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

All right. I think we're going to go ahead and get started. I'm Stephen Ju from the Credit Suisse Internet equity research team. Welcome, everybody. We have John Zimmer, President and Co-Founder of Lyft sitting next to me in-person. Thanks for joining us.

Yes. Thanks for having me.

So before we get started, I'll read this forward-looking statement language here. So statements about Lyft's expectations for the future or forward-looking statements may be made today, and those statements are subject to risks. For a full set of risks, please refer to the company's latest 10-Q filed with the SEC which is also linked through the Lyft Investor Relations website. In addition, statements in this interview may include certain non-GAAP financial measures. The related reconciliations are available on Lyft's IR website.

So with that out of the way, let's get started. So John, where do we even start? So at this point, there's large discrepancies, right, in terms of ride volume recovery on a city-by-city basis, right, particularly in San Francisco, which ironically is down 60% versus where you were in the third quarter of '19, right? So whereas Miami is almost fully recovered, right? So when you talk about the different types of rides that are missing from the San Francisco market that are already kind of prevalent in Miami?

Yes. So actually, I was in Miami yesterday, and just seeing the behavior of -- outside of Lyft, just in the real world, seeing the behavior of people in Miami going out compared to people in the Bay Area kind of hunkering down, staying in still, it is quite dramatic. As you said, in San Francisco, Q3, we reported still being at about 40% of the levels compared to pre-pandemic where on average across the country, that's more like 65%. In terms of specific use cases across the board nationally, if you look at Thanksgiving -- this past Thanksgiving week compared to last year, airport rides about doubled, which was great to see. But when you go to San Francisco and Miami, it's really across all use cases. The behaviors of people and kind of the fear of the virus or the way people are behaving around the virus is quite different across the board.

Got it. Now is San Francisco somewhat indicative of what you're seeing up and down the West Coast? Or is that kind of like a standout?

I mean it seems to be the most extreme. But yes, East to West, it does -- it's a little more conservative, I'd say, on getting back out there on the West Coast.

Okay. So hopefully, I think you guys have always had a stronger presence in the West Coast. So the recovery, what happens should be...

Yes, it should help us as soon as it happens.

Okay. Got you. All right. So -- and I think Philadelphia, I think, is one of the only cities out there where shared rides have been offered since the pandemic began, right? So did you see users reengage with this offering to any degree prior to scaling back to service the expansion? Because I think you guys are waiting for further sort of CDC guidelines there, right?

Yes. Actually, we're bringing back shared rides to our second market, Miami, today. We'll be doing that. Just as a point of reference, shared rides in markets that they were in represented about 30% of rides. So the fact that they've been off kind of from the beginning of the pandemic is a big growth opportunity, one we're excited about. We actually retooled the shared ride product over the last 1 year, 1.5 years to make it more predictable. You basically know the route as you get in or before you get in the vehicle rather than kind of being on this unknown journey. And it's more of a scheduled experience, not a long window, but you'll -- maybe a few extra minutes. That allows us to optimize efficiency, give the consumers the actual route in advance and then pass savings from that efficiency by being able to get a higher match rate because we have more time to riders, drivers or us.

Okay. And that will be instrumental in bringing back almost all of the use cases that might have been lost during the pandemic?

Yes. So I'm quite excited about the potential to keep turning shared rides back on as we continue to get CDC guidance and/or just positive developments on treatment for the pandemic.

Got you. Now prior to the pandemic, I think it might have been last year, right, almost in this very forum where you talked about international expansion as a potential growth driver. Canada, in particular, was always there, right? But you also acquired an engineering team in Eastern Europe as part of the Gett partnership. So can you talk about where these initiatives stand in terms of priorities for next year?

Sure. So Canada, definitely see more opportunity to lean in there to hopefully add markets and go deeper in the markets that we're in. As a whole, when we look at opportunities to grow revenue, the most exciting and most near-term opportunity that we are focused on is within the geographies we are in. We still feel like the value we're providing for riders and the amount of money they're spending with us is low compared to where we believe it can go. The overall vision for what we're doing, transportation-as-a-service, is going after the average American's $9,000 a year spend. We think of it internally as kind of your transportation wallet. And today, with being known as kind of a rideshare business, a few hundred dollars of that $9,000 wallet is spent on our platform. We see an opportunity to go much deeper with the consumer in our existing geographies to give them more value within rideshare on additional use cases, shared being an example, but also beyond that with other businesses, whether that's in our bike and scooter business, whether that's in rental cars, whether that's in fleet services, things that we have -- we'll have an exciting year ahead to talk more about.

