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

Good afternoon, everyone. Welcome to our next fireside chat presentation. We are thrilled today to have Erin Brewer, the CFO of Lyft with us. Thank you very much for joining us, Erin.

Thank you for having us.

Happy Tuesday afternoon. Let's start with the disclosures. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures. They are also available at the registration desk. Some of the statements made today by Lyft may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements made today by the company are based on assumptions as of today, and Lyft undertakes no obligation to update them. Please refer to Lyft's Form 10-K for a discussion of the risk factors that may impact actual results.

So it's -- we're almost -- we're at the 1-year anniversary-ish of your role.

7 months. Close enough.

7 months. Let me ask you sort of over the last 7 months, what are 1 or 2 of the biggest learnings you've had that you underappreciated when you were sort of above the hood of the company? And as you have investor meetings and sort of have discussions about the company now, what is sort of the biggest thing you think that is misunderstood externally now?

Yes. It's been a really exciting 7 months at Lyft. That was really loud. It's been an exciting time for sure at Lyft, an incredible amount of progress really over the last 7 months. And I would say that as I think about your question of sort of above the hood and under the hood, coming into this business, you understand that there's an incredible technology stack behind it, right? An incredible base of rides, history, incredible algorithms that just power the business day in, day out, 24 hours a day, 7 days a week. One of the things that's interesting for me in coming into Lyft is really getting a deep, deep appreciation, however, for the human element really behind the business. And that is brought to life within Lyft in a number of different ways. But one of the ways that has particularly struck me over the last 7 months is the driver forums that we host, regular things at Lyft, whether they be in-person, on the screen, getting representative samples of drivers from across the company and really deeply, deeply understanding their experiences. Choosing to drive for Lyft, what their pain points are, and then engaging with our product teams and understanding our road maps and prioritization and how we design for that. And so it's just an incredible reminder that, yes, there's just this amazing amount of very complex technology that has to work well day in and day out. But it's really that, for me, that human element and understanding why we're doing it and who we're doing it for. The other thing that I would say is there's been a lot of changes in the way the business has operated and some fundamental changes over the last 7 months, really starting with when David Risher joined the company just a few months before I joined, in refocusing the company and operating in a competitive and healthy way. Pretty much at the same time undertaking a very significant cost restructuring that I think has set us up in a much more healthy, fundamental cost base from which we can grow. And then it's around really focusing on the day in and the day out basics, doing those extremely well, measuring those with a high degree of rigor so just incredible changes. And then if I sort of bring that full circle from the customer side, the changes that have just happened in significant ways within the business, it's been really interesting and, frankly, very gratifying to watch how that has translated into not only better experiences for the customer, right? A healthier marketplace, better ETAs, competitive pricing, competitive feature on the driver side that have brought more drivers to the platform, but also how that's translated into better financial outcomes for the company. So it's been great for me to see all of that come full circle. And then if I may, just like on the last piece, from an investor side, we've been very purposeful and as I came into the company, listening to feedback from investors and making some concerted efforts to be responsive to that. So it started with making a transition in the key metrics that we report. We did that in conjunction with our third quarter earnings call and really focusing on rides, bookings and adjusted EBITDA just to make it easier, frankly, to follow along with our progress. And then coming into the first quarter here, providing some directional commentary for the full year of 2024 and being able to provide just some of that clarity over a little bit longer time period was important. And then finally, and I know we're not there yet, but coming to the point of announcing our Investor Day. Feeling enough momentum in the business, confident behind our 2024 plan and how our priorities are developing and really looking forward to having that forum to go a bit deeper, not only in terms of all of the key elements of our business, but having investors just to get to know the broader scope of the management team and the depth of the management team. So it's been a busy time, but an exciting time.

