In 2018, Lyft co-founders Logan Green and John Zimmer gathered employees in the cafeteria at the company’s San Francisco headquarters for a staff meeting. There, they explained that they were spending $250 million to buy Motivate, the owner of the CitiBike bike-sharing program in New York.
But the employees expected more. For years, Lyft had been battling Uber, its much bigger ride-sharing competitor, which had expanded into food delivery and announced entry into dozens of countries. Lyft workers were clamoring for him to make an ambitious move. Some expected executives to announce Lyft’s global expansion, said two former senior employees, speaking on condition of anonymity.
It didn’t happen. The bike-sharing deal is an example of what analysts and three current and former employees say is an overly cautious business strategy that has dogged Lyft since its inception. The company’s decision not to deliver food or offer rides outside of North America proved costly as it recovered from the pandemic, giving Uber a firm lead that raised questions about Lyft’s future.
Last week, in financial results for the final three months of 2022, Lyft warned it would be hampered by economic challenges, spooking Wall Street and sending its share price tumbling nearly 40 percent, matching a low of $10 a share, before recovering slightly this week. The company is now valued at $4.2 billion, up from $22 billion at its peak.
Lyft reported record revenue of $1.2 billion in its most recent quarter, as well as $588 million in losses. But it has yet to prove it can become a profitable business, and its recent financial troubles have sparked speculation that it could be a takeover target.
“I just looked up ‘debacle’ in the dictionary and there’s a Lyft tag,” said Dan Ives, a senior equity analyst at Wedbush Securities. Mr Ives said Lyft’s failure to invest in food delivery was a “big strategic mistake”, as was remaining a national brand. He added that the financial incentives Lyft offered to lure drivers back to its platform when the pandemic subsided in 2021 “weren’t as aggressive” as Uber’s.
Inside the world of big technology
Lyft said its acquisition of Motivate was part of a so-called micromobility strategy, and that since 2018, more than 2 million people had taken a bike or scooter ride using the app. In a statement, the company said it remained confident in its overall business.
“There is a clear opportunity to take advantage of the market, as driver supply and rideshare demand is the highest it has been in nearly three years,” said Lyft spokesman Eric Smith.
Uber, which is valued at $71 billion, has said it expects to achieve profitability on operating income sometime this year, signaling to investors that its business is going strong. The company said it had more drivers on its ride-sharing platform around the world in its most recent quarter than ever before. Uber declined to comment on Lyft’s performance.
Uber has made some shrewd, or lucky, bets. It started delivering food in 2014 and faced skepticism about whether that service would ever take off. Then, when pandemic restrictions forced people to stay indoors, both companies’ transportation businesses shut down virtually overnight. Lyft had few alternatives, but Uber drivers found they could still earn some money through the app’s delivery service as food orders skyrocketed.
When people started traveling again in 2021, demand for rides skyrocketed again, but drivers were slow to get back on ride-sharing apps. Initially, both companies struggled to meet passenger demand. But Uber bounced back faster, both because of its delivery business and because it quickly invested $250 million in incentives to convince drivers to come back. Lyft spent less money on incentives and offered them later than Uber. Their supply problems persisted.
Lyft said Monday that it considered offering food delivery services during the early days of the pandemic, but that it determined there was less overlap between drivers carrying passengers and those wanting to deliver food than it expected. The company introduced a pilot program, Lyft Delivery, that allowed drivers to pick up and deliver essential supplies and products to businesses in April 2020, before canceling the program last month, according to an email seen by The New York Times.
Drivers have finally returned to Lyft in large numbers. The company said on Tuesday that the growth in the number of drivers on its platform from December to January was higher than any other monthly period since 2019.
Still, over the past six months, Lyft paid drivers an average of 19 percent less in base hourly wage than Uber, and Lyft drivers drove about six fewer hours per month than Uber drivers, according to Gridwise. , an app that helps drivers track their earnings.
Uber has also aggressively expanded into more than 70 countries. It has clashed with foreign transit services and made mistakes, but its larger scale has cushioned the financial blow of the pandemic. Lyft, which carries passengers only in the United States and Canada, said it had been hit by a slow return to rides in West Coast cities.
Before the pandemic, Lyft spent years examining whether to enter other countries, sending executives to Australia, Europe and elsewhere, before deciding it was too expensive, two former employees said. Even his entry into Canada has stalled, though Lyft said he was planning further expansion there.
Lyft said its caution was prudent, as the pandemic halted rides shortly after the company was allowed to enter international markets.
Mr. Green, Lyft’s CEO, and Mr. Zimmer, the company’s president, teamed up on how Lyft could be an alternative to inefficient public transportation and reduce the need to own a car. Both men continue to emphasize that vision in internal meetings, according to four current and former employees. But some have questioned whether his determination is hampering Lyft’s ability to expand into other businesses or markets.
Three of those employees say Lyft executives have also backed away from important decisions. When the challenges of making a living as a concert driver became a hot topic in 2018, for example, Lyft brought together dozens of employees to study the problem.
Mr. Green and Mr. Zimmer were presented with options to improve the driver experience and talking points to refute exaggerated claims. But they were slow to respond to suggestions or implement changes, two former senior employees said.
In its financial results last week, Lyft’s projections for the current quarter were well below investor estimates. The company said it expected to earn $975 million in revenue and $5 million to $15 million in adjusted earnings, a figure that excludes costs such as taxes and interest. Investors had projected that Lyft would earn $1.09 billion in revenue and $82 million in adjusted earnings.
“Obviously, this is not the level of growth or profitability that we are looking for or capable of,” Green said on the earnings call.
Lyft said the lower numbers were partly due to cutting prices, which it did to stay competitive. The high prices were pushing riders to Uber or other modes of transportation, and the company said the lower prices would benefit it in the future.
Employees have worried for months about Lyft’s underperforming stock, and some were even more alarmed by the recent drop, two current employees said.
Some analysts have said Lyft should merge with another concert company, like DoorDash, or be bought by a private equity firm. But broader economic challenges, combined with the volatility of Lyft’s shares and the fact that it’s unprofitable, would make a deal difficult.
Some investors are waiting to see what changes Lyft makes this year before they hit the panic button. Executives said on the earnings call they were considering more cost-cutting measures, after laying off 13 percent of the company’s employees in the fall.
“We are neutral at the moment, they have work to do,” said John Blackledge, an analyst at investment bank Cowen.
lauren hirsch contributed reporting.
