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

To the afternoon session. Erin Brewer with us from the Lyft. Very pleased to have you here. Thanks for being here.

Thanks for having us. We appreciate it.

We have said. I'm Brad Erickson with RBC. I cover Internet obviously. So nice to see everybody. Where to start? This was such a tough decision as we were sort of tossing things around how about autonomous vehicles.

Okay. Let's do it.

Good everybody, is everyone okay.

Okay. All right. So several places I want to go. Maybe let's start with kind of the elephant in the living room. Some news came out over the weekend that maybe they're going to start looking at autonomous regulatory approval at a federal level. And I think the big question in the space, and we're certainly getting it. And I imagine you guys are too is, does this sort of change the fluidity with which these technologies will get approved? And further, given that stuff is very regulated, right, at a state level. Does this mean that maybe the federal aspect of it would supersede that or anything? So yes, what are your thoughts, latest and greatest?

Yes, absolutely. And certainly, it has come up. I'm going to start from a place of what we know, right? Because I think that's the best place to start. So Lyft has a long history of working really collaboratively across states and importantly, across cities and municipalities who happen to really care about how transportation happens within their particular jurisdictions. And we expect to continue to do so in any new environment, any new regulatory environment that would take shape overall. As it relates to pathways that help adoption of AVs, that's great for Lyft. Autonomous vehicles are ultimately great for Lyft. We see a world where this is a hybrid network overall. We bring tremendous capability to that landscape as it relates to everything from demand generation to pricing, to what will ultimately be incredibly important, and that's utilization of these assets overall. So a framework that helps that overall and helps the adoption across is a good thing for Lyft at the end of the day.

Got it. And just maybe to put a finer point on the federal versus state oversight. Just anything you can share in terms of your guys' thinking along those lines?

Yes. So again, I'll just stick with what we know and where we are today and that regulatory frameworks exist at multiple levels, they exist at multiple levels, certainly at the state level where we work very deeply. And then I mentioned cities, municipalities are really thinking about the future of transportation within their city frameworks, whether it be things like ride share or mass transit or bikes and scooters where we operate in 8 markets across the U.S. in case you haven't noticed a great network right here in New York City. And so there's multiple layers to this that exists today. And I think it's rational to think that all of those actors will absolutely have a voice as we think about broader adoption safety profiles, regulatory constraints within those jurisdictions.

Moving forward. Yes, got it. And then I think the other big question we've been feeling just even in the last week or so is there's a company based out in, I think, Mountain View, California, that has a self-driving unit that's done fairly well and created some stir in San Francisco, maybe Phoenix and coming to Texas and Atlanta, I think, coming up. They've gained a material amount of share or that's what investors believe based on third-party data, right? And those effects through, but that's what's they -- that's what's out there. And yet, it hasn't seemingly affected you guys. It hasn't affected your biggest competitor here in the U.S. How do we reconcile that? Is it incremental? What's going on there? Why are we not seeing that change anything?

Yes. Yes. So I think you're primarily talking about Waymo, ring fence to San Francisco, where they've been operating and where they've been expanding and they've seen similar data that's been published. And I think that's absolutely about right. But you're correct in terms of seeing a meaningful impact on our business, same. We have not seen that as well. I mean, one is just the scale, right? Scale today is still quite small overall. And we do think there's an element of incrementality there because if you think about that service today on average, it takes a little bit longer. It's priced at a little bit of a premium. So we're talking about where things stand today. And there's absolutely a novelty effect to it in terms of when you come to San Francisco, it's just a different environment than maybe any city that you might see and that they're quite pervasive again within the space that they operate. So I do think there's absolutely sort of an incremental piece that overall. And that could be a driving for us as to why we're not seeing it have a significant impact on the business.

Sure. And then let's talk about the 1P approach, right? The captive brand only, which Waymo has. I think some others are slated to roll those out soon versus the third party of the marketplace, which would be you guys and Uber, obviously. Why -- I think people understand sort of like the utilization argument, but why isn't the 1P sort of a bigger threat? And I guess, just curious like in your conversations when you're having with industry participants, like, I don't know, what are some of those entities do they believe like they can -- and I'm not asking you to speak from their perspective per se, but like is the logic that they can run both channels or they need to run a 1P channel to sort of learn how to run the business when they work with you? What do you think the mentality is from the individual players of deciding to work with you versus not work with you?

