Lyft eases off price war post-IPO
Since going public in March, Lyft is now easing off its price-cut war with rival Uber, instead competing on “brand and experience."
The bottom line: As part of its Q2 earnings, the company revealed that its sales and marketing expenses for incentives — meaning ride "coupons" — have dropped by 40% from the first quarter. It’s also quietly raising some prices at the end of June to improve its margins.
- “More specifically, we began to adjust prices on select routes and in select cities based on costs and demand elasticities,” said finance chief Brian Roberts of the select fare increases. “We expect that these changes will accelerate Lyft's path to profitability, and further, we believe these price adjustments reflect an industry trend,” he added, hinting that we should expect Uber to be doing the same.
- Lyft's sales and marketing expenses as a percentage of revenue dropped from 29% in Q1 to 19% in Q2. Lyft expects this figure to hover around the same level for the rest of the year.
And while Lyft previously expected to generate its “peak losses” in 2019, its revised outlook for the rest of the year means it now believes its biggest losses were last year.
- It reduced its expected adjusted losses for the year by $300 million to between $850 million and $875 million.
The big picture: Lyft attempted to paint a picture of its “path to profitability” for investors on Thursday, emphasizing that it’s adjusting its margins by cutting costs, increasing revenue per active rider, and increasing more profitable rides like those to and from airports, in premium cars, for medical providers and corporate transportation.
Yes, but: Lyft is far from being out of the woods. It’s still much smaller than rival Uber and has very large losses.
- Despite growth in Lyft's bike and scooter business, that faces a slew of challenges as well, from technical defects to an expected decrease in ridership during the winter.