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I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind. The end game was supposed to be autonomous tax

I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind. The end game was supposed to be autonomous taxis (cutting the driver out). I don't see how that's going to happen before they run out of money unless they 1) significantly raise prices or 2) take increasingly bigger cuts from drivers. Personally I will be shorting as soon as I can.

BinaryIdiot 8y ago
Right? Even if autonomous taxis _is_ their endgame, why couldn't companies that actually produce the cars do it cheaper? Almost all of them are heavily investing in it right now, some are even partnering up with companies that know how to do a lot of it. I don't see how this works out for Lyft or Uber. To me it just looks like they'll both eventually run out of money and get squashed. Maybe I'm missing something?
- SeanAppleby 8y ago
  My thoughts exactly. My understanding is that Tesla plans on including a clause to prevent their autonomous cars from being used on other ridesharing platforms and simultaneously launching their own service. I believe Lyft has significant financial ties with GM, who has Cruise, so maybe they'll be able to navigate it from a partnership angle.
- webninja 8y ago
  FYI, Toyota bought a 500m stake in Uber. Some of these car companies just consider the internal combustion engine to be their core competency; then just outsource everything else. Usually to India, Japan or H1B bodyshops.
- sonnyblarney 8y ago
  Auto companies are not service companies, those are very different things. That said, given the dynamism of markets, there's nothing to indicate that Lyft/Uber will have any huge advantage when the time comes. But this is a game of musical chairs - early investors need to create the biggest, most miraculous but 'believable' story so they can pass the bag onto retail investors long enough to cash out. If retail investors were able to do their homework, or rather, if their advisors at Morgan Stanley etc. were to do their jobs, I think that they'd see there is far more risk in these things than the valuations imply. The problem is of course is that Morgan Stanley private wealth managers, managing for all those doctors, dentists, lawyers etc. only make money if there is buying action. And the emotional excitement of 'getting in on an IPO' is just too much to ignore. The 'bragging rights' value of your dentist in Akron Ohio being able to tell to his buddies on the golf course that 'he has an 'in' on the Lyft IPO' (not really of course, he's at the tail end), is just worth more than a scrutinized deal. Also - notice the PR/branding for Lyft, it's so funny, like the opposite of Uber - and yet they are for all intents and purposes the very same thing.
  - panarky 8y ago
    > so they can pass the bag onto retail investors long enough to cash out I used to say this too, when companies sold stock to the public at outrageous valuations. I thought it was insane to be the retail "dumb money" left holding the bag on companies like Amazon, Google, Facebook, Netflix, Twitter and Snap. So will Lyft and Uber be more like Snap or the others on this list?
    - sonnyblarney 8y ago
      They are all different kinds of companies from different eras. Amazon went IPO very early and had a very long term vision. Lift and Uber, it's hard to say and also depends on price.
- monort 8y ago
  Why couldn't companies that actually produce cars just rent them out? I'd really like to have a mono-brand short-term rentals, but they just don't exist. Why is the case different for taxis?
  - Faark 8y ago
    Currently renting cars could be seen as a distraction from car makers core business. The idea is self driving taxis becoming so cheap owning a car will be uneconomical. In other words they drastically have to revamp their sales product anyway. Worst case they'll be a the whim of very few big ai taxi companies... so cutting them out in the first place seems quite realistic.
icedchai 8y ago
The public will eat this stuff up if there's huge YoY revenue growth like they've shown in the S1. You see this all the time with public SaaS companies. Sure, the losses also increase... but nobody seems to care.
- throwaway-1283 8y ago
  Nobody seems to care...until the company literally runs out of money. The difference between a SaaS and a Lyft is that Lyft has huge operating expenses. Burn rate is order of magnitude higher.
  - treis 8y ago
    >The difference between a SaaS and a Lyft is that Lyft has huge operating expenses Lyft is SaaS (technically a platform) and doesn't really have more operating expenses than any other internet company.
    - throwaway-1283 8y ago
      Are you kidding? The driver acquisition costs are extremely high. Driver turnover is high. There's much higher support costs on both driver and rider side than a typical "pure" software co.
      - treis 8y ago
        It's only high because they are in a money burning contest with a swath of other VC funded gig companies. There's nothing inherent about their business model that requires extremely high driver acquisition costs.
        throwaway-1283 8y ago
        What do you mean "nothing inherent." Turnover is high because pay is low, so they need to constantly recruit new drivers via signup bonuses that pad their earnings for the first X months. If they fail to attract drivers then their growth will tank because supply will not keep up with demand. Support needs are naturally high and things go wrong all the time because you're dealing with real people in the physical world - it's not just some bugs here or there on a computer screen. Companies like Lyft/Uber also have a much higher % of their full time staff in "ops" roles that are driver-facing (support, onboarding, offboarding, marketing, acquisition, etc.) So long as their business is extracting maximal fees from each fare (thus keeping driver pay low) this cycle will go on as long as it can, and acquisition costs will continue to be high.
dwild 8y ago
> I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind. Are you saying taxis can't exist? As far as I know, any taxi dispatcher take a similar cut (30%) as them and their cost seems way higher (no automation at all, require people on phone, etc..). Theses loses are either because they are considered unlawful somewhere (I never heard of this issue with Lyft but I guess that's may be happening) and have to fight for it, or because they are trying to expands. If they stop both of theses (operating everywhere they are considered unlawful and stopping to expands) then their cost remaining are pretty similar to any Taxi dispatcher but they require much less staff.
- Areading314 8y ago
  Right, but the market for taxi dispatchers is a much smaller market than the market for taxis. Riders aren't the customer, drivers are. And price in this competitive market will tend towards a fixed monthly subscription cost, not a % cut of their rides.
- robryan 8y ago
  If Lyft and Uber eventually have to raise prices to be similar to a regular taxi or even higher that could hurt them in a lot of markets.
- arcticbull 8y ago
  The difference is taxi companies are profitable (or at least break even) -- and by virtue of necessity. There's no nationwide taxi company. Each tends to be local to their municipality. As such they can't absorb big losses and aren't subsidized by VCs or public markets. Taxis charge more than the service costs to deliver, Lyft and Uber don't. Lyft and Uber have higher cost basis than taxi companies because they don't leverage economies of scale of car ownership and insurance via shared fleet as taxis do. Then they also charge less to riders. There's also no guarantee people would continue to use Lyft or Uber if they raised their prices to above the cost to provide the service, particularly when that number is actually higher than a taxi. To my knowledge, Uber has a -61% profit margin. You give them $10 and they spend $16 to provide you the service.
iMuzz 8y ago
Be wary of shorting such a high profiles stock!
- throwaway-1283 8y ago
  Everyone who shorted Snapchat made millions.

