When Lyft was doing their road show there were a few analysts who had price targets of $45 as Lyfts fair value at IPO with an acknowledgement that the amount of shares available would double, and possibly triple when all shares were off restriction, meaning that the $45 price target was a best case and we would probably see far lower once people can sell.
This is a company that has maybe 33 million shares outstanding now with about 27 million of them being sold short. So they have an enormous short bet against them. We see borrow rates as high as 30% for borrowing shares to short with no real stable borrow available.
However, due to the enormous amount of those short shares being rehypothicated(relent), Lyft is vulnerable to a quick upwards price run if those long sellers ask for their shares back. That would cause a run on those shares as they may be lent out multiple times by the same bank.
So whenever someone ask why you don't short an individual stock its always valid to answer that you believe you are right in the long term but the short term could wipe you out if you shorted.
As a quick edit, uber is now indicating its opening at a range of 45.50-46.50, given that the IPO price was $45, it looks like the underwriters will have some work to do and will almost certainly exercise their green shoe option.
So maybe wallstreet is wising up to money losing companies or Uber learned from Lyft that a slow and steady approach to their share price would be better long term for them?
> 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.
I had first hand experience with this in the early 2000s with CMRC (stock symbol for a company named Commerce One). Friends and I were confident it was overvalued and shorted it, but it continued up at an insane clip and we got margin calls from our brokers. Luckily we were able scrounge up enough cash to cover it and so didn't have to buy the stock at the higher price to cover, and I think within a few days it started to fall again and we were able to settle at a profit, but it was pretty white knuckle. Note that there was no business reason for the rapid gain, they didn't announce a sudden windfall, it was just a short squeeze. Company was never profitable and went bankrupt a few years later despite having a market cap that peaked at over $20BN.
Bloomberg terminal will give you a lagging number for SI(Short interest).
If you want a current indicator you have to pay for it from companies like Markit that poll hedge funds. The idea being that if you want to know the number you pay by including your own data that they can then show to other funds in aggregate.
For the borrow rate you ask your prime brokerage(like a bank but for holding equities/derivatives/etc). They'll go find you shares and figure out what rate to charge you, while adding their own rate on top.
finviz mentions, the short float to be 7% and Short ratio is 1.05 which says it's much conservative than the numbers posted. How to explain the difference?
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....
Short interest is really an irrelevant number. That number could be largely skewed by derivatives, corporate actions, etc. Additionally, foreign brokers do not have to report short interest to the SEC.
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.
Even if they're skewed, it's still borrow on the existing floating shares?, no? I mean directionally - can it not mean that - even a small piece of good news will cause exponential movement due to shorts having to be covered.
The price dynamics of this are interesting, and a bit counter-intuitive, since selling the share short also puts short term pressure on the share downwards (at the sale price), especially if there´s a lot of shorting. Its because of this, and also because due to monetary expansion there is a positive long term bias in share prices, that short selling isn´t quite as simple as sometimes presented.
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.
Thinkorswim (from TDAmeritrade) has it for free. Just open a brokerage or IRA or something and you can access a paper trading account there; its among most powerful trading platforms widely available to consumers, and is surprisingly user friendly.
Ask your broker or see what pops up when you preview a short sale order. Fidelity will show you an interest rate if it's a hard-to-borrow stock. Interactive Brokers is quite good about showing rates as well.
Contributing in a big way to the short interest (according to Bloomberg[0]) is a single trade meant to hedge Soros $550m position purchased off of Ichan just before the IPO.
My understanding of that Soros trade is that it was not an actual short (the product was not public), but it was a synthetic product that was correlated on the Lyft ticker, that probably behaved like a Short but wasn't a short.
It's still a short. The banks who sold the trade to soros still need to hedge their exposure by shorting the stock. The short position still gets reflected, if anything it probably amplifies the effect since it's created from a derivative
Why would the bank need to hedge their exposure? Isn't part of their job to create those type of synthetic products based on risk profiles and trade them accordingly?
They might have edged their position by issuing an actual short, I'm only saying they don't necessarily have to.
They would need to hedge their exposure because they're generally not looking to make money off of something like this based on the direction. If they're completely unhedged, and LYFT tanks, that would be a huge loss for them.
From what I understand they make their money off of a deal like this by either taking a cut or fees.
Shorts very rarely actually get closed out by a prime broker (at least for institutional investors). The stock borrow world is very inefficient, but when a forced buy is on the line the PB will almost always find more supply. Especially with a presumably large retail long base, the retail brokers like TDAmeritrade will literally start calling up long positions to offer to pay for the rehypothecation rights. Others like robinhood have that as part of their terms.