Yes. There's a lot there. So let me ask a -- because you mentioned prioritization a couple of times and sort of how to think about key priorities for '24. So that's actually what I wanted to ask you about because it is -- there are so many opportunities for the platform from the tech side and the human side with the drivers. Maybe talk us through a couple of the executional priorities you're focused on. And then it is somewhat of a unique period where you sort of change -- there's a lot of changes going on with the workforce. How do you sort of ensure you have the right compensation structures and culture in place so that the employees are sort of building toward the same priorities?

Yes, absolutely. It starts -- it always starts from the same place. It truly does and that is the premise that customer obsession drives profitable growth. That is sort of the start and the end of every conversation as we think about priorities for the company, how we focus the culture, what we're trying to drive toward. For 2024, in our recent earnings call, we outlined 3 key priorities for 2024, but they're also durable, frankly, beyond that. And it's around innovation, it's around rideshare perfection and it's around leaning into partnerships in what we think can be new and unique ways. And so those priorities are very clear. You asked a little bit about how we focus the organization and maybe incentivize. As we finalized our 2024 plans and entered the new year, we actually made some modifications to our leadership team to completely align with that set of priorities. And so I always think it's really important that the structure of an organization follows and supports the strategy. And so we've put that in place, teams with very clear focus, very clear alignment. In addition to all of the things you might expect around operating rhythms that we follow on a routine basis, tracking our progress, our priorities, understanding if we've had a new launch, how some of those early indicators are going and how that might inform the next steps. You asked a little bit about -- and I'll just conclude on culture. Again, I think I can -- I have a somewhat unique experience to this being relatively new to the company, a company that has a pretty rich and interesting history overall. One of the things that I think the founders got really, really right was culture. My own experience, having been in a number of, what I would definitely describe, as world-class companies who focus deeply on culture and view it as a really important piece of how they operate, how they retain, how they engage people. Lyft has built really a tremendous culture. Certainly, one of the best I've ever had the pleasure to be in, in terms of people coming in and just incredibly focused on what they're doing, have a really, I think, really interesting and unique way of thinking very, very deeply about the customer. And so I really do think it's a differentiator from my own experience as I think about culture of the company and focused on outcomes driven, a driven company really looking to make a difference in the lives of drivers and riders.

Okay. Great. Well, let's talk about the business a little bit, that point around customer obsession and sort of analyzing the customer data. You and David have spoken about different frequency cohorts. Some people might use the product once or twice a month, others probably use it more, less, et cetera. What can you tell us about what you've observed in the cohorting and the frequency of some of your users? And in situations where frequency isn't as high as it could be, what are the execution hurdles you have to clear to get people to use the product more frequently?

Yes. No, it's a great question. I mean we start from the premise that we believe we have opportunity not only to grow rides, but also to grow frequency. And so I think it's helpful to set some context for the year we just concluded. So in 2023, there were more than 40 million riders who took rides on Lyft and about 1/4 of those were new to the platform. We also saw double-digit growth in ride frequency for the full year for the first time since 2018. So really positive indicator and really strong growth in rider retention. So starting from a basis of just, again, operating in a healthier way and having the ability to attract riders to the platform and have them come back and use the platform again and again. So you're specifically honing in on frequency and cohorts around frequency. And I might just zero in on the high-frequency cohort because I do think it's an interesting demonstration, if you will. Because you have a cohort of people who have already made the choice, if you will, to have rideshare be a really core way about how they move about the world whether that be commute, nights out, other use cases. And so those users -- heavier users of rideshare might use it upwards of 30-plus times, let's say, in a given quarter. So high-frequency users overall. Again, grounding in a little bit of our experience in 2023, of that cohort, we saw that grow, that cohort of high-frequency users, grow at rates certainly faster than the overall growth rate and accelerate meaningfully in the back half of the year. And so a couple of observations on that point is that we're doing something right in delivering the experience. People who are heavier users when they're engaging with Lyft, they're seeing competitive pricing, they're seeing good ETAs. They like what they see in terms of when they open the app, the variety of choices they have to select whatever ride happens to suit their need at that given use case, at that given time and coming back and doing that again and again. So that's incredibly encouraging because that is foundational in terms of getting those basics right. And then beyond that, it's really around -- if you think about maybe the users who are not as heavy, not in that high frequency cohort, not only delivering the basics right, but increasingly giving them reasons to incorporate rideshare and of course, incorporate Lyft into their consideration along their journey. And so there's a variety of examples of that, but maybe to just touch on a few, tapping into a few use cases. Of course, we have a scheduled rides product. But in conjunction with the holiday season, we implemented something that was called the on-time pickup promise, right? And so if we were outside of a particular window as you were going to the airport, we actually reimburse you for that. And so we were able to stand behind that promise not only on the basis of the fact that the marketplace was really healthy, but we knew that we could execute against that. And we delivered against that with very, very high degrees of accuracy. And if you think about that use case in particular, you're booking a flight in advance, why not book a ride and a ride that you know is going to be on time with 98-plus percent accuracy and you're going to get reimbursed if we fall outside of that, not something you really can expect from your airline, but expect from rideshare. And so it's features like that, that increasingly as you get mind share and riders get experiences with those that we think demonstrate ways to incorporate that on a much more frequent basis, for example, in that particular use case. And so that's just one of a number of things, but bringing this back full circle, we definitely feel like we have opportunity to grow not only both rides, but the frequency set.