BinaryIdiot 8y ago

Right? Even if autonomous taxis _is_ their endgame, why couldn't companies that actually produce the cars do it cheaper? Almost all of them are heavily investing in it right now, some are even partnering up with companies that know how to do a lot of it. I don't see how this works out for Lyft or Uber. To me it just looks like they'll both eventually run out of money and get squashed. Maybe I'm missing something?

SeanAppleby 8y ago
My thoughts exactly. My understanding is that Tesla plans on including a clause to prevent their autonomous cars from being used on other ridesharing platforms and simultaneously launching their own service. I believe Lyft has significant financial ties with GM, who has Cruise, so maybe they'll be able to navigate it from a partnership angle.
webninja 8y ago
FYI, Toyota bought a 500m stake in Uber. Some of these car companies just consider the internal combustion engine to be their core competency; then just outsource everything else. Usually to India, Japan or H1B bodyshops.
sonnyblarney 8y ago
Auto companies are not service companies, those are very different things. That said, given the dynamism of markets, there's nothing to indicate that Lyft/Uber will have any huge advantage when the time comes. But this is a game of musical chairs - early investors need to create the biggest, most miraculous but 'believable' story so they can pass the bag onto retail investors long enough to cash out. If retail investors were able to do their homework, or rather, if their advisors at Morgan Stanley etc. were to do their jobs, I think that they'd see there is far more risk in these things than the valuations imply. The problem is of course is that Morgan Stanley private wealth managers, managing for all those doctors, dentists, lawyers etc. only make money if there is buying action. And the emotional excitement of 'getting in on an IPO' is just too much to ignore. The 'bragging rights' value of your dentist in Akron Ohio being able to tell to his buddies on the golf course that 'he has an 'in' on the Lyft IPO' (not really of course, he's at the tail end), is just worth more than a scrutinized deal. Also - notice the PR/branding for Lyft, it's so funny, like the opposite of Uber - and yet they are for all intents and purposes the very same thing.
- panarky 8y ago
  > so they can pass the bag onto retail investors long enough to cash out I used to say this too, when companies sold stock to the public at outrageous valuations. I thought it was insane to be the retail "dumb money" left holding the bag on companies like Amazon, Google, Facebook, Netflix, Twitter and Snap. So will Lyft and Uber be more like Snap or the others on this list?
  - sonnyblarney 8y ago
    They are all different kinds of companies from different eras. Amazon went IPO very early and had a very long term vision. Lift and Uber, it's hard to say and also depends on price.
monort 8y ago
Why couldn't companies that actually produce cars just rent them out? I'd really like to have a mono-brand short-term rentals, but they just don't exist. Why is the case different for taxis?
- Faark 8y ago
  Currently renting cars could be seen as a distraction from car makers core business. The idea is self driving taxis becoming so cheap owning a car will be uneconomical. In other words they drastically have to revamp their sales product anyway. Worst case they'll be a the whim of very few big ai taxi companies... so cutting them out in the first place seems quite realistic.

