Lyft’s financial troubles propelled it into the spotlight

In 2018, Lyft co-founders Logan Green and John Zimmer gathered employees in the company’s San Francisco headquarters cafeteria for a staff meeting. There they explained that they were spending $250 million to buy Motivate, the owner of the CitiBike bike-sharing program in New York.

But the employees expected more. For years, Lyft had battled Uber, its much larger competitor, which had expanded into food delivery and announced its entry into dozens of countries. Lyft workers were demanding that he make an ambitious move. Some had hoped executives would announce Lyft’s own global expansion, two former senior executives said, speaking on condition of anonymity.

This does not happen. The bike-sharing deal is an example of what analysts and three current and former employees say was an overly cautious business strategy that has dogged Lyft since its inception. The company’s decision not to deliver food or offer rides outside of North America has proven costly as it recovers from the pandemic, giving Uber a firm edge that has drawn criticism. questions about the future of Lyft.

Last week, in financial results for the last three months of 2022, Lyft warned that it would be hampered by economic challenges, scaring Wall Street and sending its stock price down nearly 40%, matching a low of $10 per share, before bouncing back slightly. this week. The company is now valued at $4.2 billion, down from $22 billion at its peak.

Lyft reported record revenue of $1.2 billion in its latest quarter, along with losses of $588 million. But it has yet to prove it can become a profitable business, and its recent financial troubles have sparked speculation about whether it could be an acquisition target.

“I just looked up ‘debacle’ in the dictionary, and there’s a Lyft sticker,” said Dan Ives, senior equity analyst at Wedbush Securities. Mr Ives said Lyft’s failure to invest in food delivery was a “huge strategic mistake”, as was staying a national brand. He added that the financial incentives offered by Lyft to attract drivers to its platform as the pandemic subsided in 2021 were “not as aggressive” as those offered by Uber.

Lyft said its acquisition of Motivate was part of a so-called micro-mobility strategy, and that since 2018 more than two million people had cycled or scooterd using the app. In a statement, the company said it remained confident across its business.

“There is a clear opportunity to take advantage of the market, as the supply of drivers and demand for ridesharing is the highest in nearly three years,” said Eric Smith, a spokesperson for Lyft.

Uber, which is valued at $71 billion, said it expects to reach operating profit profitability at some point this year, signaling to investors that its business is strengthening. The company said it had more drivers on its ridesharing platform globally in its latest quarter than ever before. Uber declined to comment on Lyft’s performance.

Uber made some shrewd — or lucky — bets. He started delivering food in 2014, and he was skeptical if the service would ever take off. Then, when pandemic restrictions forced people to stay home, both companies’ ride-sharing businesses closed virtually overnight. Lyft had few alternatives, but Uber drivers found they could continue to earn money from the app’s delivery service as food orders soared.

When people started traveling again in 2021, demand for rides picked up, but drivers were slow to return to ridesharing apps. Initially, both companies struggled to meet passenger demand. But Uber recovered faster, both because of its delivery business and because it quickly invested $250 million in incentives to keep drivers coming back. Lyft spent less money on incentives and offered them later than Uber. Its supply problems persisted.

Lyft said Monday it considered offering food delivery services at the start of the pandemic, but determined there was less overlap between drivers who transported passengers and those who wanted to deliver food. food than he had expected. The company introduced a pilot program, Lyft Delivery, in April 2020 that allowed drivers to pick up and deliver essential supplies and products to businesses, before canceling the program last month, according to an email seen by the New York Times.

Drivers have finally returned to Lyft in droves. The company said on Tuesday that the growth in the number of drivers on its platform from December to January was higher than any other monthly period since 2019.

Yet over the past six months, Lyft has paid drivers an average of 19% less in base pay per hour than Uber, and Lyft drivers have driven about six hours less per month than Uber drivers, according to Gridwise. , an app that helps drivers track their earnings.

Uber has also aggressively expanded into more than 70 countries. It has clashed with foreign transit services and made mistakes, but its greater scale has cushioned the financial blow of the pandemic. Lyft, which carries passengers only in the United States and Canada, said it was affected by a slow return to travel in West Coast cities.

Before the pandemic, Lyft spent years considering whether to enter other countries, sending executives to Australia, Europe and elsewhere, before deciding it was too expensive, two former employees said. . Even its entry into Canada has stalled, although Lyft has said it plans further expansion there.

Lyft said its caution was prudent because the pandemic halted travel soon after the company could have entered international markets.

Mr. Green, CEO of Lyft, and Mr. Zimmer, President of the company, bonded over how Lyft could be an alternative to inefficient public transportation and reduce the need to own a car. Both men continue to emphasize this vision in internal meetings, according to four current and former employees. But some have questioned whether their determination is hampering Lyft’s ability to expand into other businesses or markets.

Three of those employees say Lyft executives also dithered over important decisions. When the challenges of making a living as a gig driver became a hot topic in 2018, for example, Lyft brought together dozens of employees to study the issue.

Mr. Green and Mr. Zimmer were presented with options to improve the driver experience and talking points to refute exaggerated claims. But they dragged their feet in responding to suggestions or implementing changes, two former senior executives said.

In its financial results last week, Lyft’s projections for its current quarter were well below investor estimates. The company said it expected to earn $975 million in revenue and $5 million to $15 million in adjusted earnings, a figure that excludes costs such as taxes and interest. Investors had expected Lyft to earn $1.09 billion in revenue and $82 million in adjusted earnings.

“That’s obviously not the level of growth or profitability that we’re aiming for or capable of,” Green said on the earnings call.

Lyft said the lower numbers were partly the result of lower prices, which it did to stay competitive. High prices drove riders to Uber or other modes of transportation, and the company said lower prices would benefit it in the future.

Employees have worried about the poor performance of Lyft stock for months, and some were even more alarmed by the recent drop, two current employees said.

Some analysts have said Lyft should merge with another gig company, like DoorDash, or be bought by a private equity firm. But broader economic challenges, combined with Lyft’s stock volatility and lack of profitability, would make a deal difficult.

Some investors are waiting to see what changes Lyft is making this year before pressing the panic button. Executives said on the earnings call that they were considering more cost-cutting measures, after laying off 13% of the company’s employees in the fall.

“We are neutral right now – they have work to do,” said John Blackledge, an analyst at investment bank Cowen.

Lauren Hirsch contributed report.