Lyft, Inc. (LYFT) Earnings Call Transcript

All right. We're going to go ahead and get started. My name is Doug Anmuth. I'm the Internet analyst at JPMorgan. So first, safe harbor. David might make forward-looking statements about Lyft, which are subject to risks described in Lyft's SEC filings. You may also discuss certain non-GAAP financial measures and historical reconciliations are available on their IR website. It's our pleasure to have with us Lyft's new CEO, David Risher in his first conference appearance. David became CEO just last month, but he's been on the Board for nearly 2 years. David cofounded Worldreader, a nonprofit organization, where he served as CEO since 2009 Prior to Worldreader. David served as SVP of U.S. Retail at Amazon. And prior to that, I was a General Manager at Microsoft. So welcome, David.

Thank you, Doug. It's good to be here, and thanks for having us.

So let's see, starting off, you've been on Lyft board for almost 2 years.

Yes.

What made you want to become CEO and how you leverage your background and your skill set to strengthen the business?

Sure. Yes, good questions. So you're right. I have been on the Board for 2 years. Look, being a Board member is very different from being a CEO, right? The thing they say about Boards is kind of nose is in, hands off, right? I'm an operator. I love to build things. And I built Microsoft Access from 0% share to 80% share, built Amazon from a $16 million -- well, a $15.6 million book store to a $4 billion everything store by the time I left. Built Worldreader to get 21 million kids reading. So I really like building. And I particularly like building things that have a huge impact on customers. And Lyft has doubled the customers. What I mean by that is we have riders and we have drivers. And so figuring out how to make that ecosystem strong and figuring out how to make this marketplace a strong 2-player market, just super appealing to me. So here I am.

Okay. Great. So where have you been focusing your time over the past 6 weeks or so? What are your top priorities for Lyft?

Yes. So a couple of things, and I'll sort of take the in a certain order. The first thing -- again, this is a 2-player marketplace, right? And here I'm talking about Uber and Lyft. Drivers want that, riders want that. And so -- and in fact, riders really want it. Like I sometimes say, don't call me, David Risher, call me, David 2 apps. They had 2 apps. I want 2 apps on every single phone, right? Because that's a good starting point for us, at least. So in order to get to sort of 2 apps, you got to do some basics well. So the first order of business was making sure we were priced competitively for a time we had gotten a little bit, I think, off strategy, if I'm honest, about pricing. But now we're on strategy, we're pricing in line with the market. What that starts to do is it starts to move certainly among people who compare both apps, it starts to move share in our direction, right? Because we've been a little bit uncompetitive now we're fully competitive. And you can see the data. So when we started this, we actually started it when I was on the Board, and then I've accelerated it as CEO, moving to price parity, which means basically we've picked up anywhere from 3 to 5 to 10 to 15 points a share, depending on the market. But let's just broadly say, we went from the high 20s to the low 30s. So that's step one, good execution. Step 2 is make sure that you can pay for it, right? And you sort of have to do these at the same time. So you saw we took about $330 million of cost out. That was obviously a big emotional as well as physical act to get that done. But we're now at a point where we're -- our cost structure is rightsized, which means we can afford these investments in pricing and driver pay. The third piece, after you do that, after we did that, is we have to start some awareness because what's happened to a certain extent is we've fallen off of people's consideration set a little bit. We've been a little too quiet for too long. And so that's step 3. Now the good news about awareness in 2023 is you don't have to do Super Bowl ads, right? You don't have to do jumbotrons at Times Square. You just have to get out there. And so we're getting out there on TikTok and doing some other things that are very low cost, but they remind people that we exist. And the result of all those things so far has been not only a share shift in the aggregate of some points, but significantly in some markets, 50%, we're about 50-50 in Portland, Oregon. We're about 50-50 in Phoenix, Arizona, fifth largest city in the United States. So anyway kind of getting there. So that's number three. Fourth thing, and in a sense, I should have started with this, but I'll -- anyway, you can only say so many things is ride people on the bus. So as anyone here read Jim Collins book, Good to Great. Remember that it's sort of a classic at this point. I mean his whole point is leadership matters and he has a whole framework around it. But if you don't have the right people on the bus, you can't get anything done. So you saw we've made some changes. We'll have some others that were -- that are kind of coming, I can speak actually openly, we haven't had a Chief Marketing Officer for a long time. And in a product category where you've got something that looks to some customers, at least like kind of a commodity, you better have great marketing around that. So again, I'm not talking about Super Bowl ads, but someone who's really smart, particularly about loyalty marketing. So that's kind of the fourth thing is execute well, get your costs in order, start to drive a little awareness, ride people on the bus. And then it's all about differentiation. Continued strong execution, but then differentiation, and that's kind of what's next.

