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

Thank you, everyone, for joining us. I'm Michael McGovern, I'm on the Internet team here at Bank of America. We have the CFO of Lyft, Erin Brewer, with us. Thank you so much for joining us. Erin has been the CFO of Lyft for 2 years now, approximately, and done a great job taking over the course of the last 2 years and abating some of the headwinds that you had seen prior to that. Around this time last year, you had an Analyst Day, and it seems there's been so much change in the industry over the course of the last year. And also, you've had some great new announcements at Lyft.

So where do you feel your strategic positioning is today relative to last year at the time of the Analyst Day?

Yes. I'd start with really what the central premise of our Analyst Day was a year ago, and that is customer obsession drives profitable growth. It's been the way that we focus the business, certainly over the last year or more, the way that we're focused today and the way that you'll continue to see us focus going forward. So a couple of other things that I'd highlight as I reflect on the time since the Analyst Day. We finished 2024 really exceeding all of the metrics that we laid out at Analyst Day, whether it was top line growth or driving efficiencies overall, expanding our margins, expanding our free cash flow. And that momentum really then led into the first quarter, which we just released, where we hit all-time record highs across almost every key metric as an organization in the first quarter, whether that's growth in active riders, growth in rides, growth in driver hours, gross bookings, adjusted EBITDA, free cash flow, really across the board. And so it's really that momentum, as I think about 2024, our Investor Day and then starting off 2025, that really stands out for me. A couple of other things that I'd highlight is really focusing on expansion, whether that's expansion in products, expansion in new demographics like Lyft Silver, which we just released. Relatively new, but super excited about how it's being received in the market. It's geographic expansion with our acquisition of FREENOW, our continued growth in Canada. So I think that's been an important evolution for the company overall. And I'm sure we'll talk about it a little bit later on. And then it's really about continuing advancement in the autonomous vehicle space, right, with the announcement of our partnership with May Mobility, which we'll be launching soon, Mobileye and Marubeni, which we're focused on for 2026. So a lot of exciting things going on at Lyft, a lot of momentum coming into the year. So we feel great about how we're positioned relative to the targets that we set and how we've been executing on that since last June.

Yes. I think one of the most impressive things has been the user growth, still double-digit growth on a really large user base. When we think of people who are just coming to Lyft for the first time in 2025, are these new cohorts of users just as healthy as like your past cohorts? And do you expect to be able to drive that same level of frequency with them over time?

What I would say is that we don't necessarily think about it in a cohort level. What I would say is we're focused, obviously, on that continued growth in active riders and then really driving that experience, which drives frequency overall. So that's sort of the flywheel. And then -- so let's talk about what's supporting that growth in active riders overall. I'll start with product, right? That's been really important. Product innovation was one of the key pillars we focused on at Analyst Day. We've since launched Women+ Connect, Price Lock, I mentioned Lyft Silver. And so those are really important innovations that draw people into the market, draw people to Lyft, cause them to get the experience with the company, consistent, reliable pricing come back, repeat. The second area is around partnerships. Partnerships are an important foundation for growth. Obviously, the addition of DoorDash to our roster of partnerships has been a really important add overall that's been able to drive increased frequency, introducing new riders into the Lyft system overall. So that's been extremely positive. And then I would highlight just broader market growth. And so we mentioned what we called underpenetrated markets in Q1. So these tend to be outside of our top markets. They represent a pretty sizable portion of the market overall. We've been focusing there and growing quite strongly. And continued growth in Canada has really supported all of that.

On the underpenetrated markets, would that just be like user or market share penetration? Or like how do you think about identifying those types of markets, I guess?

Yes. So there are markets where Lyft has operated in for a number of years. So we're not necessarily talking about brand-new launches, in particular in the U.S. But what I would say is it's really taking what's been so successful for us starting approximately 2 years ago when we started down this next stage of Lyft's journey. And that's really focusing down at a local level, focusing on the health of the marketplace, ensuring that we are really engaging in a very positive and productive way with drivers. So you've got great driver supply. You've got then -- when riders -- when you are really turning on that funnel on the rider side, they're coming to Lyft. They're having a great experience. It's a predictable price. It's a fast ETA. And that really helps habituate people to different use cases. Okay, I had a great experience. I'm going to think about using this in a different piece of my transportation journey. So it's a lot about the nuts and bolts of the function of the marketplace and providing that great experience and then really focusing down at that local level. And so doubling down in those areas and sort of taking that formula to some of those underpenetrated or smaller cities and towns has been a real source of growth for us.