However, your commentary around quick upward price action is still valid.
> Shorts very rarely actually get closed out by a prime broker (at least for institutional investors).
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:)
For me it’s really difficult to comprehend what you describe. I think it’s super interesting though. Is there any way you could tell the story for a layman?
Lyft seems to have a lot of shorting. People are heavily betting against it. They expect its price to drop.
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.
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.
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.
The only thing that can happen is that they have to merge. They can share all the expensive infrastructure and no longer spend millions every month trying to gain/keep market share.
They'd likely lose the "independent contractor" argument if drivers weren't able to work for both companies simultaneously. It's hard to say someone is an "employee" if they're logged into competitors' apps and taking rides from either, during the same shift.
I agree with your reasoning, but I think that's not really necessary to ride both Lyft and Uber to justify "independent contractor" status. The fact that Lyft riders use their own cars and choose their own working hours (i.e no direct supervision from Lyft side) should be enough to justify that.
>> 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.
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.
While they have 27 million shares short, you may want to look at Levine's take today on that - not all the shares are actually available due to hedging exposure. The 27MM is on top of the 33MM, not out of them.
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]
Not asking this question to be rude or snarky. Can they make money at all? If not why would their prices be discounted now?
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?
- 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
Here's a good take (sorry for all the Levine links, I just think he provides crisp explanations of financial instruments) on what the underwriter does:
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]
+1
He's singlehandedly taken me from completely disinterested in finance to fairly interested. I don't think I've ever read nonfiction writing so consistently good
> 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.
Very interesting process going on right now with Lyft & Uber both losing money and some of their drivers trying to stage protests and strikes. The drivers appear to rely on the company as their primary source of income and want more money yet at the same time the companies are operating at a loss. Were they to increase wages (as % of every ride) it stands to reason the losses would widen. If they get to wide the company goes out of business and the drivers lose their jobs. I understand that this same standard can be applied at any company but this is a gig / 'work only when you want' job so it is different.
The strikes were small so the effects on both companies were negligible. I would be curious to understand what changes the drivers (who work only when they want) expect and how they think a company running deep in the red could meet them. Not trying to pass judgement on the strikers just trying to understand.
Drivers are independent agents who have every right to demand better conditions. It’s especially important to chisel every penny out of a company that will likely vanish in a short number of years.
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.
How can you say that Lyft is "stiffing" the drivers when they lose money on every ride? Where is the extra money for the drivers supposed to come from? Every passenger has the opportunity to tip if they want: would you also say that restauranteurs are stiffing the waitstaff?
Waitstaff are employees, and aren't providing the chairs and plates. A waiter gets his ass in the restaurant and does stuff. That's it. Totally different situation.
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.
It's possible to pay out an unfairly low wage with money you don't have. I'm not saying that's the case with Lyft, but just because you're operating at a loss doesn't mean you're paying people fairly for their work.
If the painter bought a bunch of "vomit green" paint and it turns out no one wants it, offering $100 to get your house painted is a perfectly fair deal since the other option for the painter is to not sell it at all, which costs the full $105 as a writeoff.
Minimum wage after all expenses (including depreciation) are subtracted seems like the absolute lowest wage that could be considered "fair". Or maybe whatever McDonald's/Walmart are paying in your area, since that is sometimes higher than minimum wage in urban markets.
If you work 40+ hours a week you should be payed enough to support yourself and a child and live in or very nearby the city in which you work.
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.
Lyft (and Uber) are essentially borrowing money long term, and selling rides at a less than market price short term. Some of the drivers are getting stiffed - many of them, did they but know it, are getting an income where otherwise there wouldn´t be one with higher prices.
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.
They aren't losing money on every ride. There is essentially no marginal cost for every new ride.
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.
Whether compensation is appropriate depends on the individual and their circumstances and costs. The employees situation depends on the perceived value of services rendered not the employers profitability.
> How can you say that Lyft is "stiffing" the drivers when they lose money on every ride?
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.
> They could always find more money by charging higher fares...
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.
That would only be true if their unit profits were low or negative. On each ride they make a lot of money. They lose money because of their huge, ride-count-independent fixed costs, like legal defense and marketing. So it's not necessarily true that giving the riders a larger cut would widen the loss, if it came with a scale-back on all the marketing.
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!
