The unstated major premise there is that Lyft would be comfortably profitable if not for money spent on expanding their business.
I haven't looked at the balance sheet, but it seems like, if their path to profitability were anywhere close to being as easy as that, then you wouldn't have Horan saying that there is, "nothing in the document that suggests how that could be fixed."
For starters, Horan is not a "transportation expert", he's never worked outside of the airline industry. His entire claim to fame is writing a multi-part story on why Lyft and Uber are never going to profitable, long before he knew anything of their finances.
Not saying he's wrong, but I would take anything he says with a grain of salt. Especially considering it's pretty clear that Lyft is in a hyper-growth state, with huge revenues and their only major overhead is labor, hardware and the cost of entering a new market.
> their only major overhead is labor, hardware and the cost of entering a new market.
Two of those are not going to go away. And the cost of entering a new market should be relatively low for a company like Lyft. The nature of the business means they don't need to make any huge up-front investment in new real estate or equipment. It's mostly just running promotions to attract business and drivers in the new market.
Last year they lost $911M on $2,160M of revenue. If handing out incentives really represents over 30% of their costs, which is what would be implied by the "they'd be fine if not for trying to grow so quickly", that would be pretty worrisome. It would imply that they're in the business of selling dollar bills for $0.75. That's not the kind of business that becomes more profitable as you attract more customers.
One of the big subtexts here is that the standard tech "hyper-growth" business strategy is designed for businesses with very high fixed and very low incremental costs. Lyft has just the opposite: Low fixed and high incremental costs.
> And the cost of entering a new market should be relatively low for a company like Lyft.
That's 100% incorrect. Entering new markets is insanely expensive, because they can't get drivers unless they guarantee income until the market is successfully built.
> The nature of the business means they don't need to make any huge up-front investment in new real estate or equipment. It's mostly just running promotions to attract business and drivers in the new market.
Again, you're missing the biggest expense in entering a new market: labor. Nobody is going to drive around in a Lyft with no customers. So Lyft guarantees them some degree of pay while they expand. That can take time and is addition to the promotional costs with entering a new market, particularly one already saturated by Uber.
> Last year they lost $911M on $2,160M of revenue. If handing out incentives really represents over 30% of their costs, which is what would be implied by the "they'd be fine if not for trying to grow so quickly", that would be pretty worrisome.
Worrisome? That would be ideal. Growth companies should be spending money quickly. We have a name for it (burn rate). I think a lot of people seem to be confused on what an IPO is. It's a funding round, unless the company is doing it because they have to (investor count is too high).
> It would imply that they're in the business of selling dollar bills for $0.75.
The implication is that when they go to a new city they are selling dollar bills for $0.05. What remains to be seen is whether a saturated market can be a profitable market.
> One of the big subtexts here is that the standard tech "hyper-growth" business strategy is designed for businesses with very high fixed and very low incremental costs. Lyft has just the opposite: Low fixed and high incremental costs.
They only have high incremental costs when they expand into a new region. What are their incremental costs when they've successfully saturated a market? Labor (which gets cheaper as a fixed cost over time, as your market size increases) and hardware, which does the same.
Again, I'm not suggesting they are going to be profitable, I'm suggesting that the idea that they should be making money while entering as many new markets as they are is a crazy position. In order to do that they would have to slow growth substantially, which is literally just dying to Uber.
Lift is hardly the first company to discover that you have to pay your employees from the day you open up business in a new location. That's how it works for everyone.
What is different about Lyft is that they've structured things such that they don't have to pay their drivers much when business is really slow - they're guarantees like, "If you complete 5 rides in one day, we'll guarantee you earn at least $100 on those rides." When you consider that drivers have to pay for their own cars and fuel, that probably doesn't even come close to minimum wage where I live. Meaning that their initial labor costs are probably cheaper than McDonald's.
I stand by my claim: The cost of entering a new market should be relatively low for a company like Lyft.
Similarly for the rest: You're trying to think about Lyft as if it were a tech company, and that seems to be leading to a distorted view of how their business works. Lyft is not a tech company. It's a taxi company that happens to be based in San Francisco.
I haven't looked at the balance sheet, but it seems like, if their path to profitability were anywhere close to being as easy as that, then you wouldn't have Horan saying that there is, "nothing in the document that suggests how that could be fixed."