Got it. Now I know you're not prepared to talk about any specific market, but what would make a market attractive? Unattractive? I mean, I would imagine the $9,000 per year is a U.S. number. So there's going to be per capita GDP differences in sort of each region. So do the costs also scale up and down with that per capita GDP difference?

Yes. Actually, it's interesting to look at car ownership as another metric. And we feel like we have and will have products for those that both own vehicles and for those that don't. But the services that we really push in a given geography will depend on kind of the prevalence of car ownership. So for example, in New York, Citi Bike, which I think we're going to talk about a little later, we own Citi Bike, the bikeshare program in New York, and that's heavily used in New York. It's almost on every third or fourth street corner. And car ownership, obviously, in New York is very low. So between transit, our own bikeshare system, rideshare, that is a nice suite of products. In another geography, maybe in a geography like we're in right now, having services for people that own a vehicle, to get part of that spend on our platform, is something we're quite excited about.

Got you. And you also mentioned that you're working on a differentiated B2B offering. So can you talk about your white-label delivery solution and where that stands today?

Yes. So when the pandemic started, we had been doing some small pilots around deliveries for several years. And one of the spaces that we've been doing it for was auto parts. And -- so there's a lot of attention in kind of food delivery and, obviously, things like that. But there are a lot of logistics that old courier systems are doing. And one of those that we found interesting, not just because we're in the transportation space, but just because there was a need, was auto parts. So you can take one of our partners that we've been working with, NAPA Auto Parts, basically, when they need to get a part, it's really important and valuable to the shop that's doing the work to have a part when they need it. And a lot of times, those parts can be very specific. And so the ability to deliver from a NAPA Auto Parts to the mechanic within an hour is very helpful for them to get cars out of their shop to fix the vehicle and for them to save money. So we're scaling up the pilots that we're doing with companies like them on nonperishable goods like auto parts. And then we'll also do experiments with a food platform like Olo. But we're not doing consumer delivery. The focus is not food alone. We think as -- there's really only 3 scaled national driver networks. We are the only 1 of those 3 that is not competing directly with the retailer. So whether that's a restaurant or whether that's a pharmacy, we are not trying to get in between that store and their customer. And what I'm talking about is DoorDash and Uber Eats are -- they're creating that marketplace. But by being the only scaled national network and focused on B2B, we can best serve those retailers in a differentiated way. And that's -- our main business is consumer transportation. But having this tool in our tool set allows us to maximize utilization of the driver network and of the technology that there's overlap on.

Yes. I mean, for somebody like a NAPA Auto Parts as you bring that up, I mean how were parts delivered before? Was it just on an ad hoc basis? Is it something -- yes?

Two ways. One is they actually have their own fleet of vehicles, but their utilization on those fleets could be quite poor at times. And so maybe they'll -- they have continued to keep a portion of their own fleet, which is kind of a van that you maybe have seen or a truck, but they're delivering sometimes tiny one part across town. So it's just very inefficient. Other times, when they don't have drivers available or hours where they're not -- it doesn't make sense for them to pay a driver for that late hour, a weekend hour or something like that, they were using couriers in a non-technological forward way.

Right. So I guess for them, you're helping to transform what are probably, to some degree, fixed costs into variable costs?

Yes. Medium term -- short term, it's just replacing kind of that urgent need, whether it is a courier or whoever else, they were getting it done. And then in the medium term, demonstrating that the economics make more sense for us to handle the driver network and to do that more efficiently for them.

Right. So as you're positioning as not a competitor, I mean, is that resonating with your retail partners?

Absolutely. Yes. A lot of partners say, "Hey, look, as part of the pandemic, we had to jump on this bandwagon of listing on these marketplaces." Whether that's a restaurant listing on a consumer food delivery platform or a retailer saying, "Hey, we didn't have our logistics delivery figured out. We had to get on it." But the next breadth is -- but we do not intend to stay in this form, we're actually building X, Y, Z components of the stack. And the missing element is the scaled driver network and that technology for last mile that you have. So I think it's a great opportunity for us. And the retailers got -- obviously, you saw the power of this same-day or batched next-day delivery, but they're being more thoughtful as we recover on how they do it in a way that doesn't erode their relationship with the customer and can improve their economics.