Uber has a huge community operations team that's in charge of making sure that its drivers stay productive and at least semi-at-peace with the way the system works (and evolves!) There's a lot more human-to-human work needed in this business than for a social-media site, or an automated online-ad service.
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)
It is fluffy marketing. But bear in mind that when you're offering a B-minus experience to drivers in terms of pay, hours and quality of life, it takes a lot of fluffy marketing to minimize driver churn or corrosive behavior.
Uber has around 25 offices in the UK alone. Most are required for local regulation afaik. If this is scaled across the US and Europe that could easily run into hundreds of offices, inflating their employee count for relatively minor employees.
I can definitely understand 22k considering all the drivers to manage. And imagine how many employees you need to manage regulatory compliance in as many cities, counties, provinces, states, countries they have to deal with.
The more interesting figure to me would be how many of those 22k are developers.
This is what gets lost in all the negativity. Lyft/Uber can slash their R&D by 90% and they wouldn't have much trouble running normal operations as minimal app-based cab companies. At 2,000 minimally required head count for running operations, they would probably average $2B in annual expenses. However suddenly they would be gloriously profitable with huge scalable upside and small fixed costs.
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
AAA cites 59¢/mile for an average sedan [1], further they cite the costs for average private insurance, which is inappropriate for running a commercial operation with uber/lyft.
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.
A lot of the marketing budget goes to driver incentives, so it wouldn’t help the drivers if they cut back on that to reduce the cut they take from the ride (which is only 25% btw, so diver comp can only go up 33%).
That figure comes from taking total losses and dividing by the number of rides. It's not the same as saying that the costs of providing the ride itself are $1 more than they charge for the ride. (The fixed vs variable distinction I was making above.)
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.
You’re forgetting the cost to develop the software itself. It’s like saying a gigabyte of data on a wireless carrier cost them pennies in electricity and bandwidth.
>You’re forgetting the cost to develop the software itself
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 understand how "cost to provide one more ride works", I'm just saying that it's a bit of an accounting fiction and has little to do with whether they can or cannot be profitable. It also confuses people into thinking that running a telecom is just pure profit and that they're getting ripped off. That's why I used that example.
Right now, Uber keeps 22 cents on each dollar paid by passengers, as its fee for creating the app, keeping it working, etc. That's cheap relative to the iTunes store, which keeps 30%. It's preposterous compared to the 3% that real-estate agents get for buying or selling a home.
We really don't know what the "fair" rate is for running a ride-hailing business. We know what's been collected to date in a venture-funded duopoly with limited public disclosure.
But my guess is that 22% is not the long-term equilibrium. Lots of outside pressures (regulators; new competitors) could drive Uber's share down. It's hard to see any forces that would cause it to expand.
22% is really high for what's effectively a dispatch fee.
If you factor in the way Uber can dictate price, you may actually be "paying" a higher fee versus what you could've made on your own. If they force you to accept a 40% discount that's got to be factored in, too.
Apple takes 30% but they don't tell you what price you can charge.
Autonomous cars and owning their fleet or leasing from large fleet companies is probably the end goal for increasing the share. I don't see this going any other way. These have always been a play on getting market share at a loss while the tech is being built and converting to a profitable position when there are no contractors to pay.
I don't understand this autonomy angle for several reasons. One is of course that legally (and technically) full autonomy is a long, long time away so we'll still have drivers in cars that want to be paid, but more importantly, Uber doesn't even own autonomous cars.
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.
Yes, that's a good point. Car companies could gobble up a tech startup or even social networks could try to leverage their userbase to connect people. A company like Uber really only has a better relationship to the drivers, which is precisely who they're trying to get rid off.
While I think real estate agents get too much when it come to higher dollar properties, it doesn't compare well to Ubers service. A lot of Ubers cost is fixed, there is almost no marginal cost for each ride.
A RE agent has to put in significant work for each commission they earn.
> 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"
I'm sampling the world of commission-based connectors in a deliberately wide-ranging way. We could also include Hollywood agents (often 10%; sometimes 15% or even 20%). Or Eventbrite, where the base formula of 3.5% +$1.79 translates into an overall 14%. (I'm using an average ticket price of $17, which was correct in 2014.)
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.
My dad is a real estate agent (primarily for residential properties), and at least when I was growing up, it was 3% each for the buyer and seller's agent.
Makes one wonder how Grab compares, which is popular in Asia. I believe most Grab drivers in Thailand most likely earn an above average wage. For example a short drive from Chiang Mai central bus station to Chiang Mai airport cost me 208 Baht (~7 USD) while the average Thai daily wage is probably around 300 Baht. I also paid a tip (240 Baht total).