I'd start out with 2 things, and we can dive in from there. Number one, we're in all of the conversations that you might expect we would be in as this industry develops overall, just full stop. You've seen us announce an initial set of partnerships in the AV landscape, which we're really excited about and happy to talk about that further if that's interesting. And then I think the second piece of this that is really important to remember is while we are definitely seeing advances, we are still relatively early in the overall cycle. I think sometimes people will tend to Well, there's this player in that player and won't that be it. I don't think that's the case. And even the models that they're operating in today is the experiment and learn. I still think there's a number of pieces that will ultimately be sorted out in this landscape of where those very real players and more that we haven't named today will want to play in the value chain. Do they want to be the asset owners? Do they want to focus on the sensors, so they want to focus on the tech stack. Do they care about the fleet element of this, sort of the demand gen side of it and everything that it takes to be extremely efficient around matching and pricing, et cetera, that piece of the market is well matured and Lyft is a substantial player there. But I do think, ultimately, there's still quite a lot to evolve over time. But again, we're excited, we've got these initial set of partnerships that we think are -- serve a couple of different dimensions from Mobileye, whether it be having a car come off the assembly line being Lyft ready to leveraging the value of all the first-party data as AV models are trained, that's really Nexar. So the real-world deployment of physical assets in the streets with May Mobility in Atlanta in 2025.

Got it. Okay. And then just on the Mobileye front, obviously, they have a deal with Volkswagen slated for, I want to say, it's '26 or '27 on Level 4. Anything you can comment on timing-wise when that could come to market, early tests, that sort of thing.

Yes. I won't speak for them, but what I will tell you is that our effort is an engineering-focused effort so that as that tech gets deployed, those vehicles will be Lyft ready.

Yes.

Ready to deploy on the Lyft network.

Got it. I'll take 1 second, open it up. Any other questions on the AV topic, we can move on. All right. Let's move to pricing. Another topic you've never probably addressed. So -- and this is a little bit more of a near-term question, but obviously, want to zoom out a bit to -- it seemed like -- so you guys had a good Q3, right? And I don't think anyone was intentionally necessarily doing this, but you ended up -- you wound up executing well, maybe even gaining a point or 2 of share, right? And I know you don't like approach it from with the desired effect of taking share. But with pricing things sort of move around, talk about how proactively or reactively you have to be in the competitive landscape. And it's tough, right? On the outside, we have to evaluate what we see with a very limited amount of information. But how should we take sort of those quarterly fluctuations, again, proactive, reactive, that type of thing, talk about that?

Yes. I'll start from a couple of different foundational premise, and that is marketplaces are inherently dynamic. And our goal has been, will continue to be to operate in a healthy and competitive way. That is the place that we start from overall. And we see a big market opportunity. So you're absolutely right. We don't start from the foundational principle that the opportunity exists within a constrained place. We outlined market opportunity that's more couched in the 160-plus billion of personal vehicle trips that people take and our intention to continue to expand the consideration set for rideshare as well as for Lyft. That being said, I'll talk about some of the near-term dynamics because I think that gets at the crux of your question. So if you think about -- maybe let's start just sequentially, if you will, from the second quarter to the third. So we saw our gross bookings per ride come down a bit, and that's driven by a couple of things. What I would say is sort of flattish trends on the core rideshare side. prime time or surge pricing is at some time called coming down meaningfully. We saw that come down 40% year-over-year, 20% sequentially quarter-over-quarter, which was consistent with what we had anticipated coming into the quarter. And then I think the other thing to think about is mix, right? We've got a great bikes and scooters business. It's grown tremendously in 2024. The peak season is in good margin profile, although the gross bookings per ride is obviously lower than ride share. So all of those things factor into how you think about the headline gross bookings per ride number in the third quarter. We move into the fourth quarter, and I think, of course, all things being equal, that headline gross bookings per ride, you expect to go up because we would have a seasonally lower mix of our bikes and scooters business.

Yes. Got it. And then you've -- I guess, as you guys talked about working with commuting pretty well and obviously, price lock, I think, is somewhat of a corollary there. I guess just on that point, how come -- what is it about those new products that's driving that growth? And is that at some level, I think because like take commuting as an example, it's not an area where maybe it was your bread basket historically, but it sounds like you're doing better now. So what is it about the new products or pricing or that type of thing that's allowing for that part of the incremental growth?