Right. Is this going to be a completely white-label solution for you? Or is there an opportunity for you to, I guess, present the Lyft brand also?

Mostly white label. Not looking at it as kind of a brand-forward thing for us. We're open to that if that's something the retailer wants to lean into. But you probably won't know we're there. You'll successfully get the good you ordered and we'll be in the background.

Okay. Got you. I remember freaking out about this at the initial stages of the pandemic. But as people moved away from urban areas during the initial stages and some portion of this group of people decided to purchase cars and as we look to a post-pandemic operating environment, do you think your addressable market has really changed materially since your IPO back in 2019?

I don't. The $1 trillion opportunity is what I spoke to that the average American household spends $9,000 every year on transportation. Of which, the far majority of that is owning and operating a vehicle. It is the second highest household expense. The only thing Americans spend more money on is their house or apartment. So Americans spend more money on their car than they do food, than they do entertainment, than they do health care. And so that has not changed. When there are shifts and changes in behavior, I would say that will overall benefit us because our goal is to become pervasive within your transportation experience, not just the ridesharing company. But as you've seen, we've added rental cars. I used one over Thanksgiving break. It was a great experience. And there's more to come that will, for competitive reasons, we're not going deep into. But I think we can provide a lot of value for car owners as well. In a world that -- if you look at a lot of the transportation industry, there's not a lot of great software or innovation or companies that can hire great data scientists or engineers. We think that's a huge advantage for us. Just an example being rental cars because that's something we have already talked about. The experience is you walk up to a desk, you have this panel in front of you, you sign a lot of documents, that can be handled before. You should theoretically be able to, especially if you have an account with Lyft, we already know who you are. We already have your account information on file. You should be able to handle that before. You should literally be able to walk up to the vehicle or have a Lyft take you right to the vehicle, swipe your phone just like you do one of our bikes and go. And I see these larger rental car companies having trouble with that innovation stack. We can bring it to them and we can bring it to some of our own first-party rentals as well. That's one example in a space we've talked about more and more publicly, and I think there's a lot more.

Got you. Unavoidable topic, but we'll have to talk about this. So one of the big, big investor concerns throughout the course of this year were the driver supply levels, right? So as you look out to this time next year, do you think the driver incentives will really normalize as the year progresses? But I understand it will never go to 0 because there's always going to be a need to reposition drivers here and there, so you can lock in more revenue. But talk about how that will progress, say, for a year from now.

Yes. So as you said, we were in a pandemic. And so the labor market, not just specific to our industry, has been impacted materially across many industries. One thing we talked about on our last earnings call was we looked at hospitality and retail. And if you look from -- and Bureau of Labor statistics. If you look from January to September, our active drivers returned 5x faster than the combination of those industries' returning workers. And so has it taken time to bring supply back to the market? Yes. Do we feel good about where we are now and where we're trending? Yes, we had a great movement last quarter that we reported 60% increase in active drivers, and we've continued to see positive momentum. So -- and the last thing I'll say is just from a -- because you mentioned incentives, Q2, not Q3. Q2 was kind of peak incentives per ride. And as you said, it's -- incentives aren't meant to go to 0. Incentives in many ways are part of variable pay for drivers that gets baked into the price of the ride. So in some ways, the talk of incentives can be a red herring. But in general, we are seeing continued improvement and do expect that to continue to happen as more and more people return to the workforce and return to comfort in human close interaction.

Yes. I think the nominal dollars of incentives that are the contra revenue have also peaked as well, right? So I think it's definitely suggesting that we have passed the peak headwinds.

We believe so. Yes.

Okay. All right. So let's -- you touched on bikes and scooters to some degree earlier. So let's talk about that. So as you grow the number of docking stations and e-bikes, can you discuss the efficiency gains, either on depreciation or the repeat usage among users with e-bikes that you're seeing on the newer assets compared to when you guys first acquired Motivate?

