Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Lyft Makes No Money, is Rideshare profitable?

The financial numbers show Lyft makes no money, hence we must ask is rideshare profitable?

To elaborate, Lyft (NYSE: LYFT) went public with an operating loss of -$1.396 billion and a net loss of -$1.394 billion on 31 March 2019. Moreover, Lyft records a gross profit of $313.37 million on revenues of $776.03 million on the same day.

However, Lyft reports its revenue costs were $462.68 million, which shows its expenses exceed its profits. Not surprisingly, Lyft is burning through cash at an astonishing rate.

For instance, Lyft reports an operating cash flow of -$84.83 million, a financing cash flow of -$788.37 million, and no free cash flow. These numbers who Lyft is borrowing money to pay the bills, and perhaps borrowing money to meet its payroll with.

How Much is Lyft Worth?

Tellingly, Lyft’s operating loss exceeded the $1.38 billion in assets Lyft reported on 31 March 2019. However, Lyft did report $705.37 million in short-term assets on 31 March 2019.

Naturally, people will ask why was Lyft’s stock worth $54.95 a share on 17 May 2019. More importantly, we can ask what exactly are those people investing in?

I think people are investing in the theoretical value of Lyft’s platform and nothing else. Specifically, statistics like the 23 million Lyft users, Business of Apps estimated in January 2019 impress investors.  

Additionally, Business of Apps claims Lyft is available to 95% of the US population. Consequently, Lyft might have 29% to 35% of the American rideshare market.

Is Lyft Making Money?

Unfortunately, there is no evidence Lyft is making money. Nor is there any sign that Lyft can make money in the future.

In fact, the average Lyft driver earns between $364 and $377 a month, Business of Apps estimates. Thus like Lyft stockholders. Lyft drivers are probably losing money on their investment.

To explain, the $377 will barely cover gas and insurance for a decent vehicle. If the Lyft driver makes a car payment he or she is losing money.

Lyft Customers Do no Have that Much Money

Moreover, Lyft customers may not have that much money. For instance, Business of Apps estimates 44% of Lyft rides end or start in low-income areas.

In addition, the average Lyft riders’ income is $50,000 a year. In contrast, the US Median Household Income in 2017 was $60,336 a year, Department of Numbers estimates.

Consequently, the popular stereotype of the affluent upper-class rideshare user could be a myth. Instead, a large percentage or potentially a majority of rideshare users are people who are too poor to own, or rent a car.

For example, a person who can reach most of the places he needs to go on foot or mass transit. However, that person occasionally uses Uber (NASDAQ: UBER) or Lyft for shopping or trips to see his mother out in the suburbs.

How Car Rentals can Kill Uber and Lyft

Notably, when I lived in Denver without a car, in the pre-Uber era, I found shopping to be biggest hassle. I could get almost everywhere I needed to go on foot, light rail, or the bus. However, buying anything heavy was a challenge.

In addition, I found short-term car rental, Zipcar competitor Occasional Car (now Enterprise Car Share), far more convenient than Denver’s horrendous cab service. Therefore, I think widespread use of short-term car rentals will be far more lucrative and popular than Lyft and Uber at some point.

For example, Zipcar; which Avis-Budget Group NASDAQ: CAR) owns, does not have to pay a driver. In addition, Zipcar avoids the risk of hiring drivers who might be crazy, violent, psychotic, racist, sexist, or just plain obnoxious by having no driver.

Instead, Zipcar and Enterprise Car Share park vehicles at public lots where customers pick them. To explain, Zipcar and Enterprise Car Share give customers a wireless device and an online account. The online account bills you for short-term car rental; for instance a run to Costco, and the wireless devices opens the car.

Thus, the biggest risk Avis-Budget and Enterprise take is leaving vehicles out unattended. However, technology could soon solve that.

How Self-Driving Cars Could Kill Uber and Lyft

To explain, an autonomous short-term rental vehicle could drive itself to you when you need it. Thus, the self-driving rental could sit at the Avis-Budget, Enterprise, or Hertz (NYSE: HRI) lot until somebody needs it.

Moreover, self-driving rentals could prowl the streets of our cities looking for passengers. However, I think it will be car-rental companies, car dealers, automakers, and Alphabet (NASDAQ: GOOGL) that will profit from this technology.

To explain, Avis-Budget; AutoNation (NYSE: AN), and Fiat-Chrysler (NYSE: FCAU), are partnering with Alphabet’s autonomous vehicle subsidiary Waymo. For example, Avis-Budget is servicing Waymo’s Fiat Chrysler Pacifica minivans in Phoenix, Bloomberg reports.

Autonomous Vehicles are the future not Rideshare

Therefore, I think Alphabet is laying the groundwork for an autonomous car network nationwide. I think, such an autonomous vehicle platform could make money and drive Uber and Lyft out of business.

Moreover, other automakers like BMW, Ford (NYSE: F), and General Motors (NYSE: GM) are planning autonomous vehicle platforms of their own. In fact, BMW is testing its a short-term rental service it calls Reach Now in some American cities.

I think there are several ways companies could make money from autonomous vehicles. These ways include short-term rentals, commercial customers, and advertising.

How Autonomous Vehicles could Make Money 

For instance, the short-term rental could have signs on it that the owner rents for advertising. In addition, commercial customers could use short-term rentals.

For example, Walmart (NYSE: WMT) or Aldi could use the short-term rental to haul its customers to stores, or groceries to customers. Plus, a bar could hire a short-term rental to haul drunken customers home.

Thus, General Motors’ Maven, Reach Now, or Waymo could tap several sources of revenue. Interestingly, Lyft is even working with Waymo in Phoenix by offering Waymo’s Waymo One rideshring service through its app, The Verge reports.

Thus, autonomous vehicles could make rideshare profitable by eliminating the driver’s need to provide a vehicle. Instead, Fiat Chrysler, GM, Ford, BMW, or Enterprise will provide the vehicle. Consequently, all the Lyft or Waymo “driver” will need to do is carry the rider’s bags.

Uber and Lyft will Collapse

Under these circumstances, I do not believe neither Lyft (NYSE: LYFT) nor Uber (NASDAQ: UBER) will make money from their current businesses.

In fact, I think both rideshare companies will eventually run out of money and collapse. However, Uber and Lyft’s app and platforms will survive as part of Waymo or a carmaker.

Thus, all investors need to stay far away from both Uber and Lyft. I think those stocks will never make money.

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