Lyft’s Ride to Profit

Data is everywhere. When orchestrated properly, it sings. At Morningstar, we analyze and enrich data, making it actionable and powerful for you. Morningstar, where data speaks. I think Lyft is gonna be one of the comeback stories, you know, for the ages. We are growing quarter after quarter, we're profitable, we have more active riders, drivers, all the rest than we've ever had before. And then I look at self-driving cars and I see an incredible opportunity for us.

Hello and welcome to the Barron Streetwise Podcast. I'm Alexis, the producer of Streetwise. The voice you just heard was David Risher. He's the CEO of Lyft. Now, Jack is out this week, but before he left, he sat down with David to talk about the company's turnaround story and what's up next, including one day self-driving cars. Let's get into that conversation right now.

David, you've been running Lyft now for about 2 and a half years. Do I have that right?

That's right.

Okay, let me lay it all out on the table about Lyft and about the stock, and we'll do a good news, bad news, because I bet you a lot of investors want to like this stock because the valuation looks attractive. It trades at a significant discount to Uber. So the good news is, as I see it, and you tell me where I'm right or wrong, I see positive cash flow. I see growing bookings. I see the company bought back some stock. On the bad news, the stock performance since you took over, it's about even with the S&P 500, maybe a point or two behind, but Uber has gone bananas. Uber's, you know, tripled in price. So over that stretch versus a 50-something percent return for Lyft, I also see even though Uber's about 10 times the size, it's growing bookings by about 5 percentage points faster than Lyft. So those are concerning, even though Lyft stock looks attractive on valuation. That's where I see it. So let's start the discussion there about what is it that you've done in your time as CEO? How do you play catch up with a company like Uber, or is that even on your mind?

So it's not my focus, and I'll tell you why. So we— but first, let's see what we've done and then talk about what the future looks like. So in the last 2.5 years, we've moved from a money-losing company to a money-making company. We've moved from a cash-consuming company, you know, $300, $400, or $500 million on the negative side to nearly $1 billion in free cash flow to the positive side on a trailing 12-month basis. We've gone from a company that was losing share— it was maybe 26, 27 when I joined— to a company that's now gaining share, you know, 30, 31, something like that. Now, we've gone from a domestic-only company to a global company. We now have a presence in Europe through the Freenow acquisition. And we're growing. We're growing it in sort of mid-teens. Oh, and we have more active customers or more active riders than we've ever had. They're riding with more frequency. And we have 1.5 million drivers on the platform, and the driver preference is 29 points over the other guy. So it is a total, total success story from a business perspective as well as a customer obsession perspective, which has been my focus. So now, on the growth side, you have to be careful about those comparisons because The other guys don't break out their numbers in the same way that we do. But if you look at domestic rideshare, which is our marketplace, we're growing at about the same rate. The market is growing at a certain rate and we're basically tied for growth. So that difference is sort of not a significant one. I think what's really happening is people have a mindset and I just think it's wrong. I think it's a winner-take-all mindset. And I think this marketplace works super well with two players. That's what you want. You want riders having a choice between different apps. You want drivers having a choice, and both of us are going to grow. And this is where I'll stop, which is there are 160 billion rides in the United States that people take in their private cars. We maybe do a couple million a day, so maybe 800 million a year. So maybe it's 2.5 billion between the two of us. 2.5 billion is tiny. And so that's why when people focus, I think, on the sort of the back and forth, Lyft versus the other guys, I think in a little way it misses the point. I think both companies are going to do super well. And I look at the transformation we've gone through, We're just getting started, but it is— it's night and day.

How do you balance wanting to be free cash flow positive, wanting to maybe grow free cash flow, but having to invest in the business to stay competitive and to continue growing?

Yeah. So the thesis that I've always had is customer obsession is what's going to drive our profitable growth, and it's what's made us profitable, and it continues to help us grow. What does that look like? That looks like having prices that are absolutely competitive. So you just have to, There's no playing around there. You've got to have competitive, and you have to have reliable prices too. We've done such work to bring down prime time, we call it surge pricing. So that's really an important competitive dynamic that we're very focused on. You have to innovate, right? We just launched Lyft Silver, which is for the 60 million people in the United States who are 60 years or older, and we want them to get out and have a great life. We've launched Price Lock, which allows you to lock in prices. We've launched Driver Earnings Guarantee. All of these things They're not necessarily expensive from a cash perspective. It's just resource allocation, getting your employees to work on innovation. But that combined with customer obsession and sort of excellence, operational excellence, is what grows a business like this week after week, month after month, year after year. So it's a funny thing, you mentioned cash. I think we produced about $993 million of cash generated over the last 12 months. And that was frankly so much cash that we were able to buy back shares, a couple hundred million dollars of shares. We decreased our active share count. So we don't have to make a trade-off. Between innovation and cash. We've got plenty of innovation and we've got plenty of cash and we can use it even to return capital to shareholders through buybacks.