Very helpful. Let me follow up on a couple of points you made that I thought were interesting to me. When you talked about 25% of the users that were new to the platform, I guess 2 questions on that. Can you talk to us about sort of what strategies brought those new people to the platform? And is there anything from a demographic perspective that's different, younger, older, anything, geographically different? Anything about those new people that you can kind of help us better understand?

Yes. Look, I think attracting new users to the platform is not really -- there's not one lever to point. It's really a constellation of efforts that the company does around things like engaging with consumers, making sure that the brand is front and center, making sure that we've got the right megaphone around features and use cases as we introduce them that might meet a user in their consideration set. I think Women+ Connect is a great example of that in terms of -- and that is a product where women and nonbinary riders can be matched preferentially with women and nonbinary drivers, really addressing a very significant market and a very significant need as we listen to especially women riders coming on to the product. It's also aided by the fact that if you think about 2023 and certainly, our views on 2024, people are getting out and about in the world more just across all use cases, whether it be commute, events, nights out. We certainly saw that in an increasing way in 2023 and expect a lot of those same dynamics to exist in 2024. And so it's about the multitude of addressing riders where they are. We've leaned into events as another example, partnering in particular cities with major events. It's everything from signage to really convenient sort of pick up and drop off points. We did an event last year in 2023 actually here in San Francisco, Outside Lands, big music festival. That was a great effort of partnering and execution overall. So it's a number of different ways and strategies that we can be relevant as riders are considering rideshare and also considering Lyft.

I want to ask more about user retention and user behavior. I think historically, we've seen data and we sort of -- we think externally that there's a lot of price comparison that goes on where people will open both apps or multiple apps, compare prices, compare wait times, choose the cheaper one or the faster one. As you've sort of rolled out more of these new products and have more innovation, is there anything you can share with us about retention or maybe LTV of your customers that's improved? This was not just a one-for-one price comparison?

Yes, sure. Again, kind of grounding in what we've seen as we went through 2023 and in particular the back half, both on the driver and the rider side, retention grew at double-digit rates in each of the quarters of 2023. And so really strong engagement, both on the driver side and the rider side. So we saw drivers choosing to spend more hours on the platform, new drivers attracted to the platform. And then we just touched overall on the rider side. And that as you know, has a really virtuous cycle overall in the marketplace because that brings ETAs lower, allows you to offer really competitive and compelling set of, again, choices, ETAs when a rider comes to the platform. And so it's that execution and that focus on the customer, both the driver and the rider to customers in a car and bringing that together and just operating and executing against that very effectively and doing that again and again. Ultimately, it comes down to are we delivering a good user experience? Are we delivering a good solution set and choice? And that's going to compel both on the driver and the rider side, the willingness and the desire to come back and to retain on the platform. But we saw that play out certainly in a way that we measure retention in 2023, very encouraging.

