> 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.
And very few can scale it to spend $0.50 to make $1.00. We aren't talking about a company selling a product for half what they pay. They are investing overwhelming amounts of money into growth.
> If this was their actual business model, they might actually be able to turn a buck.
Yes, just oversaturate the market with drivers and not enough passengers and you'll for sure make tons of money, constantly dealing with overages and shortages since you aren't managing supply in any way.
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.
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.