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.
Unless the airport run is significantly more expensive that normal (possible), this implies that Grab is only for the wealthy portion of the population (including presumably tourists). Lyft and Uber have positioned themselves as a more mainstream service, and that makes the similar economics fly out the window.
Presuambly you have to buy and maintain a half decent car to enter that market, which is difficult if you have the financial resources of someone earning 300 baht a day. And with rather less capital outlay you can also earn 200 baht from short tuk tuk rides for tourists...
What's common in Philippines is for higher middle class to buy a vehicle, and pay a driver to drive it for Grab. So the capital of buying the car is not done by the driver, and the drivers gets a lot less than what you pay.
I suppose one reason Uber is operating at a loss is that they are throwing a lot of money at making the drivers obsolete. No wonder these drivers are angry.
How would you feel if your boss took a part of your salary and spent it on new technology intended to eliminate your job?
The CEO is blaming the operational loss on the stock compensation of employees. My assumption is the generous compensation pretains primarily to the corporate Langoliers, but doesn't include people who, you know, work for a living. Your reasoning that compensating drivers fairly would be a significant overhead to the profitablity of the company has been refuted by the company's own statements. My suspicion is the company could likely compensate drivers fairly, cut executive bonuses, and operate in the black. But that isn't what the people who operate the company at the highest level want, they want nothing but to get theirs, screw what anybody else wants. Capitalist incentives, man. And it seems like you've got some kind of animosity towards fair compensation of the drivers because they work, "gigs". Call it what you want, while they're on the clock work is work and they are as entitled to fair compensation as anyone else.
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.
Fundamentals question: Can somebody explain how these ridesharing companies expect to turn a profit, eventually?
If you lose 50 cents on every ride, how do you make it up in volume? Every ride is subsidized by the Sand Hill Road crowd. They're a great deal. I took a 40-min ride yesterday for US$12.50 in a high-cost-of-living traffic-clogged city. How can that make sense? A ride in a sketchy 1970s-era New York City gypsy (no-medallion) cab would have cost more. And, without all the magic and overhead of some app.
Oh, I get it. They're going to scale up using autonomous vehicles. But, that's also a problem. Right now their business model relies on independent owner-drivers. In other words, from the front office's point of view, their fleets fuel, maintain, garage, and insure themselves. How's that going to work when they replace the drivers' cars with their own capital equipment?
Why should I invest for the long term in these companies?
The idea (urban myth?) I've heard for discussion's sake:
The long term bet is on them becoming THE way to get around and monopolizing the market (or a chunk of it at least) and THEN jacking up prices.
If you undercut cabs and public transit long enough, they'll have to react to lower ridership and reduce availability. Sorry, no late night buses, most people are taking a very inexpensive and convenient Lyft home. Now that there's no late night buses, we can charge 3X the cost.
Aside from NYC most cities do not have late night public transport past like midnight in most cases, maybe if you are lucky 2am. On top of that outside of NYC and maybe people commuting to DC, public transport ridership is pretty abysmal.
Plus all the cabbies have to do is either assign drivers to third shift or not, it can be done on a whim as demand dictates.
> Why should I invest for the long term in these companies?
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.
The more people use Lyft every day, the more chances someone else is going the same place you are, so picking up an extra passenger on the road (and spreading the cost) becomes viable. I don't know if it will work, but I think that might be one of the things they are hoping for.
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.
>If you lose 50 cents on every ride, how do you make it up in volume?
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.
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.
I wonder if they are making profit where they can, and loss where they are trying to get in?
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.
Yes... this article's headline is absolutely off. The massive one-time compensation from IPO was unavoidable. Outside of that Lyft is now losing LESS money than it was before, beat on Passenger Growth AND beat on $/passenger. Overall, a good quarter but definitely still losing a LOT of money.
Of course, they might be totally off base and completely wrong and the company might go to $10 or $0. But when compared to the media who live and die by the dramatic story that garners the most interest and the markets which are amplified by many factors I personally prefer the opinion of those who at least spent time modeling it out. I also personally think transportation is a necessity and Lyft has levers it can pull which can make a big impact in their bottom line.
What levers does lyft have? If they raise the price too high, there's a point where people will go back to cabs (yellowcab has an app now, believe it or not), and now they can opt to drunkenly ride a scooter or ebike for $2-5.
I don't know what the end game for these companies is. Most average people would never use uber or lyft for transportation on even a semi regular basis if those companies didn't heavily subsidize the rides.