And you mentioned the DoorDash partnership earlier. I guess it seems like it's been going great so far. How would you characterize it currently and where it could go in the future? And are you able to kind of drill down and see there's a change in behavior in these users who are linking their accounts?

We're really pleased with the partnership. It's been a great partnership. And sometimes it's important to remember that in many ways, we're still largely at the beginning, right, in some of the earliest phases. And so if you think about DashPass, it's a great product. It's got about 18 million members. At the end of Q1, we had about 1.8 million linked accounts, right? So great momentum in a really short period of time, but also I think the other side of that is we've got a lot of opportunity ahead of us as well. So excited about that. And there's been really, really positive reception. And so as I think about Q4, when the partnership was relatively new to Q1, we've had about -- just in that single sequential quarter, about a 30% increase in linked accounts, had about 8 million sort of partnership-linked rides in the fourth quarter. That doubled in the first quarter to 16 million. So sharing some of these metrics to give you a perspective of both the performance and another area of momentum for us. So we've been really pleased, not only the great numbers, but the great experiences that our customers are having by having the linked benefits and in some cases, being introduced to each of the companies, either new riders to Lyft, new users to DashPass. So it's been really -- we're excited.

I linked my account as well. So 2 quarters ago, you talked a bit about pricing and headwinds in the market. This past quarter, you guys had a great print that kind of alleviated some of those issues, and you also had incentive efficiency that went beyond what I think most people were projecting. Can you talk about the -- what drove the level of efficiency in incentives and how sustainable kind of that condition is?

Sure . Yes. So for the benefit of the broader audience, so pricing in the market, while it was down a little bit sequentially Q4 to Q1, was up a little bit year-over-year in Q1. So just to level set where we are. In terms of efficiency in incentives, as we know -- as you know very well, right, we use that driver efficiency, driver incentive, rider incentive. We sometimes talk about it in a monolith, but it really operates on a market-by-market level to dynamically balance the marketplace. And so it's something that we've committed to over time and certainly achieved in the full year 2024, 10% efficiencies. We exceeded that actually in 2024, but that's our long-range target. And so through better engagement with drivers, much more efficiently delivering them rides, delivering a better experience to riders, you begin to get scale benefits off of that. But I'd step back just at the end of the day relative to Q1 and say this is -- think about it as a different Lyft from maybe 2 or 3 years ago, right? We -- this is a durable business. We can weather a variety of different things and really excited to see the business continue to grow, continue to expand overall.

And on the insurance front, it seems you have a lot of momentum there, gaining some levels of efficiency. I know your cost of revenue per trip in my model was down quarter-on-quarter and year-over-year in the most recent quarter. Can you talk about what's enabled that kind of just efficiency and progress in alleviating those insurance headwinds?

Yes. One important thing to understand before I talk a little bit more broadly about insurance is that in our P&L, the primary insurance, so things that cover what's required at a state level for UM, UIM, et cetera, exists in our cost of revenue. And then -- that is the bulk of the cost of our insurance. And then excess insurance, which we carry in those cases where the accident is perhaps, on occasion, more severe, goes into our G&A line. So you hear us sometimes talk about our G&A line being partially variable with rides. That is partially driven by that excess insurance in that line. So if you bring those 2 together and you think about relative to our 10/1 renewal, insurance cost per ride is up sort of mid-single digit in aggregate overall. So just level setting where we are. But beyond that, we've made a ton of progress, obviously, over the last couple of years. And it's really focusing on really 3 core pillars: product and technology innovation that enhances -- reduces accident severity and frequency. This is everything from signaling, for example, scores to drivers. We really innovated around that at Lyft and continuing to develop that. It's around the way that we work with our insurance partners, the way that we share our tech and our telemetry and our insights. And so we work collaboratively to help continue to become more and more efficient at the way that we address claims overall. And then it's policy, right? It's continuing to build those relationships at a state level, advocate for common sense reform, whether it be on the insurance side, on the tort reform side. And it's really a combination of those 3 things that I think has made a difference and will continue to make a difference as we look to the future.

