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

Okay. We are going to get started. So thanks, everybody, for joining us. My name is Ross Sandler, I head up the U.S. Internet research team here. We're very excited to have Erin Brewer in the hot seat, no less. First time. Welcome to Barclays.

Thank you. Thank you.

Before we get started, I'm going to read the quick prepared remarks for Lyft. I want to make sure that -- to note that Erin will make forward-looking statements -- may make forward-looking statements about Lyft's performance and expectations. Those statements are subject to risks and the full list available in Lyft's latest 10-Q. Erin may also reference certain non-GAAP financial metrics, and reconciliations of those are available on Lyft's IR website.

Excellent. Okay. So you've been on the job now for 5 months. Is that right?

In just a few days, it will be 5 months now.

Excellent. You had 2 earnings calls. So I guess how has the transition been? What are the biggest learnings? I thanked you earlier, but I'll thank you again now in front of everybody about the new disclosure. It's amazing. It's really helpful. But yes, so how do you feel about things so far?

Yes. Well, first of all, we're happy to be here. Thank you for having us. And nothing like putting your guest at ease by calling them being in the hot seat.

Yes. That was in reference to the spotlight more than anything else.

Okay. Yes. So thanks for the question. I'm really excited to be here today and talk a little bit more about Lyft. As I think about the journey of the company, in Q2, we started off with new leadership, a different strategy. As I think about coming into this role as the CFO, the company made some hard choices about rightsizing the cost structure. We're operating from the baseline of just a much healthier place as it relates to the cost structure overall. And of course, we continue to enjoy a really solid cash position. And then I think about the momentum in the business. As I think about the last couple of quarters, as we think about the early implementation of that strategy, more riders and drivers are choosing Lyft. That's a great thing. Our marketplace is operating from a much healthier foundation as compared to maybe a year ago. And our rides are growing, and that growth is accelerating. We've seen acceleration quarter-on-quarter. So there's a lot there as you think about really the foundation and the momentum in the business. And then as I think about what my core focus is, it's really around operational excellence, focused execution. To your point, we've spent time again and focus on just making it easier for the investment community to follow our progress. So we're very pleased to get the new metrics out there. Maybe to get back a little bit to more of the transition, it's been a really good transition and a lot, for me, personally, to be excited about, a lot that has affirmed my choice to join Lyft. First and foremost, there's just -- there's incredible talent in this company. There really is. Amazing tenure, amazing experience in this industry overall. We are really lucky to have the talent profile that we have. And then in terms of thinking about joining the company, right, I've been a Lyft user, and I, over many years, have had a real affinity for the brand. And so coming into a company that has maintained that brand affinity at its core, even through some arguably trying times and COVID and things like that has been a real plus. So a lot of things have really just affirmed it. I'd probably highlight one thing that's been particularly eye-opening for me as I joined the company. Obviously, coming into this, understanding the critical importance in that we serve 2 customers in every ride, right, drivers and riders. But I'll lean in here a little bit more on the driver side. Because as I've had the chance to join the company, we actually spend a lot of time at Lyft. We have driver roundtables and forums on a very frequent basis. And these are really small group settings where we bring in drivers across the spectrum of drivers who use the Lyft platform. And these are both in person, we host them fairly frequently at our headquarters, not too far from here, and then virtually, where we get a broader spectrum of drivers really from across the company. And so walking into this, you understand at the highest level, right, drivers want control, right? They love the control, they love that they can drive when they want, where they want, and they want transparency, right? And they want to optimize their earnings. Really easy to understand at the highest level. But what's been particularly eye-opening to me when I sit around the table with drivers is just really understanding this is not a monolithic group. It's a very diverse group. And the reasons that they drive and their objectives for driving and what they want to get out of driving, right, the use cases can vary, and listening to them and understanding what are the pieces that we're delivering really well, and what are really the finer, more granular points where we can continue to sort of reduce friction in their experience has been very eye-opening, and I think a reflection of the sort of customer obsession lens that Lyft has really leaned into since David Risher has joined the company. So that has been particularly gratifying because it's both a learning and sort of a continual reminder of the power of our platform, the purpose that it serves throughout communities. So something I've particularly enjoyed.

Yes. That's been a huge, huge 180 from the 2 of you coming in versus prior. So I think the one big question that most investors often pepper us with around the ride-hail category is just how to think about like long-term growth rates. And we're not going to talk about specifics here, but Uber likes to talk about a framework where the base UberX business can provide x percent growth, new products provide y, and hence, the long-term CAGR is z. And I think folks are trying to figure out what is Lyft's equation. So could you just enlighten us on how you guys think about that?

