Lyft, Inc. (LYFT) Earnings Call Transcript & Summary

Great. Thanks, everybody. I'm Doug Anmuth, Internet analyst at JPMorgan, and welcome to our keynote discussion with Lyft President and Co-Founder and Vice Chair, John Zimmer. So before we get started, I just wanted to note that John may make forward-looking statements about Lyft's performance and expectations. Those statements are subject to risks with a full list available on Lyft's latest 10-Q. John may also reference certain non-GAAP financial metrics, and reconciliations are available on Lyft's Investor Relations website. So with that out of the way, Lyft's singular mission is to improve people's lives with the world's best transportation. It's the only multimodal transportation network across rideshare, bikes, scooters, car rentals and transit. John cofounded Lyft in 2012 with CEO Logan Green and prior to that, the 2 founded Zimride, a long-distance, intercity carpooling service that served as the inspiration for Lyft. John was also previously an analyst in real estate finance at Lehman Brothers. So welcome, John.

Thanks for having me.

[Operator Instructions] So John, great to have you at our conference, especially as the world is reopening. How has the business changed coming out of COVID? And what does this mean for your long-term strategy?

Sure. So one, overall, we built a better, leaner, more focused business. We've never -- with the number of quarters of growth that we had since our inception, coming into the first kind of real downfall with demand was obviously unfortunate and bad, but it did give us a chance to retool, rebuild and refocus our energy. And so as you'll see in the results that we're putting up and we'll continue to put up in the quarters to come, overall, we just built a way better leaner business. The long-term vision, I would say, has not changed. We've been at this for, Logan and I, as you mentioned, for about a decade -- over a decade now. And the vision of making transportation as a service or building what we're calling the Lyft network as a way for you to access all of your transportation needs in a more affordable, efficient and enjoyable manner is something that has not changed. And if anything, this pandemic has almost kind of furthered our belief that having all of those options in one place is important.

Okay. Great. So we know the near-term story is very much about recovery and reaching EBITDA profitability. How do you think about your next leg of growth drivers going forward?

Yes. So let me talk about the transportation network I just mentioned a bit more. I think where historically people have looked at our business, understandably, they'd said, okay, this is a ridesharing network. That is primarily where revenue comes from today. But the vision is around going after the $9,000 that is spent by the average American household on transportation. And this $9,000 is more than American spend on food, than American spend on health care. And as you've seen over the last few years, we've added things like rental cars, car services. And I don't want to say too much about the opportunities ahead of us, but where we're now seeing individual spending hundreds of dollars with the network, we do believe there's an opportunity for them to be spending thousands of dollars on the network in a way that saves them the customer more money and allows them to trade off kind of the time and money equation among each mode. And so I think rentals, the car services you've seen us do, having bikes all in one place is just the beginning of the larger opportunity to say, why would an individual do better spending their $9,000 every year with 10, 15, 20 different companies when one company can bring that all into one place and save them more money than they could going after 20 companies on their own. So you'll see a lot more kind of expansion of services. We'll also continue to innovate within the rideshare core business. One of the things that we're really proud of technically that we've done over the last few years is around revenue management. So this is -- my background is in hospitality and studied that in school. And in the rideshare industry, every year, it gets marginally better with revenue management. But the general principle is you need to sell the right ride to the right person at the right time on the right street corner. And there's a lot of data science that goes behind that. And some of the innovations that we've done recently, I'll name one, is called Wait & Save. So if you're willing to wait a few extra minutes, that helps the marketplace, or can depending on the supply and demand at that time, can help the marketplace dramatically. In fact, it would then cost less money by $1 or $2 to wait a few minutes. That's a product we brought to market first. The other is Priority Pickup, which is the opposite of that. If you're willing to pay a couple of extra dollars to get picked up faster, that's something that we're bringing to customers, too. So this is beyond kind of the surge pricing, dynamic pricing that has happened, actually [ creating ] different products at each price point, which is a much better customer experience and frankly, brings better margins to the business.

And how do you think about kind of early adoption of some of those features and services just around Wait & Save and Priority Pickup? I know it's still relatively early and -- but how do you think about adoption there thus far?

