren't the customer, drivers are. And price in this competitive market will tend towards a fixed monthly subscription cost, not a % cut of their rides.
The public will eat this stuff up if there's huge YoY revenue growth like they've shown in the S1. You see this all the time with public SaaS companies. Sure, the losses also increase... but nobody seems to care.
Nobody seems to care...until the company literally runs out of money. The difference between a SaaS and a Lyft is that Lyft has huge operating expenses. Burn rate is order of magnitude higher.
"Running out of money" is a long way in the future once your public. Most SaaS companies have huge operating expenses that exceed their revenue, most of it going towards marketing. Take a look at HUBS, NOW, WDAY... The list goes on. Lyft has huge expenses, but they also have huge revenue.
SaaS companies are basically zero marginal cost businesses. Uber currently operates with a -61% margin. Their marginal costs substantially exceed their marginal revenues.
But why do these companies have such huge operating expenses? It's a phone app for goodness sake. They're not fronting or maintaining the cars, insuring the drivers, paying any pensions or benefits to their workforce, etc.
These are just pyramid schemes disguised as companies.
Are you kidding? The driver acquisition costs are extremely high. Driver turnover is high. There's much higher support costs on both driver and rider side than a typical "pure" software co.
It's only high because they are in a money burning contest with a swath of other VC funded gig companies. There's nothing inherent about their business model that requires extremely high driver acquisition costs.
What do you mean "nothing inherent." Turnover is high because pay is low, so they need to constantly recruit new drivers via signup bonuses that pad their earnings for the first X months. If they fail to attract drivers then their growth will tank because supply will not keep up with demand. Support needs are naturally high and things go wrong all the time because you're dealing with real people in the physical world - it's not just some bugs here or there on a computer screen.
Companies like Lyft/Uber also have a much higher % of their full time staff in "ops" roles that are driver-facing (support, onboarding, offboarding, marketing, acquisition, etc.)
So long as their business is extracting maximal fees from each fare (thus keeping driver pay low) this cycle will go on as long as it can, and acquisition costs will continue to be high.
There's nothing fundamental about a ride share company that requires high driver acquisition costs. They are a result of a bunch of companies trying massively grow in the same space. Once Lyft stops trying to grow so rapidly and the industry settles they will not have to spend as much on driver acquisition. Indeed, it's already happening as their cost of advertising as a percentage of revenue is dropping dramatically.
> Support needs are naturally high and things go wrong all the time because you're dealing with real people in the physical world - it's not just some bugs here or there on a computer screen.
Why do you think support needs are naturally high? Higher than say what Ebay provides to sellers or what Dropbox provides to their enterprise customers?
>Companies like Lyft/Uber also have a much higher % of their full time staff in "ops" roles that are driver-facing (support, onboarding, offboarding, marketing, acquisition, etc.)
Higher than who? And what are you basing that on?
>So long as their business is extracting maximal fees from each fare (thus keeping driver pay low) this cycle will go on as long as it can, and acquisition costs will continue to be high.
If it does, that's only because it's more profitable for Lyft to cycle through drivers than pay more to retain them.
Lyft doesn't provide any services. They connect riders with drivers and provide the technology to make that work. Whether or not that merits a SaaS label isn't really the point. The point is that Lyft has the same cost centers as SaaS companies.
The end game was supposed to be autonomous taxis (cutting the driver out). I don't see how that's going to happen before they run out of money unless they 1) significantly raise prices or 2) take increasingly bigger cuts from drivers.
Personally I will be shorting as soon as I can.