Lyft

Company Background & Profile

Lyft was a struggling California startup initially called Zimride founded by Logan Green.It
aimed to connect college kids who needed rides with those who had cars.Later in 2012, the app
name was changed to Lyft is now an on-demand transportation service platform that allows
people to order a cab through the use of their smartphones, providing about 1 Million rides per
day. The current value of the company is at $15.1 Billion and as of June 2018, was able to raise a
total of $5.1 Billion in funding. Being one of the fastest growing startup in on-demand taxi
industry after Uber, Lyft has a presence in over 200 cities all over USA where it has been able to
capture 40% of the total market share in US cities like Austin and San Francisco. The company
has also expanded to Canada (Greater Toronto, Hamilton and Ottawa) in December 2017.

Business Model

Lyft is a cab hailing company that operates from a software to run their business. The business
model of Lyft can be divided into 4 steps:

Step 1: Customer orders a ride from Lyft mobile app that is easily available on any smartphone.
The user then has a choice to choose the kind of ride it wants to travel in (Lyft, Lyft Plus and Lyft
line) depending on their needs and requirements.

Step 2: The request for a cab is matched with the availability of any nearby drivers in that area.
The driver has the option to either accept or decline the ride request.

Step 3 (Ride): Map-based interface allows the customer to track the car when it arrives and gives
the ETA (Estimated Time of Arrival) as well. The driver, on the other hand, can also track the
location of the customer from where the request was made. Live tracking during the ride is also
available. Unlike Uber, Lyft is working with the driver on a model where passengers are nearly
always sitting in the front seat because of its tagline that says ‘Your friend with a car’.

Step 4 (Payment & Rating): Rating is an integral part of Lyft’s business model where the
customer gets to rate the driver once the ride is over.
Main Features
Although in many ways Lyft is similar to Uber, it has always distinguished itself and followed a
strategy where Uber could be disrupted in any way possible. Here are some of Lyft's model's
salient features:
 o Lyft matches customers who want the closest available drivers to ride.
o Use the tag line–every day find a new friend.
o All Lyft cars have a large pink moustache on their foreheads front.
o Upon requesting a ride, the customer gets to know the driver details and ETA.
o Live tracking tells the driver exactly where the ride was requested from.
o Lyft itself handles the payment process from within the app.
o Lyft charges 20 percent commission per ride and the remaining 80 percent goes to the
driver.

The business model of Lyft has a rating system in place for both drivers and customers where
they can rate each other.

o Lyft has only 2 car options – Lyft and Lyft Plus – unlike Uber.
o Lyft also has a heat map surge pricing model.

Burn Rate
In its latest private capital round, Lyft-which makes a commission on rides booked through its
app-was valued at $15.1 billion. In 18 rounds, it raised a total of $4.9 billion in capital. Lyft
raised $600 million in its latest round at the end of June 2018-valuing the firm at $15.1 billion.
The good news is that Lyft is growing more rapidly and losing less than Uber.

The Journal reported revenues from Lyft's third quarter of 2018 rose 88 percent to $563 million,
coupled with a whopping net loss of $254 million. That's a lot faster growth than Uber -which
saw revenue rise 38% to $2.95 billion with a loss of $1.07 billion. Lyft's balance sheet has nearly
$5.7 billion in cash. If Lyft burns through about $2.8 billion in cash a year -- assuming that its
adjusted earnings before interest and taxes of $712 million in the most recent quarter is
annualized -- Lyft will have enough cash to last it another two years.

Financial Figures
The numbers of Lyft make two facts plain: it remains largely unprofitable, and Uber is much
larger. The unprofitability of Lyft is shrinking, however, and its rate of growth is impressive.

 Lyft H1’17 net revenue: $412 million.

 Lyft H1’18 net revenue: $909 million.
 Implied year-over-year growth rate: 120.6%

The growth came at a rising dollar cost regarding losses. Here are Lyft’s net losses over the same
periods:

 Lyft H1’17 net loss: $255 million.

 Lyft H1’18 net loss: $373 million.
The company's net loss of H1'17 was 61.9% of its revenue, while its net loss of H1'18 was only
41% of its net revenue. That's the kind of improvement you want to see, even though the
company still has large deficits, even in proportion to its top line. We can, therefore, map Lyft’s
financial performance as follows:

 H1’17: $412 million net revenue, $255 million net loss, negative 61.9 percent net margin.
 H2’17: $648 million net revenue, $433 million net loss, negative 66.8 percent net margin.
 H1’18: $909 million net revenue, $373 million net loss, negative 41.0 percent net margin.

That paints a better picture than the flat image from H1'17 to H1'18, as it shows that Lyft is
curtailing its net loss as it increases net income, leading to profitability.