icedchai 8y ago

The public will eat this stuff up if there's huge YoY revenue growth like they've shown in the S1. You see this all the time with public SaaS companies. Sure, the losses also increase... but nobody seems to care.

throwaway-1283 8y ago
Nobody seems to care...until the company literally runs out of money. The difference between a SaaS and a Lyft is that Lyft has huge operating expenses. Burn rate is order of magnitude higher.
- treis 8y ago
  >The difference between a SaaS and a Lyft is that Lyft has huge operating expenses Lyft is SaaS (technically a platform) and doesn't really have more operating expenses than any other internet company.
  - throwaway-1283 8y ago
    Are you kidding? The driver acquisition costs are extremely high. Driver turnover is high. There's much higher support costs on both driver and rider side than a typical "pure" software co.
    - treis 8y ago
      It's only high because they are in a money burning contest with a swath of other VC funded gig companies. There's nothing inherent about their business model that requires extremely high driver acquisition costs.
      - throwaway-1283 8y ago
        What do you mean "nothing inherent." Turnover is high because pay is low, so they need to constantly recruit new drivers via signup bonuses that pad their earnings for the first X months. If they fail to attract drivers then their growth will tank because supply will not keep up with demand. Support needs are naturally high and things go wrong all the time because you're dealing with real people in the physical world - it's not just some bugs here or there on a computer screen. Companies like Lyft/Uber also have a much higher % of their full time staff in "ops" roles that are driver-facing (support, onboarding, offboarding, marketing, acquisition, etc.) So long as their business is extracting maximal fees from each fare (thus keeping driver pay low) this cycle will go on as long as it can, and acquisition costs will continue to be high.

dwild 8y ago

> I don't see how these companies will stop losing $1b+ a year each year. The public markets will not be too kind. Are you saying taxis can't exist? As far as I know, any taxi dispatcher take a similar cut (30%) as them and their cost seems way higher (no automation at all, require people on phone, etc..). Theses loses are either because they are considered unlawful somewhere (I never heard of this issue with Lyft but I guess that's may be happening) and have to fight for it, or because they are trying to expands. If they stop both of theses (operating everywhere they are considered unlawful and stopping to expands) then their cost remaining are pretty similar to any Taxi dispatcher but they require much less staff.

Areading314 8y ago
Right, but the market for taxi dispatchers is a much smaller market than the market for taxis. Riders aren't the customer, drivers are. And price in this competitive market will tend towards a fixed monthly subscription cost, not a % cut of their rides.
robryan 8y ago
If Lyft and Uber eventually have to raise prices to be similar to a regular taxi or even higher that could hurt them in a lot of markets.
arcticbull 8y ago
The difference is taxi companies are profitable (or at least break even) -- and by virtue of necessity. There's no nationwide taxi company. Each tends to be local to their municipality. As such they can't absorb big losses and aren't subsidized by VCs or public markets. Taxis charge more than the service costs to deliver, Lyft and Uber don't. Lyft and Uber have higher cost basis than taxi companies because they don't leverage economies of scale of car ownership and insurance via shared fleet as taxis do. Then they also charge less to riders. There's also no guarantee people would continue to use Lyft or Uber if they raised their prices to above the cost to provide the service, particularly when that number is actually higher than a taxi. To my knowledge, Uber has a -61% profit margin. You give them $10 and they spend $16 to provide you the service.

iMuzz 8y ago

Be wary of shorting such a high profiles stock!

throwaway-1283 8y ago
Everyone who shorted Snapchat made millions.