I'm convinced that the end goal is being the last one standing. Either one of them failing would guarantee a monopoly for the other and make it easier to play with the margins.
Anybody can make a sweet, carbonated beverage, but when Coca-Cola is faced with an ambitious and successful upstart, Coke can run at a loss to drive them out of business, or Coke can acquire them, or Coke can copy them and beat them at their own game. Uber can do all the same things to smaller competitors in it's domain.
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.
Have you ever been to a supermarket? The market for carbonated beverages is massive with lots of competitors and tons of new entrants, as well as competitive pricing and low margins.
Much like, I am arguing, the market for taxi hailing will continue to be.
The soda aisle in my grocery store has about 30 feet of shelf space for Coke and Pepsi, 10 feet for it's own no-name brand, and another 10 feet for the craft hipster pop.
You can’t get away with making a basic alternative when you have players like Uber, Lyft, Grab, etc. that have refined the entire experience.
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.
Because they'll be able to undercut any small competitor that attempts to enter one of their markets by subsidizing it with revenue from everywhere else.
Not really. It’s a large market with almost no barrier to entry.
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.
Supply is a barrier to entry. These 2 sided market places require having a large supply of drivers and riders to be viable. A new competitor would probably need to come in with a managed fleet and be ready to operate at a loss for a really long time.
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.
> These 2 sided market places require having a large supply of drivers and riders to be viable.
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.
You cant get riders until they know you have drivers, and vice versa. So, you basically have to pay drivers to wait around for potential riders, which gets expensive quickly.
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.
Your analysis fails to account that the demand for that camera is smaller, more variable, bursty, provides temporary exclusive ownership, & has a market that will bear that cost (professional photographers, filmographers, etc). That's why it's so expensive. The majority of the fleet of self driving cars would be rented out for nearly 16 hours a day 7 days a week with a fairly reliable income stream across many many users. Additionally you get multipliers by picking up extra passengers (shared ownership) which is win-win (lower cost for individual rider, better margins and revenue for fleet owner).
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.
You can rent rooms and regular cars for cheaper than that day rate on the camera. Not a proper comparison, in my opinion, even if I agree that the self driving car costs might not make sense initially.
There are a ton of factors that make your DSLR to Autonomous Car comparison flawed.
The utilization rate of the camera is going to be far lower than the rate of the car. The camera may sit on a shelf for weeks before being rented for a single day, so the per-rental price must be relatively high. The market is small. Also, cameras are comparatively easy to break, and the technology goes out of date extremely quickly as compared to a car.
I think the greatest fiscal advantage to autonomous car fleets is the likely high utilization rate.
Snarky but inaccurate reply. They do if you're a resident of Phoenix. Prices are equivalent to Uber but it's still too early to conclude what's behind those prices. Are they sustainable at scale? Is it just to avoid having the price floor drop out from them if they're viewed as purely a discount option? Is it to dissuade having too many users on the system all at once?
Uber and Lyft only have ~2 years of cash on hand. The end goal is further than the runway. Waymo has Alphabet pockets, Tesla has billions of dollars in assets to make products to sell to backstop their FSD aspirations (and think what you will in the HN echo chamber of Autopilot, investors value it's future capabilities at something above 0).
Even then, unless Uber and Lyft develop self driving in house and don't license it out, i think in the majority of the country, most people would buy a car with self driving tech instead of using Uber or Lyft. Most people in america live in suburbs, where having a car on hand is much more convenient than ordering one all the time. My bet is that self driving tech will lead to more people moving farther into the suburbs rather than less.
Not sure if i would call this a good business strategy. Bet my whole business on some tech that might be 5 or 15 years away to truly start being profitable.
Will they own those cars? Today, they rely on driver's providing their own cars. What will be the capital costs of purchasing and maintaining the autonomous fleet?
This is the part I don't get. Right now they rely on their employees to buy, maintain, and depreciate their own cars. The natural next step would be to let people lend their cars to Uber/Lyft when not in use.
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.
> Most of that was down to booking stock-based compensation plans for employees, who earned $894m from Lyft’s initial public offering
Could someone help me understand what this means? Is this compensation above and beyond employee stock options? If not, that means employees own ~5% of Lyft, which is much less than I would expect.
As an employee of a pre-IPO startup, I'd love to get a better handle on the realistic value of my stock if we do reach an IPO.
Yeah, I've always considered it a lottery ticket, but I'd love to get a sense of whether I'm holding a $10k or $10mm lottery ticket.