All right. Good segue. It's literally my next question. This has been a space where it feels like historically, the attempts to differentiate, get copied very quickly. And so how do you actually differentiate in this 2-player market?

Yes. So a couple of things there. I mean, first, I think you're right to point that out. And this is going to be a competitive marketplace, right? There's going to be one guy goes and the other guy goes, there will be some of that, no question. But then at the same time. It's a big market. And so there are areas where people can grow strength. And here, I'm not just talking geographically, I actually don't think that's a very interesting dimension. But for example, you can look at something we've already done as an example of what we want to do in the future. Something we've already done is we've differentiated ourselves for price compares. So some percentage of people every day, well, we move this a little away because I get a little bounce back. Some people every day, they check both apps, right? And they're looking for a good deal, right? And everybody likes a deal, some people like more than others. And so we have to have a product that's aimed at them. So we have a product called Wait & Save. Uber has a product called Shared, or Pooled actually. It's actually kind of a copy of what we did, speaking of copying, they kind of copied us on that one. But I'm okay with that. In this case, because I think they copied the wrong thing. In other words, they copied a feature that asks you basically, "Here, we'll do a little experiment, okay? So I haven't done this before, give me feedback on whether works." So danger, danger. I remember doing this thing with Bill Gates one's a demo on the stage, it went very poorly. Anyway, we're going to shy it anyway. Okay. So everyone close your eyes for a second, literally close your eyes. And imagine you're getting into a rideshare. Imagine you're getting into Uber, it's painful, but let's just do that. So you're getting into an Uber and you know where you want to go and you start that direction. And now all of a sudden, your car takes a weird left and then another weird left. And then right, and you're like, gosh, this doesn't feel right to me. What's going on? And the answer is what's going on, you can open your eyes now. It's shared rides, but feel your anxiety rising at that moment, right? That's what happens with customers and drivers. So we've taken a very simple product, Wait & Save and really are starting to get behind it. It represents about 30% of our volume, whereas Shared never got anywhere close to that. We'll see who wins this one? I like our chances. But at the end of the day, I think you'll start to see more of that, more areas where we look at the same segment and we just come up with different approaches, and we'll kind of see which works.

When you think about market share, you talked about kind of over the last 10 weeks and potentially moving kind of high 20s to low 30s, which you believe has happened. How do you think about where share can go over time? And how much is, let's say, catch-up low-hanging fruit, which seems like the variety that you've talked about already versus the product improvement and real execution.

Yes. So a couple of things to say there. I think you're right to characterize what we're doing now is kind of picking that low-hanging fruit and then telling more people about it because right now, we're in kind of a funny situation. And I sometimes say this, first, you have to do the right thing, then you do it right. So the right thing was for us to match on price. But what is doing it right look like? It starts to look like, okay, can we optimize that a little bit? Can we start to market a little bit? Because right now, everybody is getting the benefit of lower price, every customer, but not everybody even knows it yet. They don't even know to check us anymore. In fact, as they say, 2 apps, like I want 2 apps on every phone, a lot of people don't have that. So that's kind of the next stage. Just how do you start to drive some awareness among people who may be and the nice thing here is you people learn what they already kind of know, right? So they kind of know that Lyft is a good company. If you ask drivers, in particular, often they'll say they have a preference for Lyft because our values are better aligned, we treat them better and so on and so forth. But we've got to do some things to reinforce all that for drivers and riders. So that's kind of the next step. And then over time, I wouldn't just think of it as taking share one or the other. I think of share as a lagging indicator because it just shows that you're doing the right thing for your riders and drivers. The way I think about it next is, okay, now we've rebalanced share a little bit. Now can we actually start to really grow this category? And I really do think we can. I think there are a number of -- if you think about the number of times people take rideshare a month, you're talking about 4, 5, 6 times. That's a small number compared to the number of times you exit-enter your house every day. Go to work, come back; go for drink, come back; go to restaurant, come back; play soccer game, come back; have your parents take a Lyft because we don't want them to driving anymore, come back. So I think there's a lot of frequency work we can do in the future beyond just the share shift side.