It's been really, really strong and fantastic to see. The way we roll out, the team built this incredible test platform that allows us to test these products and see the difference in user behavior quite clearly. So every week, I get kind of experimentation e-mails with all the different things that we do and how it improves the customer experience as well as the business. Those 2 specific products, you would imagine if you have an opportunity to pay for the same, say, sedan ride $2 more or $2 less depending on when you get it, it is a very good product that has high uptake.

Got it. Okay. So let's dive in a little bit more just on your path to profitability. In 4Q, you took out more than $360 million in annualized fixed costs versus your original plan with another $100 million annualized to come from the Level 5 AV sale. And you expect to be adjusted EBITDA positive in 3Q, and you've talked about that on about 2/3 of 4Q '19 rideshare levels. So I guess, what gives you the confidence in that 3Q profitability scenario playing out?

The actual performance of the business. I mean if you look at Q1, our adjusted EBITDA came in almost 50% better than the high-end outlook we gave in early March. And so as I started off talking about, we're much more structurally -- or structurally more profitable per ride coming out of this pandemic than we were going into it. And so we've also, I believe, said this before, but we can hit this target with rideshare ride volume 33% below the Q4 of 2019 level. And so again, we built a much more efficient business. And even in doing that, we also know that the second we demonstrate profitability, the question is all about growth. And so we've continued to invest in growth opportunities, some of which I have started to mention today and something that we're focusing our energy on now because we know we've made the moves and are continuing to make the moves to hit profitability. We're now making sure that the growth follows alongside it.

Okay. And then when you think about that profitability and look a little bit longer term, just how do you think about the drivers of contribution margin over time kind of from around the 55% range that you've done recently to the long-term contribution target, which is 70%?

Yes. I mean I guess I'm not going to say anything new than what we've said to date. We are 100% focused on personal transportation and now a little B2B delivery. But compared to others that are more split down the kind of consumer delivery and rideshare, I think even other companies have said it, the margins in our core business are stronger and we believe we can have the leading contribution margins.

Got it. Okay. So let's shift gears, talk about driver supply a little bit. So it was a big topic coming out of your last earnings call. Can you update us just on how supply is trending? And what gives you the confidence that the driver supply issues can be resolved in the third quarter?

So yes, overall, we're seeing some great movement. Driver leads in May were up by more than 25% from the end of February. And so just as when the pandemic started and we saw demand get cut significantly and it take a month or so to ramp back up, these things do take time. And on the driver side, obviously, there are background checks and things like that, that add to the amount of time it takes. So we are seeing that momentum. A lot of the tailwinds we were facing are -- I'm sorry, the headwinds we are facing are subsiding, whether it's individuals wanting to get the vaccine and not having access, that has improved quite a bit. And so people are getting more and more comfortable with having other people in their car. So it is something we are taking extremely seriously, but something that we are extremely confident and have already started to see significant movement on.

And how do we -- you mentioned the driver leads, up 25% May from February. How do we interpret kind of the, I guess, the definition of a lead and what that can be until like ultimate conversion? I assume that doesn't exactly mean your drivers are up 25% but kind of going in that direction.

Yes. That's -- yes, correct. That's a directional metric. I can tell you that we're happy with the levels of conversion, and we're happy with the increases in driver hours, and it's leading to our ability to have -- I guess, I can say it now, we just had our best week of rideshare rides since COVID started in the last week. And so it is translating from leads to delivering more rides than we had done throughout even at some of the like St. Patrick's Day peaks.

Okay. All right. I definitely want to -- we'll hit those rider trends a bit more in a minute, just wrap up on the driver supply. You've increased incentives in 1Q more than $100 million sequentially to meet demand. And then you're also going to increase incentive spending further in the second quarter. We've seen higher pricing so far that's more than offset basically as revenue per ride has increased. But just as you think about people booking Lyfts, again, getting back into cars, how do you balance prices going up just as more people -- at the same time as more people want to really reengage with the service?

Yes. Yes. We -- we're in this for the long term. We have the historical context. Obviously, the pandemic is a new thing for us to experience, but supply and demand imbalances has been the main thing we've focused on for the last decade. It is the name of the game with operating a marketplace like ours. And so having all the tools -- and that's why all this revenue management piece I talked about before really matters because we can still get everyone a ride. And if we can spread out the demand even by a matter of minutes, it can dramatically allow us to take more rides into the system than others could. And then just the question about funding incentives, as you pointed out, because there is dynamic pricing, it does offset the impact to the P&L. And I would direct people to look at, at revenue. Again, in Q1, revenue came in 10% better than the high end of our outlook, EBITDA beat by nearly 50%. And so it is a phenomenon tied to the exiting of a pandemic that I feel confident and good about the way the team is managing and structurally confident that it will smooth out over the next few months.