Got it. Let's move on to the topic of AVs, which I'm sure everyone is excited to talk about. You have AV partnerships with May Mobility, Marubeni and Mobileye. Without specific details, are you able to give us any kind of high-level thoughts on how AV partnership economics can work over the course of the long term?

Yes. So stepping back very broadly, what I would say is that I think we're still in early innings, right, overall in the development of the market, right? When you think about economics, in any industry, in particular, as we're talking about this, as the technology advances, improves, continue to scale, you're going to see unit economics overall, I'm speaking very broadly, decline over time. And that's great, right? That will continue to expand the market overall for rideshare. We're excited about it. We think AVs are market-expanding opportunity. And so excited about what that brings for the future. As I think about May Mobility, so we are launching with May in Atlanta this summer. We're going to start small and build from there, but the team is excited and getting ready to go there. So that's coming up very quickly. And then as you think about Mobileye and Marubeni, the teams across all of those companies are working together to launch in Dallas in 2026. And then if you think beyond that, in particular with Mobileye, there's really this shared vision about having their tech layer and building that in so that cars are Lyft-ready. So you can think about a future over the long term probably starting with fleet, but eventually evolving into individual car ownership where a car kind of comes off the line, so to speak, being Lyft-ready to deploy on the network over time. So...

And how do you feel about partnership breadth versus depth in the sense of your largest U.S. competitor has x amount of partnerships, what have you. And you have 2 that you've discussed extensively. But how do you think about going deeper in and scaling those partnerships long term? And do you think you have what you need as of now?

Yes. I'll talk about that in 2 ways. I think as we step back, generally, we think that there will be multiple players, right? On some level, if you think about the development of the market, the opportunity to really capture the potential of the market, the more players, the better, right? And you see a lot of players making strong advances not only here in the U.S. but a lot of global players, right, having really interesting advances. And so we absolutely view this over the long term as a multiple player market. We talked about what we've got on our plate coming forward. I think it's important that as you're embarking on these launches, depth has to be there, right? You have to think about safety, rider experience. We're trying to build something very durable, acceptable to the rider community across different geographies. It's a little bit different here in San Francisco because they've been on our streets for a little while. And then to kind of round that out, we've got this Flexdrive asset, right? Flexdrive is really the only purpose-built ride for rideshare fleet management, both capability and technology in the space. And so we think the combination of all of those things, that's really the source of our strategy to be the best place for these asset owners to come and monetize those assets, Lyft to be the best place for that to happen.

Got you. And you mentioned San Francisco. We see all the Waymos downtown. It's still a relatively small operational area where they are. Is it fair to say that their growth has been mostly incremental to the market so far?

It's what we've observed in the data. There's a high amount of sort of new users, especially in the San Francisco market, people coming in from where their home market is a little bit different, testing out a Waymo. I was at a dinner with Lyft a few weeks ago and saw several people on the street corner just sort of filming them as they walk by. So there's an element of that sort of trying it out a little bit of the tourism space. But Waymo has been operating in this market for a number of years, have built up their fleet. I think they're in the hundreds of cars now, so to speak. As a reference point, Lyft had about 20,000 drivers in San Francisco last week. So I think that's interesting context to think about overall. But rideshare is here to stay. And certainly, we are preparing for this evolution to the autonomous future, excited about it. We see in the data that it does expand the use cases. That's been our theory all along. So yes, that's how we see it.

Last question on AVs. When you think about -- and you say ridesharing is here to stay, you have a hybrid network that allows you to quickly adapt to ride demand. You have predictable peaks and troughs in that demand throughout the week, and you're able to incentivize drivers to be there in advance. So how do you think about that competitive advantage versus more of a fixed supply model where that's an issue for asset utilization?

I think you just articulated so well what underpins our firm belief that even as you think multiple years out into the future that this will be a hybrid type of environment. Both for use case, right, only a driver can really help you with your luggage in and out of the car at the airport. But this peak and trough demand difference is quite significant. So in a world where you have a mix of autonomous vehicles, where the economic model really hinges on high utilization and you've got significant peak-trough demand, hybrid network is how it's going to be addressed and how we see it and how we're building Lyft for the future.

Got it. So moving on from AVs. We skipped over international and your FREENOW acquisition a little bit, which is very important. Can you speak to kind of the strategic rationale of the acquisition and also how you view those markets in Europe? If you're investing in them, how maybe competitive are they compared to the U.S.? I think that's a question investors have.