FWIW, I've done the math based on my percentage ownership, expected valuations, timeline to IPO, etc. The big unknown for me is dilution. I don't yet have a good sense of how much dilution I should expect as we move through rounds of funding into an IPO.
Dilution is a red herring. It doesn't change the value of your shares (theoretically). What will matter is how the company spends the funds that it raises, and whether it does so in a way that generates a positive or negative return on investment.
Here's how I'm thinking about it with example numbers: I own 0.1% of the company. Based on our market and performance and valuation of peers I expect us to be worth $10b.
With no dilution my stock is worth $10mm (minus taxes, strike price, etc.)
With 10% dilution per round and 4 more funding rounds, it's now worth $6.5mm.
You expect the company to be worth $10b at some point in the future, but the question to be answered is how much you think the company is worth today. Let's say you think the company is worth $10m now, which makes your stock worth $10k. Suppose the company then raises $90m in funding and gives the investors a 90% stake. Now your shares are only 0.01% of the company, and you think "Oh no, I got screwed by dilution!" But the company is now worth $100m, because it has its previous $10m worth of assets plus $90m in cash. So your 0.01% is still worth $10k.
What matters now is how the company spends the money. Hopefully they spend it smartly and the value of the company increases 10x. Now your stock is worth $100k. You didn't get screwed by dilution, you got a $90k bonanza because the company was successful.
To clarify, I think I have a good sense of the dilution I should expect, but there's always stories about someone working for years, expecting a big payout after IPO, and ending up with $20k.
When this happens it means that the investments that were made did NOT increase the value of the company. What you want are rounds that increase the value of the company beyond the initial valuation at which it was invested (aka growth)
I don't know what the bull case for Lyft is at all. They haven't expanded into other products or markets outside of pure U.S. ridesharing, which had already been plateauing for some time. Uber, OTOH, has years of experience operating and expanding internationally, has built UberEats into it's own mult-bil vertical on it's own, and owns substantial shares of dominant ridesharing cos in other markets like Grab, DiDi, now Careem, etc.
Once the ride-sharing matures, 5-10 years from now, Uber, Lyft and new competitors are not going to take 20 to 25 percent per cent of drivers’ fare. If I had to guess, 10 years from now they take just 1-3% per ride and maybe ask few $100s upfront for each registered driver to cover fixed cost of handling new drivers.
These valuation include hopes for fully autonomous cars and the fear of missing out.
I previously submitted 'Uber’s enormous, vague IPO prospectus is an outrage (ft.com)'
Well worth reading and quite ominous in light of Lyft performance IMO
>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 self driving car idea won't help Uber or Lyft for two reasons. First, neither company has the tech experience to build one. Second, and more importantly, both companies would have to buy and maintain the cars which isn't financially viable.
Indeed, part of the ability for the driving "gig economy" is the masking of risk and liability from the corporation onto the individual driving humans for car expenses and depreciation. The myriad of humans thinking Uber/Lyft are job have yet to get caught up the the expense of the car itself.
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.
And in the (imho unlikely) scenario that fully autonomous taxis are a viable mass market opportunity in the foreseeable future, both companies would find that rivals who actually do make the cars and have networks of maintenance centres are in a much better competitive position. Making the pricing and matching app isn't the difficult part, and Uber's existing driver base ceases to have value
They're hoping you'll buy a self-driving car and then let them pay you a minimal fee to use it when you're not.
The problem is that self-driving cars will change car ownership needs, and that there could be entirely different companies in the space when it does finally come around.
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?
Indeed. And surprisingly, no one[#] has brought up that there is no such thing as as a national (or even regional) taxi service. And why is that? It's because the economics of fleet ownership don't scale to that size. If they did, we'd have a single nationwide taxi service already. In 100 years of taxis, no one has done that.
[#] Except Hubert Horan who destroyed all their BS with his series, "Can Uber Ever Deliver?"
Yeah, but arguably smartphone technology reduced admin costs and raised the size of the economically optimal taxi provider. That has been around for less than a hundred years.
Smartphones didn't reduce the cost of dispatch. Look what Uber spends on app development! The big costs in taxis are maintaining the fleet, a cost which Uber externalizes to its drivers, some of whom now have to sleep in their cars.
They most certainly did. As expensive as that software is, it’s very little when amortized over the rides. It eliminates the overhead of finding a location and transmitting the info, and delivers higher value in that it gives real time data about where the car is, and lets you pay more conveniently.