Okay. And then do you have a view just in terms of normalized levels of incentives? I think if we went back to like 2019, kind of see incentives at around 15% to 16% of revenue. It's basically been -- in 1Q, it was kind of double that, about 32%. Any sense on whether we'll kind of return to those type of levels going forward?

No, I'm not going to guide specific on incentives. We're going to be smart about it. Again, I would -- I would be -- as we are focused on ensuring that revenue is moving at the right clip. So in Q2, on a year-over-year basis, we expect revenue to grow 100%. And even quarter-over-quarter, we've guided to around 12% to 15%, and that's inclusive of any impacts of the supply crunch.

Got it. Okay. So let's circle back to those rider trends that you started to talk about a little bit. Ride volume grew each month in 1Q. March showed the steepest recovery, but April rides were down month-to-month just on seasonality and some of those higher prices. Hoping you can talk a little bit more about what you've been seeing basically 3 weeks into May. And do you still expect rides to grow month-over-month in both May and June and then also basically 2Q from 1Q levels?

Yes. So on the last point, we do continue to expect May ride volumes will exceed April and further ride growth in June and beyond. And as I mentioned, we just had our best week of rideshare rides since COVID started. That did exceed that really strong March that you mentioned where we saw a sharp inflection in demand along with St. Patrick's Day. And as I mentioned, I keep tying back to revenue because I think that's the clearest picture especially as we go through these kind of unique moments, and we remain really confident in the shape of the revenue and in that continued growth.

Okay. Great. All right. So let's shift gears, talk about your AV strategy. So I think some people might kind of read into your Level 5 AV sale to Toyota's Woven Planet as moving away from AV, but it's actually quite the opposite. Can you talk about that more? And why was now the right time to divest after you've kind of invested fairly significant dollars into the asset over the years?

Yes. So since we developed the AV strategy, there's been 2 key components. The first, we're now calling Lyft Autonomous, previously was known as Open Platform. And this idea is that the Lyft network is the best way to commercialize partners' AVs, bring them to market, bring them to consumers. And we can talk about why that is in a bit. The second part of the strategy was our own AV development, and the primary driver and reason for that was making sure we would have access to AV technology. When we started Level 5 about 4 years ago, it was not clear that there was going to be multiple well-funded and legitimate tech players on this very hard technical problem. Today, that has changed, and we believe there will be multiple players in the space in the self-driving system. There's been a lot of funding, whether they're from OEMs or large tech players, behind these AV efforts. And those that were kind of at the second-tier to the first-tier player have really pulled their weight over the last few years. So in short, there are multiple ways to get access to the AV technology, and the idea of needing to do it ourself is no longer necessary. Plus, we brought a unique AV self-driving system market approach through the market. The way our Level 5 team built their self-driving system was we're using fleet data from the network, and that's something that Toyota is interested in continuing with the business that -- with the autonomous technology that they're buying from us. And that is technology that we can still get access to. So we are now 100% focused on the Lyft Autonomous, the network as the platform, and feel really good. We've had positive reaction from partners in the market. We fully aligned ourselves with them. There's no conflict of interest there. And because we have what we call a hybrid network with human drivers and the ability to put AVs, because we have a marketplace technology and the fleet management capabilities, we believe we can provide the most value to those partners and be the first to bring AVs at scale in partnership with [ the players ] to market.

Okay. Great. Just following up there, what will you get from your commercial arrangements with Woven Planet going forward? And I guess, over time, will they deploy their vehicles onto the Lyft network? I mean is that part of the commercial arrangements over time?

So the primary focus is around making sure that we can continue to help them on the data side, ensure that they bring an extremely safe product to market as quickly as possible. So that is a -- that is the focus of the commercial agreement and a financial opportunity for us to help them with that. In terms of will we deploy those vehicles, that is something that has been discussed and we are optimistic about, but it is not part of the commercial agreement related to that -- to this transaction.