So as we think about this overall and especially the product set, as you see as a consumer, right, we think about the value of that product portfolio. And value means different things to different riders and different use cases overall. It can be the value of a priority pickup where you've got to get there right away. It can be the value of a scheduled airport ride, where you've got that promise standing behind that we're going to be there. We're going to wait for you, et cetera. and it can be around the value of products like wait and save like a price lock, which really the value around that is taking away the variability. You've got a predictable price point that you sign up for within a particular window with an origin and a destination that remains consistent that from a modest subscription fee, you get that locked in predictability of pricing. . And that really matters, and it really matters to people who are regular commuters or want to incorporate rideshare into their regular commute overall. And so we've seen great success with that product just launched on a national level in September. By the end of September, we had over 200,000 passes. So very strong adoption, very strong retention overall, super low churn. So we're excited what we're seeing there, absolutely. And we see no reason why if you're a commuter, why wouldn't you have a price lock, if you're doing airport rides, why wouldn't you lock that in with the guarantee. So it really starts from that place of customer obsession. And as you see us innovate, you can expect to continue to see it as come from that angle as we launch new features and new products into the market.

So I don't know if you can -- not to front run new products, but if you can share -- I want to talk partnerships in a SEC. But if you leave that aside, just product-wise, what would you say are some of the other opportunities where you could maybe go down the price curve a little bit and sort of up that frequency?

Yes, absolutely. So I just mentioned wait and say, it is a great product and that we continue to perfect the use case overall. And this is where you basically trade off time for price. So you've have a use case where you're willing to wait a little bit more time and you see a little bit more of a discount. That's a great product for us. And we find that people who use Wait & Save are absolutely mode mixer, right? Or using other modes at different points in their journey. So we know that, that's a value -- a use case is providing real value. I think the other thing that I would point to is just the significant progress in reducing surge pricing. That pricing predictability as we think about affordability value, et cetera, is really meaningful, and it begets additional rides. When you have that consistent experience, great ETAs, reliable pricing. That's a fantastic cycle. We just talked about price lock in that. And then don't forget, bikes and scooters, a great affordable way to get around. You've had some temperate weather here in New York in November. So great time to ride.

Yes. Got it. And then just talking about shared rides was kind of on my mind as well. And then even into the public transit realm, I don't know, talk about is that things you guys think about in the future?

Yes, shared rides are not on our mode selector today. And so we participated in that in the past. I think we like where we're positioned from overall modes today. And nothing to add really as it relates to public transit, right? We've got great linkages between that and in the cities where we offer bikes and scooters as are rate transit linkages overall and cities really appreciate and like having that. And in many cities, it's -- they've reimagined New York is one case, San Francisco is another, the way that people move throughout the city with bike lanes and move fluidly with public transit, but that's probably the area that I highlight.

Got it. Talk Canada real fast, actually. It was not a part of the business that gets a lot of attention, and I think it's actually starting to become so they're warranting anyways. Sort of what's the distribution path look like or the footprint expansion, I should say, look like as you roll out up there? And what are some of the challenges or anything you guys have encountered that might be different than the U.S. business? Or is it just kind of a matter of sort of landing and expanding from here?

Yes. So Lyft has operated in Canada for a number of years is what I would say. But really, as I think about maybe a year ago now, we had a very focused strategy around our Canadian growth and very focused on continuing to build density, continuing to engage with riders. And we embarked on that path really in earnest starting in 2024. And you've heard us talk on our earnings call about the results that we've seen. So we've seen really strong growth in Canada, Toronto has moved up to one of our major cities overall as we think about North America. And so what does that tell us? That tells us that the strides we've made in the core operational health of our marketplace that we've been able to implement across our cities in the U.S., taking that -- those improvements that know-how and capability into Canada has proven meaningful. It's proven that consumers really engage with the brand, what the brand stands for. We offer value to drivers as it relates to earnings opportunities. So taking that and really I would say it's a matter of focus. If you think about the progress that we've made in 2024, we've been really pleased with the outlook.

Got it. Any sizing or growth rates you can share on that front or...

We don't break it out separately so not today.