Yes. Just zooming out to -- I want to talk about like the bike strategy for a second. A few years ago, we bought a company, Motivate, that was behind all the major docked bike systems in North America. I believe we have about 80% share. So in a market like New York City, we have 100% of the bikeshare market. Everyone at the time was going after dockless bikes and scooters. And they thought what Motivate was doing was kind of the dinosaur of the space. Being so focused on transportation, my co-founder and I thought very differently. And that's paying off now. Again, we have a contract, a long-term contract with the City of New York to provide exclusive bikeshare access for New Yorkers. And we have that in many other markets like Chicago, the Bay Area, et cetera. The bikeshare system we have in New York is the largest bikeshare system outside of China. If you think of it as a transit network and you compare it to the transit systems in the U.S., our Citi Bike by Lyft is the 25th largest transit network in the United States. And we're going to continue to kind of work diligently on that space and these other spaces I'm alluding to, to have the right strategy and execute for the long term. We're hitting record ridership with Citi Bike. We've launched our first kind of hardware product, the e-bike -- the Lyft e-bike, from the ground up. Previously, Motivate had been buying e-bikes, but we really engineered this for total operating costs, meaning we had data from the last several years of how many times the brakes broke or the tire need to replace, et cetera, et cetera. And the e-bike we built is a tank that took all those factors into account and will bring down our cost of operating. I'm super excited about electrifying some of the stations. So docks, one of the reasons we thought docks were so powerful is that the idea of swapping batteries on bikes and scooters that are strewn about a city is pretty messy. But when we looked at the data science, if you electrify 10% of the stations in New York, I believe it's about 85% to 90% of the bikes get charged in a day with just 10% of the stations because of all the movement of the bikes. And so we'll begin and have begun testing electrified stations. So there's a lot of opportunity there. Going back to kind of the bigger vision, why do bikes matter. In New York, where there's lower car ownership, 40% of our rides last quarter happened on a bike, if you look at bikes and rideshare. And we're seeing the ability as we get -- maybe talking about membership, because we have 100% market share of bikes in New York, but not 100% market share on rideshare, we can provide benefits, a few free bike rides, things like that, to bring people into our exclusive content. In the same way Netflix has their show, we have bikes no one else does in New York. And we'll look to do that with other modes. Obviously, we're just talking about bikes right now, but that's part of our strategy as well.

How special a case is New York City, right? Because it's densely populated city, low car ownership, how...

It's special -- I mean New York is special. I lived in Manhattan for a while. And yes, the density and the low car ownership is special. But there are highly dense parts of cities. And more and more cities are building safe bike infrastructure and bike lanes. Over the next decade, I imagine a lot more cities will become bike-friendly, and the fact that we stuck with it in the right way will continue to pay off. Bikeshare is not going to be the largest part of our business. However, it will -- even if 1 out of 50 of your rides or interactions with the transportation network are on a bike or 1 out of 100, if that one is included in your membership and it is not possibly included in someone else's, we see that as an advantage.

Got it. Can you talk about the evolution of your fleet and the necessary capital expenditures for the build-out of all your electric fleet by 2030?

Yes. So when we think about our fleet, something really neat about our strategy and our business is that we -- there's kind of 3 steps to building out additional verticals. So for example, fleet. We have an independently managed subsidiary called Flexdrive. And initially, kind of the goal was how do we get cars for our drivers, drivers on the Lyft -- that use the Lyft network, who maybe don't have access to a car, don't own a car and don't have the advantage of when they have a credit application, that credit company doesn't know how much money they're going to earn on Lyft. We obviously know how much they can earn per hour. So we know the right amount to charge and that it's going to be a good deal for both them and for us. So anyway, we started Flexdrive as a short-term rental. We got very good at that over the last several years, operate that in a way that we're happy with the unit economics. And then we began to scale that and say, step 2, can we provide this value on what we've learned about rental cars to our riders? So first, with drivers who -- it needs to be really good because they're making their living off it. Then we move to riders, get better, learn how to scale both first-party rentals as well as third-party rentals through partners like our first was SIXT, and we'll have, hopefully, more to announce in the coming quarters. Then the next step is you get really good at fleet management, and that allows you to have an advantage with an autonomous network where you can lower cost per mile and increase utilization. So we can invest and add value in today's business for our drivers, then turn it to riders and then to autonomous. So happy about the fleet business, where that's progressing. And specifically, we think it gives us an advantage with EVs in that Uber doesn't have that internal muscle or internal capability, so they need to depend on a third party. And when you're shifting from one vehicle type to another, when you need to add charging infrastructure or partnerships, we think the fact that we're doing the right parts of this ourselves is going to pay off.