Got it. Okay. All right. Let's shift gears, talk about regulatory, a topic that certainly still remains on the minds of investors here, particularly just given some of the recent headlines. I just wanted to get your overall thinking on regulatory kind of versus how you thought about it maybe 9 to 12 months ago.

Yes. So overall, the industry is in a dramatically different place following Prop 22. There is much more conversation across multiple policymakers and the industry around protecting independence or independent contractor status along with benefits for drivers. This is something that we've been interested in and excited about for quite some time. Prop 22 made it reality. It's working out well, and other states are looking at the possibility of bringing this type of solution to market. So as I said, we're having good, constructive conversations with policymakers both at the state and federal level and even with labor leaders in various places to make sure that, frankly, we do what drivers want, which they showed in Prop 22. They're extremely supportive of the model that we've articulated.

Okay. And how do you think we should interpret just the various comments from the labor department and then also some of the reports suggesting that you are close to reaching a compromise in New York as well?

So with regards to the labor department, we don't believe that anything they've said signals any major change in direction. So I wouldn't -- so I guess I'm saying I wouldn't look much into it. In terms of New York, I think there's a possibility that something can come out in New York, and we're just going to continue to engage with all the various stakeholders there to make sure they see the benefits of this model that, again, we've articulated in California.

Okay. And I guess, is it reasonable to think that if the industry kind of continues to move on a state-by-state basis and you can solve some of those individual issues that the administration won't need to or want to push for legislation on a national level?

Yes. I think that's reasonable to assume. I think this is a very complex -- worker classification is quite complex. And while often the conversation is about our industry, when you go to a federal level, there are many industries that are implicated. And that becomes a really hard thing to tackle for an administration during a recovery that's needed like we need right now. That said, once we showed the model -- I mean, this is what we did when we brought the category of TNCs, transportation networking companies, to market. I mean back when we started, everyone said, "This is crazy. You're never going to create a new model for transportation regulations." We did, and we rolled it out state by state. Here, I do think there could be a federal framework at some point, but it will start from the states. And so again, we're really happy with the model that we've helped establish in California. I think there will be other flavors of that model that come out in the next year or 2. And then at that point, it may make sense to put some federal framework around it. But it's not necessary, and I don't think anyone's looking to tackle that at the federal level until more of the states have spoken up.

Got it. Okay. And then just a final question here related to the costs. I think you've been pretty successful so far, it seems, at least in California since Prop 22 in having these basically absorbed essentially within the cost per ride, so you haven't really felt much there from a financial perspective. As you think about other states, is it reasonable to think that you could have a similar type of outcome there?

Yes, we believe so. I mean Q1 was the first full quarter of Prop 22, which included those costs. And again, feel very good about the results that we printed and feel confident in our ability, where necessary, in the states that would bring a policy like that to market that we can make it work well within the model.

Got it. Okay. All right. And then kind of circling back to recovery, which parts of the business do you think will come back quickest and which will take more time? And within that, I guess, curious kind of how you break down offerings just as you think about business and corporate, for example, airport as well.

Yes. So one of the trends, I think, is likely is that leisure travel comes back a bit before business travel. We actually saw airport rides have about doubled since January. And then generally, I think use cases will be feathered in over the next couple of quarters as use cases gradually return as individuals return to the office, for example. Another key moment to think about is shared rides. So that has been off since COVID began. And once we get guidance, I think, in the next couple of months, from federal and local health authorities, that is something that will come back. And we took the time to really retool shared rides to be a better customer experience as well as a better business proposition for us. So overall, excited to just start turning these things back on.

Do you think that shared can get back to kind of pre-pandemic type of levels? I think it was around 17% to 18% of the business. Do you expect it to go back there over time?

Over time, I do, yes. Yes. I mean I think people will ease -- different people will do different things, but they'll ease their way back into different experiences. I know I've been seeing my own behavior change, especially in the last weekend, quite rapidly in terms of restaurants and just kind of getting comfortable and excited post-vaccination. And for many people to add more use cases to how they use rideshare is around cost. And so having all these various price points, shared being another lower price point as well as the Wait & Save that I talked about before, I think, is very helpful for people that are looking to get around and save.

Okay. Let's talk about subscriptions a little bit. So they're becoming increasingly popular certainly across food delivery, but we're seeing them pick up in rideshare as well. Just curious how you think Lyft is positioned here with Lyft Pink? And how big of a priority is this initiative for you?