Yes. FREENOW is really a great strategic move for us. It's a nice little business in and of itself. And it's important to think about we're not entering as a newcomer. We're entering with a leader, right? We're entering with a leader across 9 countries in taxi aggregation. It's about a EUR 41 billion market overall. It's a growing market. And it's got significant headroom, right? About 50% of taxi is what they call offline or phone dispatch, et cetera. So significant opportunity to bring that online. In addition to that, we think there's a lot we can bring to the table in terms of differentiated driver-rider experiences. It really presents an interesting angle if you think about our partnership strategy in terms of a much more global base to continue to grow opportunities off of. So there are a variety of reasons that we're really excited about it and looking forward to closing it later this year.

Got it. On ads and Lyft Media, your, I think, annual run rate will hit $100 million by the end of the year is the most recent disclosure. Can you discuss the type of ads that have been so successful thus far and kind of what feedback your ad partners are sharing with the value and the ROI that they're seeing?

Yes. The core of what we've seen and where the bulk of the business, a lot of the growth is in the video ads. So that's been a really great product for us. We've shared some of the metrics previously, but they continue to be true today. We continue to see and our brand partners continue to see 7x the rate of favorability of brand perception and post-experience surveys. We see about 10x the rate of click-through than an average other medium. And so brand partners are seeing this. They're coming back again and again. They're bringing larger and larger campaigns. It's attracting new partners. And so that's how we've built the business quite deliberatively, quite focused on measurement capability. That's what matters at the end of the day. And we've been really pleased with our progress so far. We're on track with the growth that we had anticipated, and we're continuing to build for the future.

Got it. I want to ask an obligatory AI-related question. What is the opportunity that you see either from cost efficiencies in your business model or maybe on the consumer side in just improving your product from AI?

Yes. A lot of opportunities. I mean, we, like many other companies, are leveraging AI and finding new uses for AI just in the general efficiency running of our business. But if you think about it through the customer obsession lens, I think the most perfect example is a recent driver feature that we launched, which is driver AI assist. And it really allows the driver to plan their week. It gives them personalized recommendations about how to plan their day, how to plan their week, when and where to drive, responsive to feedback for preferences that might be going on that week that are different from the normal preferences. We've gotten great reception from drivers. It's an industry first kind of product. So leaning into that innovation overall. And we're excited to see about where that's going to go going forward.

Got it. And then one more kind of conference obligatory macro question. We've seen some recent macro weakness and softness in U.S. travel, airlines. Anything changing on that front?

No. We talked about this on our recent earnings call. It was definitely a question. We weren't seeing anything then. As I sit here today, we're not seeing it in our business. That's not to say that we don't read the same things that you do or looking at the same leading indicators. But we are just -- we are not seeing it as we sit here. If you think about an environment where maybe classic recession indicators might continue to elevate and you think about our business, you think about rideshare, this is really essential transportation, right? The use cases here are significant around getting to and from work, getting to medical appointments, getting to the grocery store. So it's an essential part of that fabric. Again, like classic recession, 2008 times, you tend to see larger purchase items like new car -- getting a car, getting a second car, in particular, impacted. And so rideshare can be a really economical way to get around. And then on the earnings side, within a matter of days, you can get on the platform, be driving, be earning. So those are some of the things that we think about as people ask more how should we think about the potential recession indicators in your business. But where we sit today, we're not seeing it.

Capital allocation. You have accelerated buybacks plus you've made an acquisition recently, and you've done a great job of managing SBC as well. There's still a lot of growth opportunities ahead as well. So how do you balance all those priorities in your capital allocation strategy?

Yes. First of all, first and foremost, what I'd say is we are making really strong progress in the growth of our free cash flow, right? That underpins our ability to execute our capital allocation strategy. So really proud to be in the position that we are today. We've got an exceptionally strong balance sheet. But our capital allocation philosophy really is fairly straightforward. One, we want to maintain ample liquidity in the business. This is a high-scale, fast-moving business. Having ample liquidity is a good business practice and overall, just smart, especially if you're sitting here speaking as a CFO. The second piece is around investing in our growth, right? FREENOW is a great example of that, to be in a position to take the momentum and what we've built and continuing to invest in areas where we think we can bring unique value and growth. And then, of course, optimizing returns for shareholders. So we were really pleased to most recently announce an upsizing and acceleration of our buyback program. That's in addition to we launched net share settlement in the fourth quarter of last year. So we continue to build on that momentum and continue to really contain our SBC overall and make strong progress there. So we feel good about where we sit.