Yes, sure. It's a perfectly reasonable equation to think about the growth profile of the company. And bringing it back to Lyft. I sort of talked about our trajectory over the last couple of quarters. So as I think about the top line, there's a piece of this that's just continuing to refine that efficiency of our overall marketplace, the way that we just day in and day out deliver rides, deliver them in a clear, sort of transparent way on both the driver and the rider side and continuing to optimize that overall. And then what I'd say sort of as we move into some of the next phase, if you will, of executing the overall strategy, there's real opportunity to lean into the ways that we think about sort of mode and mix across the platform. And you -- we can chat about different ways that we've begun to do this. But everything from some of the higher-value modes around scheduled and airport where you've seen us begin to do a few things, from the Wait & Save product, which really offers really nice optionality. A really interesting product, both in terms of shopping within the app from the rider lens, but also really useful as we think about overall optimization and utilization of a driver's time on the platform. And so there's more that we can and you should expect to see us do going forward as it relates to that optimization across modes and mix overall. And then really, you'll hear me talk about this and David certainly talks about it a lot, but it's that customer obsession lens as well. So you've begun to see us sort of lean into that in a number of different ways. We can sort of chat in more detail about things like Women+ Connect, Priority Mode offerings that we have across the driver base. But those types of things that continue to drive volume, drive frequency, drive engagement on the driver side in terms of the hours that they spend on the platform and continuing that momentum, those are the things, as I think about -- I think you're touching on sort of gross bookings over top line volume, that I think about some of the key inputs, if you will, to the equation going forward.

Okay. And just drilling in there, you talked about how now that we've kind of normalized the pricing on Lyft, we're not really interested in going head to head on price or on leveraging take rate with incentives. So could you flesh out, maybe with some of those examples you provided, the product changes? Like how quickly is product development happening? And are you seeing bookings accelerate after launching some of these products you just mentioned?

Yes. No, great question. To start off with, our objective here is to price competitively, obviously, and in line with the market, and then really develop products that have a deep, deep focus on both the driver and the rider experience. So let me touch a little bit on, since I mentioned Women+ Connect, sort of happy to go into that example. We were excited to launch that, right? Our initial launch markets were 5 major markets across the U.S. And this is a feature that allows women and nonbinary drivers and riders to have a preferential match. Probably offering consideration on both the driver and rider side to drive, on the driver side, more frequently, maybe at different hours. And same thing, just increasing consideration for that set and segment of customers to drive preference overall. So we're excited about the launch. We had a lot of opt in, in those initial markets. Drivers were turning it on. Once they turned it on, they were using it 98%, 99% of the time that they were on the road. And so we actually pulled forward a broader launch, and you saw us launch across 50 cities. So at our last earnings call, we were pretty early into that launch. We talked about on the rider side and some of the initial phases of our launch, we got 200,000 riders just kind of coming in really quickly. Well, as we sit here now, sort of a couple of weeks post the broader launch, that number has jumped to 1.4 million riders opting in. So again, early, right? We're still arguably in the early days of that, but we think there's a lot there to be excited about.

Definitely. The other big question investors often ask is your cost structure, and I think the third quarter actually demonstrated some pretty good pull-through in your EBITDA to gross bookings. Now we can see the gross bookings, I think, just under 3%. But as we look out over the horizon, longer term, I think Uber has laid out around 10% or 11% for their segment EBITDA, maybe take like half of their corporate. You're probably going to land around 7% as their future state in terms of their efficiency. What's structurally different about your ability to get to that kind of a number long term? I know we have slightly more insurance as a percent of your business than they do. But is there any structural reason why we can't achieve those kinds of figures?

Yes. Well, first, thanks for the note, right? We're pleased with that momentum and that sort of improvement in the overall profitability profile over the last couple of quarters, really driven by just core marketplace efficiency and getting better at that and just operating from a much, much healthier just overall cost structure for the company. Specifically, as it relates to insurance, and I'm sure we'll get into this a little bit later, as you think about it structurally, that's priced per mile, on a per mile basis. And so there's no bulk discount overall as you think about insurance. And I'm sure we can go into that later. But let me talk a little bit more about sort of the overall, as I think about the business model and some of the different ways that you can expect to see us focus on that profitable growth as we go forward. And so we've talked about marketplace efficiency. There's -- we've made great progress. There's more there that we have in front of us in terms of improving, just continuing to tune and fine-tune that overall efficiency of the way that we match riders and drivers. We do that in a very careful way in balancing the overall marketplace, first and foremost. I touched a little bit on mix and mode. But as we think about entering this sort of next phase, overall, there's still a good amount of work that we can do there, in particular as we think about some of the higher-value modes. And so that should certainly be a contributor if you think about margin leverage over time. Just fundamentally, we believe, again, cost structure is in the right place. As we are looking at finalizing some of our plans here into 2024, we think we're in the right place. And so we think we're at a place we can continue to grow off of that fixed cost structure. And then we've chatted a little bit about businesses today that are smaller but have a very nice growth profile that we'll continue to invest and obviously monitor. And a few of those areas are around our health care business, which we've been in for a while, where we provide transportation with a little bit of additional services, where needed, to get people who wouldn't otherwise be able to easily get to medical appointments get there on time. That business has grown in a very promising way. And so that has a different margin profile, if you will, from the base. And then we can chat a little bit more about ads. But again, this is sort of early days, but advertising just has a fundamentally different margin profile overall. And again, a small component of our business today, but we've seen really promising signs there of growth. And so you can expect to continue to see us invest in the growth of that business overall. And so it's a mix of continuing that foundational focus, continuing to focus, I think, in a much finer sort of more customer-obsessed way through the lens of mode and mix and then continuing to grow these other pieces of the business that can offer better margin profiles over time.