Monetizing Strategy
Lyft is basically a cab aggregator that matches people who want a car driver ride. Every
transaction that takes place on the technology-based model of Lyft is split between the driver and
the company. Lyft takes a 20% cut from a passenger's total amount paid and the remaining 80%
cut goes to the driver. Lyft's main income models include:

Lyft Car Ride

Lyft Car Ride Lyft charges a 20% reduction from any transaction on the platform. Normal 5-seater
cars are categorized as standard "Lyft" cars. Drivers receive the remaining 80 percent of the
passenger's price.

Heat Maps (Surge Pricing)

Like the surge pricing of Uber, Lyft also has het maps that define an area where there is more
demand. In case of high demand in a specific area, the cab company will charge a higher price.
This adds to Lyft's revenue model. The heat maps are specific location as well as time.

Lyft Plus (More seater vehicles)

Lyft has "Lyft Plus," which is basically a 7-seater vehicle, to give its customers another option
apart from the normal 5-seater cabs. Lyft Plus charges are higher than normal Lyft charges. Again,
Lyft earns 20 percent of each ride net over here.

Lyft Line (Discounted Rides)

Lyft was born from Zimride, initially a platform for ride sharing. Lyft initiated "Lyft Line" to
promote car sharing among people and provide an option for those who do not want to hire an
independent cab. As the name suggests, it allows a user to ride along a pre-specified route along
with others. It can be seen as an alternative to public transportation, but with Lyft's service.

Source of Value

Lyft has worked steadily to move beyond Uber's context and to recognize itself as an equally
reliable brand. The steps taken by the company aim to not only grow its business but also to
build a strong reputation that is not overshadowed by Uber. Some of the smart moves
implemented by Lyft are as follows:

o Lyft has partnered with Blue Cross Blue Shield Association (health insurance
organization) that allows its members to avail Lyft services without any cost to reduce the
number of missed non - emergency medical appointments in areas without optimal
transport alternatives to health care facilities.

o To improve the rider experience, many Lyft drivers have started adding simple
conveniences to their cars. Adding personal items to improve the comfort level of the
customers e.g. water, snacks, charging cables, and hand sanitizer

o Lyft also focuses on building a business that is more environmentally and socially
responsible. The company is positioning itself to expand into scooters, bicycles, and other
more environmentally friendly modes of transportation. The company of ridesharing is
also exploring the driverless car space.

o The app recommends locations that are more convenient for both riders and drivers.

o Lyft drivers are paid for every minute they wait for a rider after a one-minute grace
period.

o Adding features like Lyft Line service as “shared rides” to minimize the traffic situation

Future Valuation & Sustainability of the Model

As of 2018, Lyft has massively invested on growth, it has raised about $600 million in a series of
funding led by Fidelity Management & Research Company which has doubled its value to %15.1
billion. Lyft currently runs around 10 million rides a week, giving it a global market share of
around 10 percent based on the total number of rides (105 million rides a week, based on
Goldman's estimate of 15 million rides a day). Since Lyft operates only in the U.S. and Canada,
however, its revenue per ride is likely to be higher than the average, as revenue per ride in
emerging economies is likely to be lower.

Based on this, we assume that around 15 percent of gross revenues could be the global market
share of Lyft. The share of Lyft's revenue on each journey through its platform is around 20
percent. We expect that this number will remain steady over the next decade, and based on these
assumptions, by 2030 Lyft's net income could be around $8.5 billion. The company commands a
price / sales multiple of around 10.5X based on Lyft's latest $ 15.1 billion valuation. Lyft is not
yet profitable, but the company is reducing its losses and it could breakeven in the next 2 - 3
years with an increase in volumes and lower sales and marketing costs.

Lyft is continually innovating by adding new features to its mobile app that sets it apart from
Uber. It plans to connect with its customers by giving them a more comfortable sense of
transportation with an easy to use app interface. Moreover, it is winning over drivers through
flexibility and valued pay where according to a survey 76% of Lyft drivers were satisfied with
their job compared to 58% of Uber drivers.

While Lyft is rapidly increasing revenues, it is still not profitable. Reports suggest that in the
somewhat near term the company generates 20 percent in net revenue per ride, the company is
likely to go public. Lyft is currently operating only in the U.S. and Canada (as opposed to Uber's
wider global presence), indicating that it still has significant growth potential if it continues to
expand internationally.

Lyft ride is around $12.50, and we expect that this number will continue to be roughly stable.
Based on this average rate and our estimate of the total number of rides, Lyft's gross revenues in
2018 are expected to be around $7 billion. We assume that Lyft will generate around 20% of
gross revenue –with the remaining share going to the drivers –implying a net revenue of around
$1.5 billion. This implies a revenue growth figure of nearly 50%, which is impressive given the
high existing revenue base.
Uber was plagued by controversies and scandals in a challenging 2017, which is also reflected in
its growth and valuation of revenues. It remains the market leader, however, and a formidable
Lyft competitor. Still, Lyft has been able to significantly increase its market share in the U.S.
Strong growth in revenues and a path towards profitability will remain Lyft’s key valuation
drivers, and if it is able to deliver these in the coming years, the revenue multiple of 15x might
not look steep.