Yes. Long term, we're extremely excited about Lyft Pink, which is our subscription service. As it relates to food delivery, we partnered with Grubhub, and we get free unlimited food delivery for all Pink subscribers at no additional cost to them. So I think we've really inoculated the concept of combining those 2 concepts and the value of that. And our -- it was hard to scale a subscription service in a pandemic when people weren't making those long-term decisions. And now, I think, is a really good moment, as people are reevaluating, to reintroduce them to the concept and bring it with some of the improvements that we're looking forward to announcing in the quarters ahead.

Got it. Okay. And then just sticking with delivery a little bit. You've kind of talked about this some, but I wouldn't say in huge detail, but your -- you do have a delivery pilot. Just curious how you're thinking about differentiating in the space? It's obviously fairly competitive. But what Lyft might be able to do differently here, and any early learnings from that pilot?

Yes. So our mission with this B2B delivery pilot is to make an experience that the retailer loves. And so whether that's someone with a -- it's not necessarily food, I will say. That's just one potential use case. But given that we don't have to build directly for the customer on this, having a few really large partners is a really good and exciting opportunity. And what we're hearing from lots of retailers is they needed to get on these other platforms in the pandemic because of all the behavior change, but they really want to own the customer experience themselves. And so our advantage is saying, hey, we're building a business with the incentives that are directly in line with those of the retailer, of the merchant. And I'm very happy with the progress that the pilot has made. We are focused right now on increasing quality, something we call merchant success rate. And in the quarters ahead, more in the second half of the year, we'll consider scale.

Okay. Great. So I want to ask you about micro mobility. One of the differentiating factors here, of course, as we started discussing is that people -- customers on Lyft can obviously go beyond just cars and use bikes and scooters, and you have a pretty robust network and offering built out there in a lot of different major cities. And as the weather warms up, there's positive seasonality around that certainly as well. Just hoping you can talk about kind of the impact that bikes and scooters on your business, what you see a little bit in terms of conversion rates and how that just drives more people into the Lyft platform overall.

Yes. So one, it was really nice to see, during the pandemic, it became -- particularly in a place at incredible scale with bikes like New York City where you have Citi Bike, which is a program we own and operate, that basically year-over-year, it was a very similar level of rides even during the pandemic. And so having multiple modes is helpful for both the customer and the business in lots of different environments. And we continue to see that business grow. I believe it was last weekend that Citi Bike had its largest weekend ever. In terms of how it like ties into the core business, when you start to get into things like Lyft Pink, our subscription service, we're able to give exclusive content in the same way that Netflix might have an exclusive show. If you're a New Yorker and you use Citi Bike occasionally or are a member of Citi Bike, it's always going to be better to get the Lyft subscription than a subscription from someone else. And so what we find is that there are casual riders of a bike, and there are the members of Citi Bike. And for both of those individuals, it will be financially better for them to bring the rideshare volume onto the Lyft platform than having it somewhere else. So that's one of the things we're excited about with subscription, and I think the team took a really smart approach when we came at micro mobility. Others were saying, "Oh, we need to get a bike that is [ locked to ]. That's the new innovative thing." And we said, actually, having scale and having a relationship with the city when it comes to infrastructure is going to be really important. And so again, I'm using Citi Bike as an example, but we have the exclusive contract in Chicago with Divvy as well. We have the system in Boston. We have the system in D.C. We have the system in the Bay Area. And so I think that's something we've been really happy with that acquisition we did and are seeing it continue to scale.

Okay. Cool. We're going to wrap with a quick word association, a little bit of a tradition that we've done at this conference over the years. So I'm going to give you a word or a phrase and you just say the first thing that comes to mind, and there will be 10 of those, all right?

Okay.

So recovery.

Lyft.

Driver supply.

Soon.

San Francisco.

Home.

AV.

New.

Ride pricing.

Dynamic.

Regulation.

Workable.

Delivery.

B2B.

Lyft Pink.

Subscription.

EBITDA profit.

I was going to say hell yes, but yes, coming.

You're allowed to. And then the last one, multimodal transportation.

Lyft Pink.

All right. Great. We're going to leave it there in the interest of time. John, thank you so much for joining us, and thanks, everybody.

Thank you.

Take care. Be well. Thank you. Bye-bye.