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Ride-hailing firm Lyft has moved ahead of its chief rival, Uber, in the IPO process after publicly filing its S-1 earlier this month. The filing gave us some of the deepest insights into Lyft’s business that we’ve gotten to date, including financial results, the startup’s growth strategy, and what it views as some of the biggest risks to its business.
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What do the numbers tell us?
- Lyft has seen triple-digit revenue growth over the last few years. The company captured $2.2 billion in revenue during fiscal 2018, up 103% from $1.1 billion in 2017. This includes 10 straight quarters of increased revenue per active rider — up from $14.11 in the quarter ended June 30, 2016, to $36.04 in the quarter ended December 31, 2018.
- However, revenue growth is decelerating. Although 103% year-over-year (YoY) growth between 2017 and 2018 is an impressive feat for Lyft, that figure is significantly less than the 209% growth the firm experienced between 2016 and 2017.
- The company isn’t profitable, and its losses are climbing. Lyft’s losses have risen from $682.8 million in 2016 to $911.3 million in 2018.
- Despite losses, Lyft has made up significant ground on its rivals. Between December 2016 and December 2018, Lyft increased its share of the US ridesharing market from 22% to 39%. Business Insider Intelligence
How does Lyft plan to continue growing?
- The firm expects its expansion into new markets will be facilitated by the growing digital native population worldwide. Lyft will expand the coverage of its platform to new geographies and markets. As the firm expands, it expects to benefit from the "growing percentage of the population who are born as digital natives accustomed to on-demand and shared offerings."
- Lyft will continue using its troves of data to improve both the driver and rider experience. The company’s platform analyzes a wide array of datasets that cover the ride lifecycle — such as the time it takes to match riders with drivers, the route taken, and traffic patterns — by utilizing machine learning technology. Lyft uses this data to improve forecasts around consumer behavior, in turn, allowing the company to offer competitive prices, reduce wait times, and maximize driver earning potential. Lyft is also using data to inform its future product development efforts, such as its subscription offering.
- Lyft will strengthen its multimodal transportation network by building out its bike and scooter offerings. In 2018, Lyft made its biggest play into micro-mobility by acquiring Motivate, the largest bike-sharing platform in the US. (In 2017, Motivate systems accounted for 74% of the 35 million bike-share trips in the US.) Moving forward, the ride-hailing giant will continue expanding the availability of its micro-mobility solutions — for example, Lyft announced last year that it was investing $100 million to expand Citi Bike in New York City.
- Lyft also plans to focus on autonomous vehicles (AVs). The company is following a two-pronged strategy in the AV space: The firm is providing an Open Platform to give developers of AV technology access to Lyft’s network in order to provide rides on its platform, and it’s building out its own AV system. Lyft will deploy an AV network capable of delivering a portion of the rides on the company’s platform in the next five years and a scaled AV network that is able to make the majority of rides within 10 years.
Although Lyft appears to have plenty of opportunities to promote growth, the company also faces risks — what are they?
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The ride-hailing market could be maturing, causing uncertainty around uptake of Lyft’s core service. According to Lyft’s filing, "it is uncertain to what extent market acceptance will continue to grow, if at all." Lyft’s decelerating revenue growth could already be pointing to a maturing market, which coupled with rising costs would make it quite difficult for the company to ever achieve or maintain profitability.
- Lyft’s business is subject to an array of laws and regulations, which are constantly evolving and could negatively impact the company at any time. Lyft will not only be subject to strict laws and even local backlash as it potentially expands into international markets — just look at Uber — but also face pushback in the markets it currently serves. For example, last year New York City approved both a cap on the number of ride-hailing vehicles in the city and the imposition of a minimum wage for drivers.
- If Lyft is unable to cost-effectively develop its own AV technology or get partners to join its Open Platform in a timely fashion, it risks losing market share to competitors. While Uber is Lyft’s principal competitor, the rise of AVs will soon see a number of new competitors enter the ride-hailing market. For example, Alphabet’s self-driving technology spinoff Waymo launched a commercial AV ride-hailing service at the end of 2018, and GM’s Cruise plans to introduce one in 2019. If these companies are able to beat Lyft in providing a unique rider experience that is also cheaper through the use of AVs, Lyft could experience further significant losses.
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Source: Business Insider – aaouad@businessinsider.com (Ayoub Aouad)