And I think another way to sort of to cut the business sometimes is by the different unit economics of the different types of rides. The core product versus Wait & Save versus the Women+ Connect, they may very well have different margin profiles. So maybe can you just talk to us about how you're philosophically managing the portfolio? And if we're sort of looking at the business externally, what are important levers to the upside to the total business as you kind of manage the portfolio, and then just hurdles to profitability that we should be aware of as just kind of managing the different use cases and products for growth.

Yes. Yes. So let me kind of start on the core rideshare side. Well, maybe I'll even start at a higher level. At the end of the day, we think about managing across the portfolio really with the objective of driving growth on the rides in gross bookings side and then obviously, translating that into growth in adjusted EBITDA margins and free cash flow. So we think about the solution set broadly in that portfolio. Within rideshare, as you think about it, it's ensuring that we have, again, when you open that app, you have a clarity around the variety of choices, whether it be premium -- a premium option, a standard option, a Wait & Save option, that there's clear use cases, they're differentiated, they're compelling. So focus on that. A great recent example is a feature called Extra Comfort which we recently launched, which we've seen great feedback. And this is where for a little bit of a premium, you get access to a roomier car, a newer car, experienced driver. And we found that, that creates enough differentiation that when presented the right user and the right use case, seeing really positive impact on that. So it's about managing that portfolio really well, defining, making sure the value of those products are incredibly clearly defined and the value is defined. Then beyond that, it's around the innovation side. So if the innovation can fuel kind of premium experience, it can also then just again, fuel the top of the funnel that creates this opportunity for the whole functioning of the marketplace to get more efficient and therefore, more profitable at the end of the day. And the third area is around partnerships. So partnerships are a broad umbrella and it encompasses everything from some of the loyalty partnerships we have, to the health care business, which is a premium offering and growing at certainly faster rates than the rate of the overall core. And then we've touched on media, which again is still a small portion of the overall business, but we've seen really nice growth characteristics and profitability characteristics at this early phase. And frankly, also brand partners who are partnering with us on that media app, coming back again and again because they are finding not only through brand awareness and affinity or click-through measurements that we provide to them, they're seeing compelling reasons why that's a great way to spend their dollars. And so hopefully, that's a great illustration of you think about the portfolio, whether it's core rideshare, the things that we're fueling through innovation, the things that we are continuing to focus on and grow through a partnership lens, which tend to be more of a premium product. That's the way that we think about contribution, if you will, to the portfolio and how we look to that to drive margin expansion over time.

Understood. That's helpful. Let me try to cut the business a different way. So there are certain markets where we think you have larger market share. Even you talked about certain markets, Phoenix, Portland. You're much better service in Ann Arbor, Michigan, I know personally, and I guess my -- versus other markets where you have a smaller market share. So how do you think about philosophically managing the markets where you're larger -- have larger market share? And I would imagine the unit economics are somewhat better in those, as opposed to markets where you don't have as large of a share and scaling could be more of a challenge. What is the difference philosophically in those 2 buckets?

Yes, I mean, let's start at a high level and then kind of drill in and address your question about sort of specifically some of the difference of markets. But I think this is an important context in answering your question. And that is, as we set about understanding the particular dynamics of a market or how we might want to grow our experience there or how maybe one of our new features is landing in a particular market, we don't start from the starting point of share, like solving everything from the highest order of share. Our approach and belief is that if we are delivering a compelling core service, and we are increasingly innovating, and that innovation is truly addressing rider needs and driver needs that at the end of the day, share will be an outcome of that equation rather than something that we start with at the top of the equation. That being said, we absolutely look market by market. There's differing dynamics, as you well know, in a variety of different markets. And so having the ability to really laser in on what is happening at any given point in time or over a trended period of time in a particular market, what are we learning from that. What, if any of those learnings might be applicable to other markets in terms of improving performance, is something that's just part of the core operating fabric of the business. So hopefully, that gets at how we think about that and looking at the different characteristics of different markets.

