Lyft Gets a Bump After Co-Founders Expect Profits a Year Early

Oct 22
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Lyft (NASDAQ:LYFT) popped 10% today before sliding back down to end the day up about 6.5%.  The reason the company saw this boost today is that The Wall Street Journal reported today the company co-founders are expecting to reach profitability a year earlier than previously anticipated. The co-founders estimated that Lyft will be able to reach this profitability on an adjusted EBITDA basis in the fourth quarter of 2021. EBITDA for those new to the concept is earnings before interest, tax, depreciation, and amortization. These are the key components reported by a company to show earnings and expenses.  Speaking in an interview Tuesday at WSJ Tech Live conference Zimmer said, “We have in the bank over $3 billion, we have a clear path to profitability and the team is executing well. We need to build trust with a new class of investors and with two quarters beating expectations, we’re excited for the next few quarters.” Uber (NASDAQ:UBER) also received a bump today on the news.

This is great news for the shareholders in the company but other problems may derail this sentiment as Lyft fights California over AB5 which is an attempt to reclassify their independent drivers as employees for the purposes of taxes, benefits, and hourly compensation. Contributing to these problems are reports coming out from Jalopnik stating that drivers recently faced a mandatory app update that removed from the drivers the ability to see the rate that customers are paying from the drivers.  This may be an argument in California’s favor that the drivers by being denied access to this information are correct in classifying the drivers as employees. By obfuscating the ability of the drivers to see the rates paid by the riders the company may be able to charge the customer surge pricing while not paying a commensurate increase to the drivers during peak demand, thus pocketing the profits. 

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Others may argue that it is not really a requirement for the company to provide this information to the driver since the driver is being compensated to complete a ride and is offered an amount to either accept or reject the service.  This is true but it fails to also recognize that the drivers need to have a certain percentage of acceptance of rides to maintain eligibility with the services. However, the problem that Lyft claims to be fixing with this problem was that “Drivers have said that it’s hard to track how they earn with Lyft so we created a clearer and more comprehensive breakdown of their earnings with the weekly pay statement,” Jalopnik was told in an email from a Lyft spokesperson. This continues the trend of Lyft and Uber breaking up the relationship between what the rider pays and what the driver earns.  Previously, I suggested, that these companies should go in the opposite direction and allow the drivers to set their own rates and the ridesharing apps should charge a matchmaking fee in the form of a percentage of the driver’s fee. Also, the riders could put up jobs for rides on the app with their offer for what they would pay for the ride.

So, while this is good news in the short term I would caution that now it is time to show the results.  Anyone can just say that they are expecting to see better results but it is unclear if the pair of co-founders are taking into account the legislation and regulations that are coming down on them by hostile governments, especially if California is successful in its challenges and other States decide they want a piece of the rideshare pie coming into their treasuries. 

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