Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
We’re wrapping the week with Lime, scooters and the divergence between Uber and Lyft and their two-wheeled rivals. It’s been a hectic year for ride-hailing, but an even more turbulent time for the scooter unicorns that exploded into the venture capital scene in early 2018.
Scooter-focused startups were, at one point in time, among the hottest companies that money could chase. That’s no longer true. This week it was reported that at least one major player in the scooter world is pursuing a painful valuation cut so that it can raise the cash it needs to survive. Lime, according to The Information, may see its valuation fall to $400 million from $2.4 billion as it tries to “raise emergency funds.”
The scooter crisis has arrived as Uber and Lyft have come to something akin to a truce with public market investors, a feat that we’ve covered extensively. But perhaps most notable of all is the differing fortunes between Lime and friends, and Uber and Lyft. The two categories of on-demand transportation are diverging, and ironically, it’s the option that’s human-powered that appears set to come out in the best shape.
Let’s talk cash, profits, margins, and survival this morning as Uber and Lyft prepare to drive straight through the economic crisis, while scooters appear headed for a pothole at best.
A new bargain
Lyft and Uber went public in 2019, with Lyft’s debut going pretty well and Uber’s only working out so-so for the ride-hailing giant. But both raised lots of capital to fuel their continued growth, funds that they didn’t know at the time would come desperately in handy the very next year.
But before we can turn to 2020, let’s go back to October of 2019 when both Uber and Lyft told the public markets that profits were coming, and they had hard dates to share. Uber promised positive, full-year adjusted EBITDA in 2021. Lyft said that it would generate positive adjusted EBITDA in the final quarter of 2021. Those dates were very far off in late 2019, but were useful as grounding; Uber and Lyft had not forgotten their roadshow-era promises of future profitability and now their shareholders could set a clock.
Things improved again in early 2020 when Uber moved up its expected date for generating positive adjusted EBITDA. Forget full-year (i.e. aggregate) 2021, how about some super adjusted profit in Q4 2020? Its shares rose, as did Lyft’s own before its earnings report failed to change its profit expectations.
Then the world fell apart and folks stopped moving around. Lyft and Uber came under enormous pressure, as investors appeared to lose faith in their ability to not only generate profit, but survive. At one point, Lyft was off more than 80% from its 52-week highs, while Uber was down about 64% from the same levels.
As Uber and Lyft continue to melt, the 2019 unicorn class loses its shine
But here’s where Lyft and Uber diverge from their scooter cousins: they have since rebounded off their lows.
After Uber sat investors down and told them that it wasn’t going to run out of money no matter what happens in 2020, stress fell and shares rose. Uber and Lyft are now, ahead of earnings, up 105% apiece from their respective 52-week lows — all-time lows, as it happens — as of yesterday’s close.
Scooter losses
Lime, as we mentioned up top, is not doing well. And that might feel like a surprise. That’s because there’s been — and I am guilty of this, I emphatically concede — a habit amongst industry watcher of treating the various on-demand transit companies as a single industry; they are not. In fact, one of Uber’s biggest strengths at the moment is its ability to scale its cost structure with demand. Whereas, Lime and company have to physically move, store, refurbish, and more with their fleets, Uber isn’t so tied down.
And that means it can cut burn a bit more easily, reading between the line as we best we can, than scooter shops. Uber hit the point during its March 19 analyst call a few times, with its CEO saying that his company has “a highly variable cost structure,” and that it can “variabilize our cost structure and essentially scale up or down based on demand.”
Lime, down to a single market according to The Information, probably isn’t as nimble given its huge hardware supply. And unlike Uber and Lyft, it has spent cash not only on funding its own operating losses but on buying new hardware for the world. So, yes, Lime has raised nearly $800 million and could soon before worth just half that, but it has extensive capex to go along with its opex. Asset-light scooter businesses are not.
And that’s the distinction that we need to bear in mind; Lime’s issues are probably endemic to its micro-niche (free-range scooter companies), but less pertinent to other slices of the on-demand transit market, especially where the marketplace company (whomever’s name is on the app you launch) doesn’t take responsibility for hardware costs. Whether or not it’s moral for Uber and Lyft to externalize those costs is a different question.
Going back in time, we’ve seen how much money Lime and Bird spent on hardware. Recall when Bird wrote off $100 million in hardware? Building scooter empires at speed using substandard hardware was brutally costly, and now, it appears, openly questioned by the same investing class that paid for those early machines.
In closing, we’re seeing Uber and Lyft rebuild investor confidence by scaling costs in response to demand shocks while sitting on their billions in cash; Lime and its ilk, we presume, are struggling with high cash burn and demand shocks, but also with the fact that they spent lots of their capital on hardware that is now more cost center than revenue generating investment. Perhaps Lime would have made it if the world hadn’t run into COVID-19, but its model was shaky even before the current crisis.
More when Lime gets some more capital and we figure out at what cost.
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