As anyone who has used them before knows, apps like Uber and Lyft just provide the technology and system for connecting drivers and passengers. They don’t operate any of the cars, and are simply taking a cut on transactions. It’s not that different of a business model than what many of the major hotel chains have, whereby they basically just manage hotels and take a cut of the revenue in fees.
It’s easy to assume that these companies are hugely profitable, given that in theory they aren’t especially capital-intensive.
While Uber is by far the largest, Lyft also has a good amount of market share, especially in the US. Unfortunately that doesn’t mean they’re anywhere close to turning a profit. They’re trying to raise $500 million in capital from investors, though the private fundraising documents which have been made public reveal a dire financial situation.
The company lost $127 million in the first half of 2015 on $46.7 million in revenue, according to private fundraising documents obtained by Bloomberg.
In the first half of 2015, Lyft spent $96.1 million on marketing. That’s more than twice Lyft’s net revenue during the same period. In one document, Lyft promotes its ability to attract new drivers and riders, even as it does so at a sizable loss. Customer discounts represent a big portion of Lyft’s marketing costs. This year, Lyft has also purchased billboards in New York’s Times Square and on Market Street in San Francisco, in addition to paying drivers big bonuses.
Wow, spending twice as much on advertising as their total revenue? That’s rough!
With Lyft not projected to be profitable in the foreseeable future, I’m curious how much longer investors will pour money into them. I certainly hope they stick around, if for no other reason than to give Uber some competition. We’ve long heard people suggest that Uber is only so cheap so they can price the competition out of the market, and it seems like that might not be too far off, as Lyft struggles to compete.