Also: while the drivers have physically taken over maintenance, Uber can’t push the economic cost on to them, because they have to pay enough that drivers want to continue to work even given those costs. If anything, maintenance is cheaper when handled by a big org.
To the extent they realize a savings, it’s because they’re using the spare hours of existing vehicles and don’t have to take on all the dead ours they’d have from owning the cars not because they’re getting maintenance free in any meaningful sense.
The reason there isn't a national chain is because municipal laws fragment the market. You can typically schedule a cab for pickup in rural America (I've done it before), it is just expensive because you're also paying for a person's time to drive out there and back.
That's my point - autonomous car fleets will change car ownership habits. Increased inexpensive, on-demand transportation means less people buying cars, and the people who do end up buying won't want to share with strangers.
It's not unrealistic to roll that out as a profitable service.
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.
Yep, the landscape will probably be entirely different and we'll be talking about the next ridesharing unicorn that managed to corner the self-driving rideshare market.
> neither company has the tech experience to build one
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.
The tech to distribute an app? You mean Google Play, lol? A teenager can get an app in there.
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.
No, I mean built the app, maintain it, build a relationship with users, get people to download it and tell their friends, all of that.
> 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.
Hubert Horan has done an amazing teardown with his series, "Can Uber Ever Deliver?" But you don't need to be a transportation logistics expert (as he is) to see that there are no national or even regional cab companies. The reason is that, after a certain size, the business simply doesn't scale.
Arguably, smartphones, apps, and usage of the drivers' own cars have together reduced the administration costs, and thus raised the scale at which a provider can profitably operate. That interplay of factors hasn't been around for 100 years.
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.
And maintain includes very regular things like cleaning etc. I can't imagine this is things they want to do so it will probably stay a network Tesla style, but with lower (hopefully) costs.
Is the plan for the original investors to sell their stock to regular investors before the whole thing tanks? They make their money and whoever followed is left holding the cheque. Seems like a Ponzi scheme as it's been clear for years these companies are not going to be profitable any time soon.
The problem with Lyft is that they are in a poorly understood market, in second place and burning cash at neck-breaking speed. Even if they manage to start making progress towards profitability, they might need more than that.
The reality is that ride-sharing probably needs another lustrum or so to solidify and that seems excessively long for Lyft in its current state.
Uber faces the same challenges but its way more diversified and can scale down from certain markets and verticals.
Lyft on the other hand has only one market (N.America) and only one vertical (ride-sharing).
Doesn't take a genius to understand that scenario looks risky as hell. Especially when you're in a business with nominal differentiation.
Uber’s multiple markets maybe an advantage. If they’re all equally unprofitable, perhaps not, but at least that’s plausible.
Uber’s multiple verticals are dogs, and reek of money madness. Eats is small time and loses money. I don’t know it’s financials, but I find it hard that this ancillary business is in a healthier state than a competitor who has it as their core buisness.
Uber ATG is as bad off as any other autonomous car program. There’s a growing realization that technology won’t be ready anytime soon. (See Andrew Ng’s comments about just redesigning cities to limit autonomous vehicles’ interactions)
Uber Freight is a ghost town.[0]
The of course there’s the buisness if renting and then discarding Xiaomi scooters. (Or is that not a thing anymore? I honestly don’t remember.)
Sure, I understand the logic behind all of these. Once you have a system to tell a person “Go here, and take this here,” then you can plug pretty much anything into those slots. However. No one has shown that the way they’re doing it is a sustainable business model, and it looks like it’s not.
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.
This is very true. Their diversification it's not necessarily a good diversification. I think only Uber Eats has the potential to produce some positive result in the mid-term, but it also depends on how much they decide ton invest on it.
And to top it off, this entire business model is temporary. The end game for all of these companies (and Tesla/etc as well) is to have autonomous fleets. They have to bleed cash to snap up as much of the market as possible before that happens so they're not starting from zero. At this point it feels like a game of who has enough funding to survive the interim to make it to a driverless service.
What's to stop Waymo with Alphabets deep pockets to cobble together an app (or waze update) once they get a decent self driving car produced? Alphabet isn't going to just give this market to uber/lyft after they burned so much money on engineering. Even if they licensed their cars it would be temporary until their own app comes out.
All these ride sharing companies are here to carry us seamlessly into the driverless future. Unless they're capable of pivoting to driverless technology they are mostly matching services for riders and drivers and Honestly, I dont think it should be uber or lyft's responsibility to build driverless technology - they should just focus on making the experience of getting a ride as excellent as possible. Leave driverless technology to other experts.