I think one thing that we don't really hear you and David talking about more recently as it relates to mode and mix is some of the kind of smaller side businesses that you guys have with scooters and bikes, the rental program, et cetera. How strategic are those? I think investors often ask us, why don't we just get out of the scooters and bikes business entirely? So any thoughts on staying in, rationalizing, et cetera?

Well, we have talked specifically as it relates to bikes and scooters that we are exploring strategic partnerships, other avenues in that business. Nothing really new to update there, but let me chat a little bit about the dynamics of that business overall. First and foremost, the bikes and scooters piece of the business is kind of an interesting way to engage with riders in different parts of their journey. I'll say that I use our bikes products specifically multiple days a week as I make my ride up from the ferry here in San Francisco to our offices that are closer to the ballpark. So just another way to engage with riders. In New York, in Q3, we had some of our best weeks really ever with more than 125,000 rides happening across that network. And for those of you who spend time there, it's really pervasive in the city through the Citi Bike program in particular. And then, of course, through that business, we have a fairly significant presence, I think, something roughly over 2,500 sort of in infrastructure, display advertisement. So that's part of that overall omnichannel strategy. And then, of course, a piece of that business, we actually sell hardware, both in terms of the bikes and scooters piece, but the docked piece of that business throughout markets globally. And so it's generally a product that cities really like as they're building out their infrastructure overall, and just an interesting and another channel to engage with riders. That being said, it's operationally complex, right? Don't get me wrong. If you think about the operational complexities, there's a capital component that you are investing in, which is an obviously different profile from the core rideshare. And then if you think through the ways that, that business executes from, you need warehouses to store the bikes maybe during a snowy season. You've got people out repairing, recharging batteries. There's just a lot of -- and situating the bikes around periods of demand. There's a lot of different day-to-day operational complexities of that business overall. And so it's really a balance between maintaining the pieces of the business that allow us to engage with riders in this cross-platform ways. They use rideshares, they use bikes and scooters as they make their way around cities from a day-to-day business, and then continuing to maybe find and think a little bit differently about ways to optimize that more complex physical infrastructure servicing of the business over time. So hopefully, that sort of helps set a bit of a framework for how we think about it.

And you talked about mix and mode and some higher-margin products kind of coming on. And I think one of the things you guys are doing that's interesting is, for drivers, kind of the upfront fare, upfront destination service, and you mentioned like better driver utilization as that builds out. So where is that today in terms of your mix? And like could that be a meaningful percentage of your overall rides a year or 2 from now?

Yes. Look, this is sort of customer obsession lens, and I'll try to provide a couple of examples specifically as it relates to drivers, I would say we've got a great start, and there's definitely more there to come overall. I think the -- if you think about some of the data that we've shared, sort of drivers are voting with how they're choosing to spend their time. And we've seen a 45% -- we talked about in our previous quarter a 45% increase in driver hours. We talked about that sustaining into October, and we see that sustaining into November. So we feel really good that, that is the best direct representation of how drivers are responding to some of the, what I would arguably say are, initial forays into this customer obsession lens with the way that we're servicing them overall. If you think about -- we care about what drivers care about, right? They want control, they want transparency. And for the time that they are choosing to drive on our platform, they really want to maximize that time and they want to optimize their earnings. And so that's how we are thinking about designing for them. And I'll talk a little bit about Priority Mode because I think it's a good and sort of recent example where drivers can opt in to something called Priority Mode. And what that means is that maybe in comparison to not operating on Priority Mode, that sort of per ride fare that they might see when they are operating in Priority Mode might be a little bit less, but their utilization for an hour spent on the road is higher. And so what we've seen in some of that early data is that drivers operating in Priority Mode, in that given hour, there's about 12 minutes of that time where that utilization -- they're seeing more utilization, right? And that translates into more dollars. And so it's that type of thinking as we think about optimizing the driver experience when they're choosing to use Lyft that I think you can continue to see us build on. Now stepping back as you think about driver earnings on a per utilized hour basis, just in general, those have remained fairly steady over the past couple of years in sort of the -- across the spectrum, maybe the low to high $30. In Q3, we saw that number being about $35 per utilized hour overall. But again, very focused on, again, stepping ourselves into the shoes of the drivers who are choosing to use our platform and continuing to design in ways that drive preference for Lyft and drive the optimization of their time.