Okay. How do you think about the percentage of riders that have brand loyalty today versus those that are using the 2 apps and literally doing price comparison for every ride. How do you kind of size that opportunity?

Yes. So let's -- a couple of questions there. The first thing I'll say is -- and this might sound like a strange thing to say. I actually don't think either a company, Uber or Lyft has super deep brand loyalty. I don't find a lot of people when I ask them about Uber in particular, and I'm not just casting shade, but like when they say, "Oh, I take Ubers." I'm like, "Oh, cool, like do you like that?" And they're like, Eh, it's what I use. It's what I'm kind of used to. So, Eh, it's not really a very strong consumer bond. And I would say, again, our data shows this that just on a brand basis, more people tend to have positive things to say about Lyft. It doesn't mean they always like us, long pickup, maybe a high price in the past or whatever, but on a brand level. So the short answer to your question, I think, is it's kind of open, it's kind of open. And while the price shopping back and forth right now happens a lot, a lot meaning, call it, 1/3 to 40% I'm making that number up, but it's sort of like that. Those are people who are always away. That tends to go down over time as your prices equalize because it's a waste of your time. Why do it? If you know you -- the only time you do it is when you think this is weird. Why does this $50 right, all of a sudden, $100 to go to the airport. And the answer is, oh, it's Boston Marathon. You know what meant like. So once you take price off the table, then you get to compete on all sorts of other things. And that's really where we're trying to shift the conversation.

Okay. Let's go back to Wait & Save and the closed eyes example. So you quickly made the decision to exit shared rides, focus on Wait & Save. You talked already a little bit about the thought process there, but just help us understand more how it's better. We kind of got the rider side, how it's better for drivers. And then how do we think about the economics of that business relative to more traditional rides?

Yes. So those are -- it's a great question. And I think it's important, as you say, Doug, to consider any change you make, what's the impact on riders but also on drivers. Drivers love it. Why do drivers love it because it keeps moving. So Wait & Save is particularly interesting when we have oversupply of drivers, right? Because then it's all about capacity utilization. It's just like an airplane. Like a plane sitting on the ground is making no money. The drivers sitting this car waiting for a fair is making no money. So Wait & Save gives us a tool that helps us do some load balancing because we can tune up the volume when we need it, we can turn it down a little bit when we don't. Now, yes, so full stop there. Where does it go from here on an economic basis? We've got room. Let's just put it that way. Right now, we're not making a lot of money on Wait & Save, to be honest. But we can. We can. We've just gotten started on trying to opt again, do the right thing first and then optimize it. We can do a lot there to drive margin.

Okay. And then maybe let's go to the other end, high end. You also pretty quickly decided to exit Lux and actually focus on Preferred and Black. And maybe it doesn't get discussed quite as much, maybe just less volume. But what's the difference really there? And why is that better for you?