Well, you've started to answer my next question, which is how you compete rider by rider with Uber. What do you, what do you offer that allows you to lure customers out? You mentioned price is super important. I'd imagine there's a lot of riders who are, they're checking one app and they see the price and they say, okay, let me check the other app. Let me compare. Do you see that happening a lot?

It's so— I love the way you're saying that because it actually is exactly our new tagline, which is so simple. Check Lyft.

Check Lyft.

Check Lyft. So I will argue that we have a better service. I will argue that all day long. If you look over the last year, our ETAs, that's how fast we pick you up, are faster than the other guys. Our pricing is always competitive. We actually try to price a little bit less. You know, we're talking 1 to 2%. You can't really afford to do much more than that, but just a little bit less when we can. We have a driver satisfaction score, as I just mentioned, that's much higher than the other guys, and that translates into frankly friendlier drivers and better service. So there are all kinds of ways where I'll argue that we have a better service. But even if you don't concede that, and some people do, and then maybe some people don't, if all you do is have both apps on your phone and you check both, we're going to be at 50% share or more. Because guess what? It turns out that both services are really— they both are good. I'll give my competition some credit for it.

You mentioned a small price difference, but I've seen some bigger price differences when I've checked both of them. Are there cases where, you know, just on an individual basis where one ride might be significantly cheaper or more expensive? Like, is the difference uniform or does it change?

So we want to win more than we lose, right? It's not like we have perfect visibility into their pricing and vice versa. That, that doesn't exist. Uh, but we certainly want to win more than we lose. And sometimes we want to win big. And by win, I'm talking about having a lower price and have you, have you choose us for, uh, for that reason. That might be a city-by-city dynamic. Some cities are much more price competitive than others. It might even be a time-of-day dynamic where we've got better supply. And when you have better supply, better driver supply, it means that you can offer a lower price because you don't have to have this kind of surge pricing stuff, this type of thing. So yeah, you'll definitely see differences. We want to win more than we lose. But broadly speaking, as I say, competitive and reliable pricing is more of our strategy than really always trying to beat. I want to beat on service.

We're gonna take a quick break, then we'll hear more from Jack and David on the future of Lyft. That's next.

Data is everywhere. When orchestrated properly, it sings. At Morningstar, we analyze and enrich data, making it actionable and powerful for you. Morningstar, where data speaks.

Welcome back. Let's get back to the conversation.

What's the latest thinking on the timeline for self-driving ride-hailing, self-driving Lyfts, a Lyft without a human driver? You know, companies are doing that in some markets, but when is it going to be Ubiquitous.

So I think ubiquitous is going to take a while because it's limited by— well, let me start from the other way. I think self-driving cars are awesome. They're awesome. I think they're going to be awesome for people, and I think they're going to be great for rideshare because it's a new product in the marketplace that is a safe product. It's an innovative novel product. It has some advantages. You can be in the car and not worry about someone else listening to your phone conversation, for instance. It also has some disadvantages. You know, you won't be able to get help with your luggage. You know, when I ask people about their best Lyft rides, often it's, "I had this great conversation with the driver. I didn't even want to, and then I found myself drawn in, and then I, you know, I can't stop thinking about it." So, you know, pros and cons, and which to my mind is a really good sort of argument for what I think of as the hybrid network, which will be, you know, a lot of cars driven by people and a lot of self-driving cars. Now, on timing, the self-driving car is gonna be limited by two things. Well, three things, I guess. One is adoption, just, you know, how interested people are. Some people are, Some people aren't. The second will absolutely be regulatory. You know, some regulators will be excited about it. Some cities will embrace, others will say, you know, we don't mind lagging. And then the third will just be flat out supply. You know, these are very expensive cars. You know, the cars themselves are expensive and then the technology you put on top of them is expensive and that will come down over time. But you know, you have to get to a certain amount of scale there. Most estimates say that maybe in the next couple, 3, 4 years, you might have 20,000 to 30,000 of these cars around. Which is a, you know, we have 1.5 million drivers on the platform. So that's just a very long way of saying I think it'll be uneven. Some cities will embrace it fast, but I think if you're talking about ubiquity, you're talking about kind of 2030-ish or maybe even a little bit beyond.

