EDITORIAL

Taking A Second Look At Lyft’s Leaked Financials

Editor’s Morning Note: Today we’re digging into Lyft’s recently leaked financial performance. This is the moment to make a pun about checking under Lyft’s hood, but we won’t stoop to such lows.

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Yesterday, Bloomberg and Business Insider published reports detailing the recent financial performance of Lyft, a popular car service that competes with Uber in the United States.

The global market for ride-hailing companies is intensely competitive. Feuding firms are willing to compensate both sides of their marketplace to spur growth: Incentives for drivers to sign up, providing supply, and free and discounted rides for users, providing demand. It’s a recipe for quick, if expensive growth.

In the wake of the reports concerning its financial performance, Lyft declined to comment on recent news articles. Knowing that we are walking alone, let’s see what we can learn.

Raw Figures

To begin, Lyft has raised several billion dollars to date, is worth $5.5 billion as of its last capital event, and according to recent news may be for sale.

According to both Bloomberg and Business Insider, Lyft set a $1.9 billion annual ride value run rate pace in May. That figure is not the revenue cut that Lyft itself receives, but instead is the gross value of rides sans tolls or tips that the service executed in May, multiplied by twelve.

Lyft, of course, takes a piece. That percentage is its net revenue.

Both outlets also noted that Lyft executed 12.7 million rides in May. Quickly, a $1.9 billion ride value run rate works out to $158.3 million per month in total ride value. If we divide that figure by the number of rides executed during the month in question, Lyft averaged a per-ride value of around $12.50. That feels ballpark accurate.

The mathematics from here are simple. If you presume that Lyft takes a 20 percent cut of its gross ride fares (net of tolls, and tips), it generated around $32 million in revenue during May. That would place it on pace for $380 million in forward net revenue. According to a report from last April, Lyft estimated that it would drive its cut to around 26 percent by December of 2015. At that slice, Lyft would have brought in $41.2 million during May. That works out to a far-higher $494 million yearly pace.

Growth In Context

Lyft reached a $1 billion gross revenue run rate in November of 2015. Therefore, in the last eight months, it has nearly doubled its aggregate usage when measured using the ride value revenue metric.

However, things are not exactly as rosy as they might seem. Bloomberg has a key quote:

While rides increased about 11 percent from April to May, fully paid rides, without the use of a coupon or a credit, grew by only 5 percent in that period.

The implication from that point is that Lyft is growing, but at a steep cost. Our above arithmetic to determine the firm’s net revenue was predicated on the $158.3 million May figure being full-value. However, given that the company is quickly expanding its subsidized ride rate, it isn’t clear how it handles the accounting in question.

If Lyft provides a discount, or coupon to a user for a ride, does it deduct that from the value of the ride? Doing so would diminish its revenue when weighed against counting the full ‘value’ of the ride even when the rider does not pay full-dollar for the service event.

There is some maneuverability here. If Lyft wants to count the full value of a discounted ride, and counts the discount as a direct cost of goods sold (COGS) with all the gross margin deprecation that doing so would bring, I don’t mind too much; startup accounting is always more creative than what we demand from public companies.

However, if the company counts the total ride ‘value’ in its run rate calculations, but fails to count discounts as COGS, instead placing them as marketing costs elsewhere in its books it’s being a bit unfair. Acting in that fashion would be the accounting version of having your cake and also lighting it on fire. If Lyft gets to count non-monetary ‘value’ in its ride value run rate, it should not be able to discount the cost of ride discounts from its COGS. Doing so would allow it to post gross margins figures that may not have both feet in reality.

Regardless, Lyft is quickly growing its usage, and has certainly managed to carve out market share despite Uber’s best efforts to win the domestic market. What does it cost Lyft to compete? Let’s get a ballpark figure.

Losses

Placing aside our questions regarding how Lyft tallies revenue for its run rate calculations, let’s presume that the company’s $1.9 billion ride run rate is all cash-through-the-system. And, let’s keep our 20 and 26 percent cuts in place as benchmarks.

Lyft still loses money. Quite a lot of it, actually. We return now to our two sources. First, Business Insider:

“Loss: Lyft remains on track to not lose more than $600 million per year.”

And Bloomberg:

“The note also assured investors that Lyft expects its losses to ‘remain at or below’ its budget for the rest of the year ‘excluding extraordinary legal settlements.'”

We’ll assume that Lyft is using a cash-based system to calculate its losses; I doubt that its current net loss math takes into account share-based compensation. Again, that’s fine for startups in nearly every case.

However, the figures do paint an interesting picture. A loss of $600 million in a year works out to $50 million per month. That’s not Lyft’s costs, mind. That’s the negative result of Lyft’s revenue minus its costs. To figure out what it likely costs to operate Lyft, we can compare revenue, and implied loss. Employing our 20 and 26 percent cut estimates, which generate $32 and $41.2 million each, it isn’t hard to see that Lyft spends much more to run than it takes in.

In fact, the higher the percent that Lyft takes of rides—again presuming that the $1.9 billion figure is all cash-based gross platform spend—the more it spends; given that its loss rate is now confirmed to a certain cap, boosting Lyft’s estimated revenue in comparison to a static loss implies higher spend. At the same time, the higher Lyft’s revenue, the smaller its $600 million deficit becomes on a ratio basis. Mixed blessings.

Things completely fly off the rails if Lyft’s $1.9 billion ride value run rate doesn’t discount for discounts. That would cut Lyft’s net revenue, making its implied running expenses lower, but also its negative margins worse.

Until we have more hard data, how to view the $1.9 billion figure is up to you.

Summing quickly, Lyft is growing like all heck at a steep cost. A new Silicon Valley party game: Who has the cash, and appetite for continuing losses to take on Lyft as a long-term asset? Accurate guesses submitted via email will be met with free coffee.

Disclosures: I don’t know Lyft’s entire cap table, but I wouldn’t be surprised if the company and Mattermark have an investor in common. As always, Mattermark’s editorial team operates independently. 

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Featured Image via Flickr user abrackin under CC BY-SA 2.0. Image has been cropped.
© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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