Yes. Yes. Again, a really good question. So I think it speaks to a general principle, which is it's like having a good, better, best strategy is a great strategy. From a retailer perspective -- I mean, I'm a retailer from my Amazon days for many, many years. It's really nice to have a low, medium and high. Sometimes it's nice to have a high. This is a little bit of a sign, but just since you asked the question, to make the medium look even more valuable. This is true anytime go buy an appliance someday go to whatever. Actual physical store and try to buy yourself a dishwasher. And you will be surprised at a $1,500 dishwasher and how extraordinary that is, which tells a kind of crazy thing is lights inside, the door that opens out. And then you'll see the $999 dishwasher, and you'll be like, this is an awesome deal. And that's the point. That's the point. And so anyway -- so I'm not saying that's our point with Lux I'm just kind of making a separate side point. The point at the top is we had too many options, just full stop. We had Lux, we have XL, we've got Black, we got Preferred, we've got Black XL. We got -- I don't know, Extra Lux. I don't even know the difference of these things and my jobs know their difference. So part of the point there is to reduce the number of options you've all read, Barry Schwartz's, The Paradox of Choice. Too little choice, not good. Too much choice, not good. And if you can focus, you can really drive in a strong way. So we're going to be super strong at that kind of high end, but we're going to do it with, let's say, 2 choices instead of 4, and we'll be better for it and so are customers.

Okay. You hosted a Summer Travel Release recently, and you announced the new airport pickup experience. You've kind of -- I think you've used the word magic, to describe it a little bit. Can you just talk about that and how that's going to work, what your expectations are there?

Yes. It's, I think, a really nice example of a customer-focused innovation that can drive differentiation and just joy. So the feature works like this. We just launched it 2 weeks ago in New York, where I saw you last. So Doug and I now get to each other for a couple of weeks. A little bonus.

I'll hold you to it.

Yes. Well, we'll see anyway. So anyway -- and here's how it works. If you're playing lands in today, 3 airports, Midway, O'Hare, LAX, the day after tomorrow, actually, today, we're actually ramping this up more, Seattle, Austin and JFK. Austin, Texas and JFK, so those 6. As soon as your plan touches down and you hear that magical like moment where the flight attendant says, you can use your phone, if it's within arm's range and every single person turns their phone on. Now at that point, if you open the Lyft app in one of these 6 markets and you answer 1 question, do you have luggage or not? We do the rest. And what that means is, as you're walking through the airport, we're able to follow that movement and we're able to see where our cars are such that the goal is, as you get to the curb, your car is pulling up. That's the experience. And that's the magic. And it does feel like magic, it's like, "oh my God, like look at that." Three minutes is our goal, so you might have to wait up to 3 minutes, anything more than that is unacceptable. Why did we do it? We did it because think about those moments from the time you're plane touches down at that second until it's like -- it's almost like a quantum leap. Until that, you're like, "Okay, when are we going to get there whatever finished up my TV watching whatever it is." As soon as that plane touches down, you're all about get me out of the airport, get me out of the airport, get me off the plane, right? People stand in front of me, it's annoying, get me down the jet way, it's annoying, give me to baggage claim as my bags right, like it's high stress and all I want to do is get out of there. And so our focus is on making that experience magical. Uber did something, too. They launched a couple of months ago Airport Maps. To me, great service, by the way, we have airport maps too, but that's not really the point. The point is get you out of the airport. And so that's the thing. And I will point out, I don't know if any of you guys saw the same sign I did yesterday. It may be light up with the fiery range. in Logan Airport. There was a blue Uber sticker. Does anyone see this thing?

Yes.

You did. Okay. I hope nobody else did. But anyway, some people probably walked over without me looking down..

Took a taxi actually, fair disclosure.

Fair enough. We'll work on it. But anyway, that's cool. But here's the thing. By the time you see that sign or don't see it, which I prefer, you've already made the decision is sort of the thing. So from a business perspective, it's good. From a customer's perspective, it's good; from a driver's perspective, it's good. They don't want to sit for 5 minutes waiting for you to pick up your baggage. So good, good and good. And that's an example, I think, of how we're going to continue to innovate.

So we've talked about a lot of product changes, a little more focused on riders. Maybe you can shift a little more to the driver side. Clearly, 2 customer bases, both very important. You need to have that balance between the two. What are some of the improvements that you have made or that you're thinking more about on the driver side?