I think you guys mentioned, I think, on the last earnings conference call that it's actually -- it might actually be advantageous for the drivers to adopt EVs. They -- I think there's greater take-home earnings. So can you dig into that a little bit more in terms of...

Sure. So if you think about like the payback of a battery, for someone that's -- the average American utilizes their car 4% or 5% of the time. It's parked 95% of the time. That is not the same utilization for a driver, the driver could have 10%, 20% utilization of the asset. And so the payback on the battery, which is typically more of a long-term payback becomes shorter. So we can and do communicate kind of those advantages in savings, and that's why it's more advantageous.

Got it. Let's turn to autonomous. Can you talk about how you're positioned for the AV transition now that you've sold Level 5? And this was a pretty important initiative at the time of the IPO, but things change, right? So why was this the right move?

Yes, the -- what we said at the IPO and when we put together Level 5, which was our in-house self-driving system, was that the goal was to have access to a self-driving system. And when we started that over 4 years ago, it was a lot less clear that we would have access and there would be multiple players that would provide us access such that there would be competition to bring their technology to our network. That is now very clear to us that, that has played out very well that we feel confident and comfortable we will have access to that technology that there are multiple well-funded players that, that market has settled such that we could sell that part of the technology. And the reaction from other partners has been very positive in that there was a shadow of a doubt that we were going to only use our own versus partnering with them. The other thing that we have gained more and more confidence about is the power of the rideshare network in the autonomous future. So a hybrid network is what we call the fact that for, I would say, many, many years, there's going to be a need to have both human drivers and autonomous vehicles. And the simple reason why is because our demand curve is not flat. There is high demand and low demand. And it's quite extreme. At 9:00 a.m., there's high demand. And so you need to be able to -- you can have a base of autonomous vehicles, which, by the way, cost a material amount of money, but you need to be able to supply rides during the peaks at a reasonable cost. So you can't buy autonomous vehicles or supply autonomous vehicles to the peak. You would be running a really horrible business. So I don't see how it's possible for an AV-only network to provide great service to their customers to the riders, whereas we'll have both. And a rider when they want a ride will be able to get one. The analogy is if a phone network said, "Hey, we have 5G service, 1 out of 10x, you can make a call. Come sign up with us. Buy our subscription." But 9 out of 10x, the call won't go through. You would not want to sign up for that phone network. That's the AV-only network. And while not all the players will say that publicly, most have said that they understand that privately to us.

Okay. So you're not really all that concerned about AV...

No, we feel very good about our position. We feel like we're in the driver seat, which is maybe a bad pun.

Okay. Got it. Okay. What's going on with Lyft Pink?

Yes. So Lyft Pink is our membership program. And so we've been doing a lot of testing under the hood to figure out how to tie together the best Lyft experiences from all of these new verticals we're offering. The best example I can give, again, because it's public, is the bikeshare example in New York where we have exclusive content, and we're able to increase individual's adoption of our rideshare network by giving them access to the bikeshare network. We're going to be rolling out additional benefits. And again, I'm super excited about new products we're going to bring to market next year that I can't wait to talk more about. But for competitive reasons, it doesn't make sense for us to do so. That Pink will serve as this wrapper that to get the best experience at the member pricing, it will be very enticing for people to be part of Pink.

Okay. Got it. How are you going to look to balance new headcount growth with maintaining Lyft's new efficiency gains that you guys achieved during the pandemic? I mean it's probably no longer time to play defense anymore, right?

Yes. We don't -- so the efficiencies -- zooming out, we had quarter after quarter of growth for -- I think it was 19 quarters at the time prior to the pandemic. The pandemic happened, it was really the first time in our medium history or short history that we were -- that we could pause and make sure we had the right cost basis in such a fundamental way. Because when you are growing, it's like add a head count, spend $1. I think it was extremely healthy for us. And we made permanent changes that allow us to obviously hit adjusted EBITDA profitability increasingly from when we reported Q3 from Q2 while still having dry powder to invest in these new categories. So I think that when we look back at this hard period of the pandemic, it will have been extremely healthy for us, right-sized our cost structure while still allowing us to make significant investments.

