Monday, January 16, 2017

Lyft May Beat Uber To Profitability Despite 9-Figure Losses In 2016

From recode:

Lyft is on track to turn a profit, but will need to spend more to add riders and drivers as it expands
Losses have narrowed, but new markets will mean new discounts and incentives.
Lyft, the ride-hailing service that’s been a perennial runner-up to Uber, is on track to be profitable by next year, according to its financial performance.

A bullish report in The Information revealed that in 2016 the startup lost $600 million on $700 million in revenue — a far better performance than the previous year, when it lost more than double its revenue. In other words, sales grew faster (at three and a half times) than losses (at 45 percent).

Those numbers are accurate, according to sources, but the suggested takeaway — that Lyft’s narrowing losses are “fresh evidence that the ride-hailing business can get to profitability, even if it’s a fraction of the size of Uber” — is harder to see.

Here’s why: Once Lyft gets the legal green light to enter new markets like upstate New York, Houston, Austin, St. Louis and Kansas City, it will also likely see a corresponding increase in losses as it works to ramp up both its supply of drivers and attract riders in these new cities. In other words, it will have to roll out subsidies again. 

There is, of course, the added revenue of new markets, especially those as big as Houston, but there will be the proportional spending required on incentives.

To be fair, in its established locations, Lyft has grown revenue without those subsidies, which is why the company’s spending on sales and marketing was significantly lower in the fourth quarter of 2016 than it was in the second quarter.

Still, that decrease was not consistent throughout the year. 

The company spent $91 million on “sales and marketing” — which can be generally defined as the cost of new driver and rider acquisition, such as subsidies — in the first quarter, $136 million in the second quarter and $80 million in the fourth quarter....