Got it. Okay. And are there -- when you are looking at some of these markets where you could be smaller or larger as a starting point, what are the KPIs you're kind of focused on when you're choosing should we invest more in driver supply, invest more in awareness? What are the metrics you watch just to ensure there's ROIC on those investments?

Yes, absolutely. It's all about creating that healthy balance in the marketplace. And that's not just on an aggregate level, but absolutely on a local level. And really the optimal way to do that is to really ensure that both sides of the marketplace are growing in as much of a synchronized way as we can possibly make happen. And so it's drilling down on both pieces of that equation by market, developing a deep understanding for what might be driving one side or the other. And therefore, where our interventions might make more sense, whether it be incentive or a particular feature that might be relevant. Or frankly, just the way that we can improve the way we forecast in a particular market, whether it be around events or weather or any of these things that can change that supply-demand equation in a meaningful way and drilling down on those very specifically. So those are some of the ways that we think about. And when you think about the ROI, which I think is a very important part of your question, it's around understanding not only the level of those investments, but how close we can get to achieving that balance that is really optimal, both in serving customer needs and in achieving the right level of balance where the investment makes sense. So all of those things are an incredibly -- this is a very data-rich business and so incredibly important pieces of kind of the week-by-week operating rhythms of how the business is run.

It's a good segue to a question I have on supply. Just when we sort of think about the billions of dollars in bookings we have you entering in the next few years. Your rideshare competitor is similar. Dash, we have adding all these orders delivered and then -- and the list goes on. There's a lot of gig workers in these forward expectations. What safeguards and sort of strategies do you have in place to ensure you're adding enough high-quality supply to the pool just so that you do get a good driver and rider experience when you hail a Lyft?

Absolutely. Our approach here is actually, at the end of the day, really simple, right? It's about treating people well. Drivers coming on to the platform want -- they want to earn well, they want that to happen in a transparent way and they want control, right? And so we want to be the company that does that better than anyone else. Fairly simple, conceptually. I think a really great example, something that we're very excited about is the driver earnings commitment that we launched very recently. And just for those folks who might not be as familiar, the driver earnings commitment basically sets a floor and says that over a given week, your earnings as a driver, as a percentage of the ride receipt, will not fall below a certain floor. And if they do, we'll top you up at the end of the week. So this has been live for about 5 or 6 weeks. So still relatively new, but designed very specifically, again, from this lens of customer obsession to drive -- to address what's been a very significant pain point amongst the driver community. And it's such that literally, it's one click in their app. They can click through and they can follow the math from the top to the bottom in an open and transparent way. And so that's just, I think, one really compelling example of this philosophy of treat people well, address what's most meaningful to them. In this case, it's around -- in the case of the driver earnings commitment, it's about earnings and transparency and then continue to deliver on those great experiences. I might highlight just one other area as it relates to drivers, and that is the control piece. We talked a little bit about the earnings, but the control piece is also important. So drivers come to the platform for many, many different reasons, many, many different stories behind why they drive for Lyft, when they choose to drive for Lyft, how many hours they might devote to doing that. But a big, big piece of it is around wanting more visibility and control. And so the feature that we have that allows a driver to stay within a certain area, drive within a certain area has been really, really popular. Because again, it taps into this, I want to control that. Another interesting element has been is we've grown scheduled rides. There's certainly a subset of drivers who just want to stack up their day with scheduled rides back to back. And so I provide these proof points because I think it's an interesting insight into the way that we have approached it, the way that you should continue to expect us to approach it. But at the end of the day, it's really, really simple, treat people well. When they come to Lyft, they know what to expect, do it better than anyone else.

