Pando

Lyft is growing faster, improving its margins, gaining share and just added another $500 million to its round

By Sarah Lacy , written on December 5, 2017

From The Travis Shrugged Desk

Days after we wrote about Uber’s increasingly worse financials, The Information “got ahold of” Lyft’s financials. They show the exact opposite phenomenon.

Uber’s margins are actually getting worse, as it upped its spending in order to keep its dominance in the US market, and undoubtedly continues to be bled dry in international markets that will take time to become lucrative, or where it has formidable local competition.

Meantime, according to the Information, Lyft’s margins are actually getting better. It’s revenues are way up-- some $483 million in the first half, more than all of last year-- and its net loss fell from $283 million to $206 million. Lyft lost $1.20 per ride, down from $4 a ride a year earlier. Bloomberg reported in July, Lyft wasgrowing faster than Uber. That it did that while improving its margins is impressive.

Lyft’s revenue numbers aren’t close to Uber’s gaudier self-stated $2 billion in quarterly revenues (…on losses $1.46 billion.) But unlike Uber, Lyft seems toactually be building a business.It’s bad news for bears and economists who have tried to argue the entire sector is unsustainable, and it’s another concrete difference in how the companies behind two nearly identical products couldn’t be more different.

The Information noted that Lyft was expected to increase its spending in the next quarter in order to pounce on Uber’s distraction and weakness. Indeed, today, TechCrunch reports that Lyft has added anotherhalf a billion to its current round. Oh, and it has a comparatively reasonable valuation of $11.5 billion.

In addition, analysts believe that Lyft is gaining on Uber in the US. It’s nowhere close to 50/50, but that’s not the number to watch, according to Richard Windsor from Edison Research. As we wrote last week, Lyft has increased market share from 20% to 33%. Windsor maintains that a dominant market leader has to have at least 60% market share or be at least twice the size of its nearest rival to have enough cushion to optimize for profits. Uber’s cushion has been whittled down to a mere 6%, down from 20% at the beginning of 2017.

That would be bad enough news, if both companies margins were both deteriorating-- after all, smelling blood in the water, Lyft too has been increasing its cash trove to compete. That Lyft is pulling off market share gainswhile improving its marginsis even worse news.

And it validates Lyft’s decision not to chase Uber all over the globy vying for world domination. It allowed other global players to drain Uber’s coffers, while it continued to focus on the US. Some have argued that staying US-only was a bad move because it capped Lyft’s possible valuation, and it made it harder for people to travel to delete Uber altogether as a result of years of scandals.

I’ve long argued the focus would pay off: And it certainly appears to be now. Not only that, staying US-only gave Lyft access to billions from international players like Didi and its backers like Alibaba.

So here we are nearing the end of 2017 in a very different place than anyone watching this market could have expected. Here’s my predictions for ridesharing in 2018 and beyond.

  • Lyft will go public. It may have a rocky start. Investors may hate the underlying numbers of the business. But it will continue its slow and steady execution at a comparatively reasonable valuation.
  • Uber will not go public anytime soon. The new CEO Dara Khosrowshahi has already said he doesn’t expect it to happen before 2019, and that’s very much a best case scenario. That assumes no more massive scandals come out and the existing lawsuits don’t do much damage to Uber. While Uber boosters may argue operating outside the glare of the public markets will give it an edge over Lyft, I’d argue the opposite. Lyft will continue to learn discipline that will serve it well as a public company, while the rogue elements within Uber-- including those still controlling its board-- will continue to act as they have for the better part of the last decade. The longer Uber waits, the greater its valuation trap becomes. (Which is why early Uber investors and insider are dying to cash out with Softbank now.)
  • Didi Chuxing will go public, will overtake Uber in valuation, and will eventually purchase Grab. Didi may likely eventually purchase Lyft as well, and pull off what Uber promised investors it would: A global ride-sharing giant worth tens of billions of dollars, and the largest public company of the on-demand era.
  • Waymo’s best shot to get back in this race will be in autonomous vehicles. Ditto Tesla. The former has the advantage of a massive cash trove, even if it’s squandered its technology lead. The latter has the best brand of the bunch and arguably the best and most innovative CEO.

If I were an early Uber shareholder, I’d be praying for a Softbank bail out too.