Yes. So again, I really like the question and because the premise, I think, is so important, and I think it's so easy to overlook. Every single ride has 2 people in that car. And that means they both matter. Equally, equally, not like this, but this. Drivers have to feel -- okay. Step back for just 30 seconds. Why do drivers like driving for rideshare? Number one, it gives them control over their time and their money. And that's not to be taken for granted. So let's think about what that means. On the time side. I got -- my brother-in-law's birthday parties coming up in 2 weeks. I could either; a, ask my boss for time off or; b, just not turn the app on. Which do you like better? You like just not turning the app on. My daughter is graduating in a year. I want to get a little extra money so that I can pay for a nice graduation party. What do I do? I just drive a little bit more. In fact, one of my Lyft drivers not so long ago, said, one of the things I love about driving for Lyft is, I know I will never go broke. So I start there, let's zoom out just a touch. If you think about drivers, almost like you might think of a small franchise owner, Think about this for a second as a mental model, not just a guy driving your car. But a person who's driving like a little subway franchise around who has certain requirements, signage, this, that, the other thing and certain flexibility. How long do I want to drive, so force and so on and so on. We need to support that driver so that he or she could be successful. Otherwise, we don't have a -- we got nothing. So then what are we going to do? Well, you will see later in this -- I give you an example of something we've already done is something we're going to do. What we've already done is introduced upfront pay. So up until the end of last year, 2022, if you accepted a fair, you had no idea whether it was going to be for $5 or for $50. Now you do. Now you do. You get a prediction. So we've -- for a long time, we've said you can expect on average, let's say, in San Francisco on weekends to make $26 an hour. Great solid, good to know. Second of all, if you now down to the fair level, if you accept this fare, you'll make $12 or $8 or $15 or whatever it is. And we show you exactly how much you're going to make. It's a game changer. I will tell you, it comes with its challenges, right? Because now some people reject certain types of rides that they might have accepted in the past. And so then you have to operationalize it and get smart about it, which is what we're doing. But it gives drivers more control, which they absolutely love. And so we'll be doing more of that in the future. So over the summer, we're putting together -- I want to say the finishing touches, I'll say the medium touches, let's say, as we get close to the finish line about what the big next driver release is going to be that give drivers, in particular, more visibility and control into their earnings.

Okay. Great. we've seen programs like Dash Pass and Uber One. They've had success in the market, Lyft Pink appears further behind. What's your view on subscription programs overall, how material is Pink to Lyft?

Yes. So here's I'll say about that. So first of all, Pink riders were people who subscribe to Pink right now massively over-indexed on use of Lyft, massively. And I mean I'll just put a promotion out there for it. Like if you like, faster pickup, so we call it priority pickup, get Pink, like right now, just sign up for it. It's amazing. Because instead of whatever $28 versus $37 or $42 for a pickup, it's like $1. It's like so small, I don't even -- you barely even noticed it. I'm kind of like these 2 different things are not as confusing, but anyway, we'll work on it. The point is it's a great value for a faster pickup. Also, it is another little promotion. If you are a bike rider and Lyft runs the bike network in your city, get Pink, because why? Electric bikes are basically almost free. Standard bikes or toll free electric bikes are almost it cost you a couple of bucks, a great product. Now we have a lot to do there. We have a lot to do because as though, I think we're off to a good start, and I like the trajectory of the curve, I don't think the value is strong enough for enough customers. And let me say it a little bit more precisely. There's a difference between a membership program where typically you pay upfront. Everyone knows Amazon Prime or Amazon Prime, that's an obvious example. And then there are loyalty programs. many people like Sephora, loyalty program, for example, or Starbucks has loyalty program, for example. And frequent fire miles obviously pave the way for it. Personally, I'm a little more interested in the loyalty side than the membership side. Because I think it drives behaviors in the right way. After a person takes Lyft once, I want them to take it again and again and again and again. And that's what loyalty programs do and loyalty more broadly. Membership programs, they do that, but kind of in a way that charges you for it, obviously. And I'm not sure I like that as much.

Okay. So you're taking out -- you've already made a lot of cost cuts clearly. But really since you've been in there -- you've announced an additional $330 million in cost coming out to help really offset the move to market level pricing and some other investments. How do you get confidence that that's enough to be truly competitive, but also allow you to invest in growth going forward?