Very helpful. One of the areas, I think, that has caught a lot of investors, and I've been wrong on it, too, I think with both you and your competitor now in 2 straight years is insurance costs. I can't get it right. So anyway, let me ask you this. I have a 2-part insurance question as we sort of think about '24 and '25. Talk to us about sort of costs in the P&L outside of insurance that could be potential offsets if insurance costs do go up more than we expect in '25. And then just philosophically going forward, how are you sort of thinking about balancing how much of the insurance costs you pushed through versus you absorbed with the P&L? So what's the strategy there?

Yes. So I'm noticing we have 3 minutes so I'm going to try to be really brief because this is certainly a complex topic that probably warrants more time. But insurance costs have been rising. They've been -- people can follow CPI. It's not a Lyft issue. It's certainly broader than that. It stems from personal to all companies that are involved in procuring commercial insurance. And so we approach this with a multifaceted strategy, obviously, and approach. And that includes everything from the details of continuing to incorporate risk-aware features in a very proactive and planful way into our product road map. We've been doing that for years. We've seen that drive a difference. It involves engaging at a policy level, whether it's state by state because that's where certain limits are really set or at a federal level, which we've been engaging in, both on the insurance side, but specifically as it relates also to Tort reform and legal system abuse. And we've been increasingly engaging with industry partners. And so it's -- it gives you a sense for kind of the scope and the scale of effort and focus that it gets within Lyft. I would say the other really important piece that we've leaned into is the technology side. The bulk of our business, we partner with third-party insurance providers. We do retain a small piece as captive. So we have incredible amounts of data behind that. But we also have unique capabilities around, for example, telematics, getting telemetry from a ride. And our approach -- and I'll put this under the customer obsession lens because it also is very applicable to partners, is to partner in a very deep way, in particular, on the insurance side, whether it be addressing a claim that's through our captive or with our parties. But sharing that data very openly, providing the factual basis by which we can make -- we, or our third-party partners can make the best determination of the settlement or the outcome of a particular claim, and so addressing it from multiple lenses. You asked about levers. Again, I'll kind of point to some recency because certainly, in the fourth quarter of 2023, we renewed the bulk of our third-party insurance contracts in the fourth quarter. So we saw and talked about the increase in the fourth quarter of 2023. We're very pleased to be able to largely offset those costs. And for dynamics, really outside of the core set of insurance, but just a much healthier environment that our marketplace was in. We saw great growth in driver hours. We saw really positive growth on the ride side and ride intent, converting into rides, leading to much healthier marketplace dynamics that ultimately offset the bulk of that impact in Q4. So that's not the only level -- lever, but certainly, efficiency, cost discipline, continuing to stay very, very focused on our strategy around how do we bend that curve. Those are all going to be important elements as they have been in the past about approaching this in the future. Sorry, it's longer than 3 minutes.

We're up, but we can't end on it. I mean you can't end a tech conference on insurance. Let's -- maybe let's talk about GenAI because I think it's important for the -- for investors to understand areas where you're already using machine learning and AI, both from a top line and an efficiency perspective. And then as you sort of think about '24, '25, or is that too soon, when should we think about potential efficiencies entering the model from next generation applications of the modeling?

Yes. I think there's really interesting opportunities here, some of which are not unique to us, but just in terms of software development. Like GenAI tools that are allowing for faster coding with higher quality. Those are really interesting opportunities. Interesting opportunities around customer service, right? How can you interact in a much more meaningful way that gets to the heart of the issue and solving it much more efficiently. So those are very interesting. Sorry, I know you didn't want to go back to insurance, but like the rich datasets that underlie that also present really interesting opportunities for GenAI. So some of those are further along, I think, software development tools, likely further along than some of the others. But we see really opportunities, interesting opportunities throughout our business going forward.

All right. Well, Erin, thank you very much.

Thank you very much.

Thank you, everyone. Thanks.