Hopefully at some point. Got it. And then just on the partnership front, obviously, the DoorDash announcement was pretty cool whatever it was a month ago now, I guess. It's been a long time since earnings. I guess the basics of what that relationship is, seems pretty straightforward, right? You're going to get a look at their Dash pass customers. They're going to look to your customer base to try sign up more Dash pass customers. Where is the real sort of like work going to come from in the relationship? Like where are you guys hoping where it can really kind of catapult you.

We are really excited about this partnership as well. And I talk about 2 companies who think about their customers through a very similar customer obsessed lens who are focused on what they do. We are focused on North American rideshare there, focused on food delivery kind of best in category and bringing together the opportunity to create value, create value for whether it be existing Lyft writers, existing DashPass members but also, obviously, opening that aperture. You go into these partnerships, understanding what our opportunity might be to introduce a new ridership base to Lyft. And so we are really excited about how the initial launch has gone. It's just been live for a number of weeks, but you obviously go into these things making some estimation for initial account linking, et cetera. We're excited about where we are. We're absolutely on track. I also mentioned in our recent earnings call, partnerships are not just an announcement followed by a few weeks of support and then you're finished. You enter into these things, and you're always going to learn about the experience that are happening with both partners, with customers, how you enhance that over time, how maybe you introduce it and talk to stores through different channels. So you should continue to expect us see working collaboratively to do that as we enter into 2025. But we're obviously really excited about how it's coming out of the gate.

Got it. It was a little surprising. I think you guys have with low 20 million active riders. I think you've said 40 million total riders in any sort of given year. DashPass has, I don't know, not quite, say, 20 million DashPass subs what you've said, there actually isn't that much crossover or as much crossover as you might think. Why is that? Is that just like -- is it like a suburban urban mix or something? Or it just seems that seems counterintuitive. Why is that?

Yes, it's a great question. So to be clear, we have not talked specifically about what any sort of numerically what the overlap is. But fair to say that we obviously believe we have an opportunity. It is difficult to say exactly what that foundational case is, and we will absolutely continue to learn more about that as we progress down the partnership realm. There is some habituation. I'm sure that's at play over time here. Some amount of lift just introducing itself again as a as an incredibly strong player in rideshare. We've made a tremendous amount of progress over the last 6 quarters, very fast CTAs, competitive pricing, great experience. And so opportunities to resurrect riders who maybe haven't checked us out for a couple of quarters, I think, is another fantastic opportunity.

Yes. Got it. Real quick on the media business, which ironically, we all dinner with your team last night and a group of investors and this did not come up in a single question kind of interesting. So on the media front, obviously, David's talked about that opportunity, super attractive. You put out long-term targets is clearly going to be a profit driver. I think the one question we get from investors on that is, if you look at the numbers relative to your targets, so like media revenues relative to sort of the booking targets, do you -- the numbers do imply you're over-indexing maybe relative to some of the others we've seen in the industry. And I'm just curious like why that is. Not that you're speaking for others, but just from your perspective, why would that be?

Yes, absolutely not speaking for others, but we are excited about the opportunity that we see in media. So we outlined a broad framework at our Investor Day, and we are on track for where we expected to be in 2024. Really, as you think about sort of initial stages and these are stages of build, it's about really having a fully performance highly measurable ad platform because that's what matters to brand partners. They care about that very deeply. So you've seen us over the last couple of quarters, talk about new measurement partners that we're bringing on to our platform to continue to build out that capability set. We continue to see advertisers come back. We continue to see them not only come back, but increase their share of wallet and spend on the platform overall. Those are the indicators that we're making strong progress that the value that they're seeing is meaningful enough that they're willing to have more share of wallet overall in the platform. So very, very deliberate build for foundation. And that's the foundation which we think we have interesting opportunities to grow off of as we think about the next few years.

Got it. And what verticals are you doing well so far in? And any you can call out where you think there's big opportunities?

The verticals are varied, anything from consumer brands to tech brands, health care types of brands have been some of the larger areas as we think about advertising partners.

Got it. Okay. Let's move to insurance. Everyone's favorite sexy topic.

Okay.