Yes. That's really interesting. You mentioned advertising with media. So could you just talk about the overall philosophy? You have some in-app inventory, you have in-car, you have the scooters and bike docking stations. Yes, could you just talk about the overall big picture and how you see that evolving in the next couple of years?

Sure. So to give you a sense of where we are today, we have a little more than 8,000 sort of in-car tablets. You can think about that. So opportunities to make brand impressions. We have about 2,500 sort of on-street ad opportunities primarily through that, the bikes and scooters network overall. And then we have just over 1,000 sort of vehicle car-focused ways that we can make a display. And then today, about 70% of our overall ride volume is -- has some sort of in-app advertising available as an option. And so I described that to all of you because we think that omnichannel approach has value to it, specifically as it relates to sort of some top of the funnel brand and awareness, and we can talk about a fun example of that a little bit later on. But that's sort of where we are today. This is early days of the business, but I'll try to give you a sense both of where we are and some of the things, early indications of what's interesting. We sell primarily through a couple of channels. We have both direct sales with brand partners and then programmatically through an ad tech partner. If you think about a typical rideshare ride, the rider will check their phones something like 9, 10 times during the ride. And today, what we offer is sort of 100% sort of share of ride, if you will, to that brand advertiser. So you've got -- it's just a different way in terms of making impressions versus sort of a click-through on Instagram or another social media platform. So we think that piece of it is really interesting. And we've got really good early feedback from brand partners, really good early feedback as we look at engagement with that. But we're also I think building this business very carefully, because I think ultimately, as we think about long-term sustained durable value, it's making this relevant both for brand partners as well as for the rider. And so I think you can expect to see us continue to sort of talk about this business and the development of it early days. The early growth is exciting and something that offers, again, the differentiated margin profile overall for less.

And just a point of clarification. So the 70%, that's like 70% of all your rides going on at any given moment, you have the inventory available to you to put an ad in, but we're not serving across that 70% yet. Or are we?

Yes. Yes. So 70% of rides, we're serving some sort of...

You are serving. Okay. Got you. That's helpful. Okay. Insurance, just going back to that one. We touched on it earlier. So insurance has obviously been a huge headache for the ride-hail industry for the last couple of years. And I think -- how do you guys manage it? And do you view some point in the future as being the point where this levels out as a percent of gross bookings? And is that 1, 2, 5 years out in the future where you might see -- we know it's not going to leverage, but will it stabilize at some point?

Sure. Yes. Look, anyone can look at CPI data around auto insurance, right? It's a challenge for all of us, I'm sure, as personal auto policy holders. It's a challenge for insurers. And yes, it's a challenge in our industry, in particular with the dynamics here in the U.S. market. And so the way that we are approaching this and this needs to be approached is through a multiyear sort of multilevel or multi-pillar strategy. And I'll chat about a couple of those. First and foremost, it's continuing to develop our capability within the experience of using our product to reduce accident frequency, right? The #1 way that we think about as we think about the levers we can influence, if you will, overall, to continue to influence that. We have been doing that. That's not new. So we have data that shows as we intervene in those moments or in the areas where we see harsh braking and maybe have an intervention or a message to the driver. We understand that data very well, but there's more that we can do there. It's about continuing to leverage and working in an increasingly seamless way with our third-party insurance carriers around the telematics data that we have when an accident does occur, having some database and factual base for where the accident was based on the telemetry, perhaps how severe it was. So how accurately and how quickly, when an accident does happen, you can adjudicate those claims is meaningful. And so continuing to lean in and leverage those pieces of the overall portfolio. And then the third piece is really around working with partners across the industry. As I mentioned, it's not just a Lyft challenge or even a rideshare challenge, but there's a broader coalition of partners that's increasingly paying attention to this space. And so we have been and we will continue to work across partners to continue to influence here. So some recent examples that you can see are in states like Georgia and Virginia, where there's been some evolution at the state level on excess insurance related to uninsured or underinsured motorists. We think that's moving in a good direction. Florida also very recently implemented some tort reform that we think can be a model going forward. And then very recently, we signed on to a letter across a broad spectrum of industry partners, a letter that went to the U.S. House Committee on Oversight and Accountability. And this was specifically related to some federal legislation that's being contemplated around legal system abuse. And in particular, we, along with other industry partners, wanted to give some context to a piece of this basically third-party litigation funding to help drive that. And so I offer that just as a number of different examples on the way that we partner on the outside in addition to the levers on the inside that we continue to work toward in managing overall insurance on our cost basis.

That's great. So we're out of time. But on behalf of myself and Barclays, I want to thank you for attending.

Thanks, Ross.

Great. Thanks a lot.