Got you. And I think at this point, we can open it up to the floor for questions, if any. All right. I don't see anybody, so I'll press on with one of my follow-up questions. So I think you talked about what -- I think some of the hype around AV has died down over the last couple of years, right? But I think you guys have always been in a position to talk about what's going to be a gradual transition of decreasing mix of humans versus autonomous. And I think your co-founder, Logan, has always been more -- has always been very attuned to the government side of things as the other sort of stakeholder here. So what have your conversations with the government been like in terms of their level of preparedness for this new technology? I mean maybe -- are we going to need an AV-specific lane on every street? Are there laws out there that's going to govern certain speed limits, that sort of thing? Like are those conversations even taking place right now?

Yes. I mean our former Chief Policy Officer, Anthony Foxx, who's still a consultant with us, was Secretary of Transportation for President Obama and created the first kind of regulation guidance around autonomous vehicles. So we feel well versed in kind of how the federal government is thinking about it as well as a lot of our policy work happens at the state and local level. It's still early. I think a lot of policymakers don't know exactly what to make of it, but there are various licenses in certain geographies that you can get that, kind of as you were mentioning, are often based on certain times of day, certain weather conditions. So they provide a -- and it speaks to the importance of the hybrid network that I talked about. They're getting -- the technology is getting licensed for specific use cases. So I think it will -- I don't see regulation being a major medium-term, long-term barrier, but I think it will -- just like it did with rideshare, take a few years once the tech is more and more real to have the regulatory side play out.

Got you. I think we only have a handful of minutes left. So let's flash forward 12 months from now and we're sitting maybe inside for another keynote, what do you think we're going to be talking about in terms of what you've been able to accomplish over the trailing 12 months?

I think that I'm super excited to talk more about this -- the $9,000 transportation wallet and for the reality and perception of Lyft to be much broader than a rideshare network. I think we will have -- fit more into the description of a transportation network, and that will play out with new products we'll be launching over the next few quarters. And I think people will look at Lyft a bit differently. I don't think we'll be asking about the driver supply piece. I think that will have resolved itself. And I think we'll be able to give a more interesting answer on your question about Pink.

Okay.

Yes.

The $9,000 transportation wallet, where do we think we are in terms of -- between you and your competitor, like where the share capture of that wallet so far?

It's like 5%-ish. And that's just from the kind of standard rideshare use cases. And if you look at the breakdown of how people spend that money, again, a lot of it is going to places that do not have great software, do not have a great user experience and are ready to be disrupted in a way that will save individuals money, will save individuals time, will create a better experience. And we'll make it a no-brainer to kind of bring your spend to the network. Another way of thinking about it is, today, when you want to -- when you spend money on transportation, let's use car ownership as an example. You have to go to 10 different companies, whether it's the insurance company, whether it's this parking, that parking, whether it's the DMV, fueling, all these things. And it's you versus a larger company. With Pink and with our vision and the products that are coming for our transportation network, we have tens of millions of users. We are going to go to war for our customers. We are going to have buying power for our customers, and we're going to create an amazing experience for our customers to deliver a way better experience at a much better economics than U-verse, the car dealer U-verse, the gas station or the charging station.

Yes. So with only 5%, you're still at the very flat part of the S-curve of adoption, right? So like what's -- and I think if you look at e-commerce adoption across all categories, I think once you start to get to 10%, 15%, it starts to go vertical. So what are the things that are kind of in your control right now to kind of sharpen up that...

It's these new verticals and it's introducing new use cases for the transportation network. That's in our control. And I think you're right, it's like we're in that single-digit e-commerce uptake for our specific industry of transportation. And so by just -- we had to change people's behavior. If you think back to our beginning, when we said we were going to get people to ride in other people's cars, that was insane. People said there's no way that's going to happen. So I think the next behavior changes, hurdles that we have, are -- have a lower barrier, but we'll still -- and behavior change takes time. So -- but I think bringing those products to market is fully in our control.

Awesome. And with that, I think we're out of time. Thanks so much, John, for coming in person.

Thank you. Yes. Thank you.