So all right, everybody knows insurance costs have been going up a lot, right, 40%, something like that per ride 2 years ago. I think it was 17% last year. And obviously, it's going to be up on a per ride basis but less than sort of 17% this year. But then as you guys compete, right, you have to sort of maintain that balance with pricing. So how do you kind of -- how do you balance that? And I guess, like related to the latest insurance renewal, how did you handle either passing along that price or absorbing it or that type of thing?

Yes. So I'll just start out by saying we're excited about the progress that we've made. There's a lot of teams across Lyft that focus on this very, very deeply and it's not just on the insurance or risk side, where we collaborate deeply with our marketplace team that sort of delivers the tool and tech. And it's all about continuing to bend that curve on accident severity and frequency. So we've made a ton of progress there, we're really pleased about -- we continue to work really collaboratively. We have a portion of our business that we partner with, with third-party partners, a portion that we self-insure. Those collaborations are very deep and proven to be meaningful over a number of years, so proud of that, proud of the work we do on the policy side overall. And then importantly, as you think about structure of this, last year, we moved to a structure where as opposed to renewing all of our agreements at a single point in time for 12 months. You recall, we broke that up into 2 periods. So some agreements renewing for 12 months, some on a 6 month cycle. We'll do the same thing again this year. And that really allows us, as you think about an environment to your point where costs are going up. They're going up less, obviously, but allows us as a business to better manage that when we're dealing with some of those increases across not a single time period but multiple time periods, first and foremost. So we gave very specific guidance sequentially, Q3 to Q4, we expected our cost of revenue up to be up about $50 million, primarily related to the impacts of insurance renewals that is fully captured within the scope of the guide that we gave for the fourth quarter and then our increased guidance for full year 2024.

Got it. And so given that it's still delevering technically on a per ride basis, what are the primary offsets to that as you sort of build because you've obviously guided for variable cost leverage overall. What are the primary offsets to that deleverage?

Yes. So it kind of goes back and I'm just going to lean on many of the frameworks that we talked about at Investor Day for how we continue to get leverage in the business. We talk a lot about operational excellence, the translation in terms of the financial metrics that derive from that are fixed cost leverage. So a great example are -- we've grown tremendously over the last 6 quarters on flat headcount. So great progress by the team. Another area that we talk about is efficiency and incentive spend. So we deploy incentives on a contra revenue line. So the line between gross bookings and revenue. And then we deploy incentives into the marketplace that flow in our sales and marketing line on the P&L. And we outlined a framework where we will drive 10% efficiencies on a per ride basis annually on our combined incentive spend. In the third quarter, we drove 17% year-over-year. So we're ahead of that framework for 2024. Those are some of the really key points as you think about just broader leverage in the business overall, where we'll continue to lean into those frameworks over the course of our long-range plan.

Got it. Would you -- on the incentive piece you just mentioned, is that you guys were able to obviously guide up on the margins here in most recent quarter. Was that the single biggest reason would you say?

I wouldn't say that. I think it's a variety of -- it's a culmination of, I think, all of the work, and I wouldn't point to any one thing as the core primary lever, but certainly getting more efficient in the business and continuing to execute really, really well. Not only drives those efficiencies, frankly, if you think about it from a driver or a rider lens produces more engagement and more rides overall.

Got it. And then one last one, I guess, just back to the fixed cost. We do get asked about this from a head count perspective. You basically said you're kind of at the right place or whatever. Is that -- I mean, that plus inflation. Is that kind of the right way to think about on the G&A line in particular?

Yes. So I'll mention head count very briefly and then come back very specific to G&A. So I just mentioned headcount, flattish, even though the company has grown significantly over the last couple of quarters. We have invested in incremental areas, media being a great one where we see really strong near-term payback. So we will continue to do some of those things around the edge. . Specifically related to G&A, what I would tell you is that a little bit more than half of that line is actually variable costs. And those variable costs really primarily flex with rides and they are related to some portion of our insurance accruals. The majority of those will sit in the core P&L, but there are certain insurance expenses that are accrued on a per ride basis that sit in G&A as well as certain legal accruals that sit there as well. So I think that's important as you understand the dynamics, in particular of that line.

Got It. Got it. Have you ever -- I guess, on that point, maybe if you could just break out the variable versus the fix just as a percentage?

We haven't given a percentage other than say, more than half of this.

Got it. Okay. I think we're out of time. We'll leave it there.

Thank you very much. Good to be here. Thank you.

Thank you.