On the regulatory environment, there's been a bill in the Senate that talks about portable benefits, which is something that we learned about with, I think, Prop 22 and some other types of regulations. What are your views on the idea of expanding portable benefits more broadly? And what kind of cost does that drive overall?

Lyft has been an advocate over many, many years on legislation that really cements driver independence and affords a model where there are benefits, right? This has happened across a number of different states. We think it's the right model. We advocate on behalf of drivers who strongly prefer this model. And so anything at the federal level that can bring some broader structure to the patchwork of how it operates today is going to be, at the end of the day, a good development. And it's interesting to see that there's pretty broad support for what's being discussed now. So we'll see what happens going forward. But we will continue to advocate for the types of policy and legislation that, again, cement that independence and offer benefits.

Do you see drivers that sign up for your platform find a lot of value in those types of additional benefits and portable benefits? Maybe just like looking back since Prop 22 and what changes have been made in California, do the drivers in California kind of feel that benefit?

Yes. And so -- well, portable benefits is a different thing. So I don't want to misspeak there. But yes, I think generally, drivers are supportive of this model as opposed to in this country, at least, we've had just fairly strict to classification. You tend to see drivers in states where we've gone forward in this model, the few states in the U.S., drivers to be highly supportive of this. Again, it cements their independence. By far and away, they don't want to be classified as employees. They value the independence. They truly are entrepreneurs. It's why they're participating in this market. But having some of those benefits, whether it's -- varies by the few states that have it today, whether it's on the unemployment side, et cetera, I think, is absolutely of value.

Got it. And then do you have any views kind of on the AV framework that's been raised federally? Do you think that, that's something that's helpful? Or is it too early to even tell what direction that could go in?

It's probably too early to tell. But again, I would say anything that clearly prioritizes safety, right? Because this is, again, a developing, evolving industry, safety is incredibly critical. So anything that is looking at common sense, focused on safety and can help streamline and make it more efficient rather than a patchwork in a state level is likely a good thing for the development overall.

On -- a couple more minutes here. On the product innovation front, you've really kind of led the way oftentimes in the U.S. when you're innovating in new products, Women+ Connect, for example, you raised earlier, Lyft Silver. And you kind of gain this first-mover advantage when you launch these new products. Where do you think that we stand now in terms of that ongoing evolution of being able to innovate in this sector?

I would say that line of thinking is in our DNA. And so sometimes it's about the headline product that you'll see, the Women+ Connect, the Lyft Silver. Sometimes it's in the smaller things like out-of-the-way pay for drivers, which are not going to get as much headline attention but are a significant pain point for drivers. When a ride -- we say the ride is going to take you this long, you're going to earn this much. Detour, out of the way, it took longer. Being treated well and compensated for that is really, really important. It's building on all of those foundations in that really customer-obsessed way that's gotten us to the place where we have the highest driver hours in our company's history. And so it can sometimes be in a headline way, can sometimes be in a way that maybe gets less media or investor attention. But it's in the DNA of the company, and it will -- you will continue to see us innovate in that way going forward.

Got it. Last question. It seems like there's a lot of positives, and you have a variety of priorities. You have an international acquisition and expansion. You have AVs, you have these new products that we're talking about. Is there anything that really sticks out for you that you're working on and you're excited about the most right now?

It's hard to pick one. I'm excited to be sitting here -- and we talked a lot -- we opened by talking about the momentum in the business, right? So continuing that momentum, I think that's really looking forward to the rest of 2025. We're coming from a really strong place. Closing FREENOW is going to be a big deal for the company. We're excited about that. That's going to bring a lot of opportunities for us. We're launching taxis and increasing volume in the U.S., so launching in St. Louis. We've got that going on. We're going to launch with May this summer. So there's a lot happening at Lyft. A lot of exciting things happening. Difficult to pick just one, but I think we've got a lot of things to look forward to for the balance of the year.

All right. Well, thank you so much for joining us. We really appreciate it.

Thanks for having us.

Yes. Thank you.