They should charge a service fee to the rider, for however much they need to be profitable; and let the drivers charge whatever they want (baseline auction). Now the customer knows how much they are paying to whom.
Imho, Taking a cut of earnings is borderline unethical for a automated services, whether its lyft, upwork, or patreon. Charge a fee, know your numbers, give both sides of your service's users confidence in the service's stability.
They just went public at $80b but are raising $8b, so per the chart in the article, quite a few recent investors are getting a haircut? Pre-money $72b valuation?
The investors from the last funding round paid about the same share price as the IPO price, so they haven't really made or lost any money. It certainly wasn't a good investment for them (0% return), but I don't think they have taken a haircut yet. It will ultimately depend on where the stock price goes.
Uber and lyft look like a charity set up by VCs to provide people with cheaper transportation. Who knows what will happen once they increase fares as they promise to investors
It doesn't actually work that way in reality. If it did, there would already be another massive Uber undercutting Uber in eg the US market and raising $10+ billion in VC money to do it. Because hey, a $75 billion valuation is sitting right there, so it's really easy: just put $10 or $20 billion into the company, undercut Uber, IPO, easy return. Everbody can do it, just add $20 billion.
What's actually the case, is the next clone will need $20 or $30 billion to fight and undercut Uber's entrenched brand, functioning system and scaled up position. And even in that case, the odds of winning against the large incumbents is low. It will cost even more to beat Uber via the undercut game than what Uber has already spent, because you have to take the market away from them - always a dramatically more expensive and difficult proposition.
VCs are not going to continue to burn massive amounts of capital trying to fund the next loss-making ride hailing company. The next $10 or $20 billion to put into an Uber clone in its major markets, does not exist and it will never exist.
Few things would scare a VC more than having the pitch that your plan is to destroy twice as much capital as what Uber did, to unseat Uber's entreched position, with nothing to differentiate you other than the speed at which you destroy capital.
That's why nobody is doing it right now. There isn't another Lyft, much less another Uber. Softbank isn't looking to drop $20 billion to fund the next Uber, to fight with Uber, in the US and similar markets that Uber dominates now.
The company that delivers fully autonomous vehicles would have no trouble securing funding to not have to operate within Uber's walled garden and give Uber a 22% cut of profits, and make their own app. Remember, when the independent contractors go away, you don't need offices in every city to onboard drivers, you don't need a big legal team to fight the ongoing "are they contractors or employees" debate, etc.
In other words, the company that delivers autonomous won't need $10B to make a cloned Uber app. Since the driver is the biggest cost for Uber, riders will gleefully switch to the clone at even cheaper prices.
There are a bunch of taxi apps in markets where uber is not allowed to enter and they are doing quite well too. This means thay if drivers are not happy with uber s pay, they can group together to creat their own gig.
Users seem to go with whatever is cheapest. Uber doesn’t have entrenched anything
Everyone I know compares prices between the two and goes with the cheapest, there isn't any loyalty. In most cases its the exact same driver working for both companies anyway; the service is identical.
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.
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.
Airlines are a good analogy. I imagine we will see Uber and Lyft miles/points as a thing. Maybe even status as a thing.. A good comparison to Uber is starbucks. Their average sale is $5 but they’ve managed to grow and grow, mostly by investing in their “partners”. Uber could do something similar. The podcast masters of scale has a good segment on Starbucks.
How do Delta, United, American Airlines, and Southwest all operate within the same market and not have fare wars constantly leading to bankruptcy? If you were correct, it seems like it would be impossible for several airlines to operate within the US. Yet, several airlines somehow manage to set prices that allow them to operate. I'm not saying Lyft and Uber will ultimately be successful (I don't know), but it wouldn't unheard of for multiple players to operate in the ride sharing market and not constantly have a fare war.
Yet AA, Delta, and United are each still operating and each valued at over $10B today. The point is that the airline industry has several players operating and competing and has not totally imploded and fares have not skyrocketed. Many are predicting Uber and lyft will either raise fares a ton or the companies will totally fail and be worthless. I'm saying there is a middle ground where they compete without killing each other.
sounds like what taxicab companies have been doing for centuries.the question is what growth prospects uber has in a market that is already saturated and fighting for the bottom line, as there is little barrier for a new entrant.
It's fun watching these "smart" economists trying to tell you what's going to happen, with Lyft and with the upcoming Uber.
The reality is that many people will feel they're able to "beat the market", and they will try to get a chunk of the glory, mostly losing in the effort.
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?