Talk to me about some pockets of your business where you're excited about the growth potential. What are you doing that's new and that's moving quickly and where you see a lot of room to expand?

Yeah, let's just, two, just to start. One is business travel. So Lyft is primarily a business-to-consumer company. You pull out your app and you make a choice. Hopefully you choose us. But for a lot of businesses, it turns out to be quite an important part of their kind of transportation ecosystem for when you're traveling for business. This is an area where we haven't been particularly competitive over the last couple of years, but we now have a great program. It's very simple. It's a cashback program. Literally every single ride you take, you get 5, 6% cashback. Doesn't cost you anything as a business, doesn't cost you anything as an individual. And frankly, it's the oldest arbitrage in the book, or at least in modern day, which is you take your rides on the business side and then you get cash back and points and such that you can use on your consumer side. So it's a great program, super simple, people love it. We just introduced it a couple weeks ago and already great adoption. Love the potential for growth there. The second I mentioned already, Lyft Silver. Our population is aging. We're all getting older. And that conversation that people have with their mother, their father, where they say, "Mom, Dad, I think it's time to give up the car keys. It's soul-crushing. Nobody likes that conversation, but it's only going to happen more. So we're very focused on this program. We just launched it a couple of months ago, about 4 or 5 months ago. Adoption has been unbelievable and it is so great. So one of the great features it has, aside from easy-to-get-into cars and a simplified app, which is really nice for people, is it's got on-call customer service. It's immediate. I actually tested it the other day and literally I was talking to an agent within about 20 seconds. But what's so fun is, you know when you hear, "This call may be recorded for quality and training purposes." Okay, that's true. That actually happens. And sometimes I listen in and it's so amazing to hear older folks call and say, "This has been a lifesaver for me. It's got me out. I have sciatica or I've got something. It's gotten me out of the house and I've gotten to see my kid's soccer game I never would've been able to." So I love it for its growth potential, but I also love it for the human impact it has.

Last question, and I want you to feel free to add in here anything that you think I've neglected to ask you about. And I also want you to tell me about, are you enjoying the job? What are you spending your days doing with the job? But what I'd like is just tell me about your ambition looking forward over the next, let's say, you know, 5 years or however long you want to put it. How will we know that David's time running Lyft has been a smashing success? What is it that you want to achieve there?

Love both those questions. Let me start with the, do you like your job? I love my job. I love my job. I jump out of bed every morning. In fact, Saturday mornings I jump out of bed And I say, I kind of wish it were Monday to get back to work. And my wife is like, David, settle down. Settle down. It's going to be okay. But the reason I like it is because I think what we do really matters. We are a source of earnings for millions of people every year in a job that works for them. They can work around elder care or childcare, another job. They can start a business with the funds they do, all sorts of stuff. And for riders, it gets them out of the house and into the real world. And I am really passionate about this. As our world gets more and more sort of tech-infused and screen-infused, gosh, it's important to get together physically and to go to the concert or go to the football game or see your kid's soccer game or even go to the physical doctor and have a relationship with them that's not just virtual. I think it matters for us as a species. And man, when I think of AI and how attractive it is and sort of engaging, but at the same time how we, again, almost as a species, are going to have to struggle with what's our role in a world of more tech. Man, I'm pretty sure that getting people together and brainstorming and so forth on these sorts of issues will be much, much better than sort of getting addicted to more screen time. So anyway, I think what we do matters. And then I think from a business perspective, I want Lyft to be one of the comebacks of the ages. Again, when I joined the company, it was losing share, I was losing money, share price was maybe $10 a share or something like that. Now it's $16 a share, which is great. I'd like it to be more, of course. I think there's a lot of reasons why it should be. But anyway, that's a conversation for another time. But we are growing quarter after quarter. We're profitable. We have more of riders, drivers, all the rest than we've ever had before. And I look at all the new riders we have, all the new drivers we have, all the frequency that's being driven, all the sort of business metrics. But maybe even more importantly, you look out a couple of years and I see a whole new standard of service that we can provide for all of our riders and drivers. And then as self-driving cars come on the platform, this whole new technology supply that's going to come not just in the United States, by the way, we have now an agreement in Europe with Baidu to bring self-driving cars to our subsidiary Freenow, which will be rebranded Lyft over time. So I just think I think this is such an interesting time, and I look at 3 or 4 years from now and think much higher service levels. I think the service has kind of degraded for rideshare over time, much more innovation, and frankly, just much more importance in people's lives to get them out and part of the world.

David, this is great. Thanks for stopping by and speaking with me, and best of luck.

Thank you so much, Jack. I really appreciate it.

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