Q2 2021 Lyft Inc Earnings Call
Good afternoon, and welcome to day, Lyft second quarter 2021 earnings call.
At this time all participants are in a listen only mode to prevent any background noise later, and we will conduct a question and answer session and instructions will be given at that time, if anyone should require operator assistance. Please press star then zero on your Touchtone telephone as a reminder, this.
Conference call is being recorded.
I would now like to turn the conference over to Sonya Banerjee head of Investor Relations you may begin thank.
Thank you and welcome to the Lyft earnings call for the quarter ended June 30th 2020, 1 joining me today to discuss Lyft results and key business initiatives on our co founder and CEO Logan Green co founder and President and John Zimmer and Chief Financial Officer, Brian Roberts, a recording of this conference call will be available on our Investor Relations website.
At Investor adopt Lyft Dot com shortly after this call has on debt.
I'd like to take this opportunity to remind you that during the call. We will be making forward looking statements include statements relating to the expected impact of the continuing COVID-19 pandemic the performance of our business future financial results and guidance strategy long term growth and overall future prospects. We will also make statements regarding regulatory matters.
Statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call and in particular those described in our risk factors included in our form 10-Q for the first quarter of 2021 filed on May 6.2021, and our form 10-Q for the second quarter of 2021.
And that will be filed by August 9.2021, as long as the current uncertainty and unpredictability and our business the markets and economy you.
And you should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on assumptions and beliefs as of the date hereof and Lyft disclaims any obligation to update any forward looking statements, except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered and and.
Dishes to and not as a substitute for or in isolation from our GAAP results information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC and May also be found on our Investor Relations website.
I'd now like to turn the conference call over to Lyft co founder and Chief Executive Officer, Logan Green Logan.
Thanks, Tonya and good afternoon, everyone and thank you for joining our call today I'm excited to discuss our Q2 results we had a great quarter.
And our outlook across every metric and we have growing momentum.
This quarter, we crossed the milestone that we've had our sights on for quite some time.
Since our inception, we've worked hard to defy the odds with a deep belief and our mission.
Consistently innovated and made big bets from launching and scaling peer to peer transportation to pioneer and shared rides to becoming the largest north American nitrogen operator to navigating regulatory hurdles and more and built a strong track record.
Today, we add achieving adjusted EBITDA profitability to this list.
Wanted to extend a special thanks to each and every member of the Lyft community.
Your hard work and dedication made this possible, it's a significant milestone for our business and for our industry.
Ridesharing is now so mainstream that it's easy to lose sight of how much has changed.
Less than 10 years ago peer to peer Roger and didn't exist, let's launch and in 2012 and it took a year to reach 1 million rights.
Now, we facilitate hundreds of millions of rides every year.
Think about how far we've come and how much the team has accomplished I'm incredibly proud.
And the fall of 2019, we announced our plan to reach adjusted EBITDA profitability in Q4 of 2021.
This was an ambitious target and we had our work cut out.
For context, and the quarter, we announced this commitment we had and adjusted EBITDA loss of around $130 million and for the prior fiscal year. The loss was close to $1 billion.
And then a once in a century global pandemic hit that literally halted travel and at the same time proposition 22 was playing out in California, 1 of our largest markets.
It's hard to imagine a more challenging backdrop.
But the team rallied together, we assessed every aspect of our business and rebuilt stronger.
Innovating and pushing back against the odds this corridor and DNA John.
John and I have been fighting for emission business and this industry for more than a decade.
And now we've built a much stronger company.
The fact that we achieved adjusted EBITDA profitability 2 full quarters earlier than we initially expected as clear evidence of this fact.
We achieved this milestone relatively early and the recovery all while continuing to invest and growth.
Going forward, we expect to maintain adjusted EBITDA profitability as.
As we said and our original founders' letter from our IPO.
Going to continue to strategically balance our investments and growth with profitability and deliberately leaning into growth, especially since it's still early days.
I'm incredibly excited about our roadmap.
We're going to build a significantly larger company by attacking the trillion dollar market opportunity in front of us.
And this quarter marks an important milestone, but it's just the beginning.
Our mission is to improve People's lives with the world's best Transportation and we will continue working to deliver on this goal.
I'd now like to turn to a few specific highlights from Q2.
Demand continued to strengthen across the markets, we operate and particularly as communities reopened in June.
Revenue for the second quarter grew 26% quarter over quarter, and 125% year over year outperforming the midpoint of our outlook by more than 10%.
Active riders increased by more than $3.6 million from Q1, and nearly doubled year over year.
Active rider growth and Q2 reflects the fact that people want and get moving again.
Airport rides and June were more than double what they were on January and we're nearly quadruple what they were a year ago.
Given strengthening demand, we made significant investments and driver supply and throughout the quarter.
The number of drivers increased in Q2 at a faster rate than in Q1 and ended the quarter up more than 60% year over year.
While elevated demand drove higher prices across the U S drivers earn more than ever before <unk>.
Drivers to average hourly earnings reached an all time high in Q2.
Turning to July and the number of drivers using the Lyft platform grew versus June and we continue to see nice out and we can use cases rebounding.
We also reintroduced shared rides and select cities with extra precautions to promote rider and driver safety.
We will continue bringing back shared rides as our most affordable option and additional markets as conditions allow since these rides can help expand our capacity and contribute to an improved balance and our marketplace.
John will provide key business updates, but before he does and I'll turn the call over to Brian to review our financial performance.
Thanks, Logan and good afternoon, everyone Q2 was an exceptional quarter truly truly exceptional we generated 125% year over year revenue growth and for the first time adjusted EBITDA profitability. The second quarter provide powerful validation of our business transformation as we achieved adjusted.
EBITDA profitability with rideshare rides still well below the level reached in Q4 and 2019 debt.
Now before I walk through the details I want to extend my gratitude to our team members for helping make this milestone possible.
And if there has always attracted talented individuals who are passionate about our mission and embraced our values with the onset of Covid, our team's safety a long list of challenges. They responded with inspiring resilience and a tenacious focus on our long term vision together, we built a financially stronger and healthier business that will.
And support our continued growth and expansion our business is a reflection of their commitment and hard work.
In addition from day, 1 we've been driver centric, we've always known that is critically important to invest and our driver community and create compelling opportunities for them to use lyft. It is important to note that in Q2, we achieved our business results, while we intentionally reduced our effective take rate and Logan mentioned.
And drivers generated record hourly earnings on our platform and the second quarter, we significantly increased our investments and incentives and sign on bonuses to help us attract retain and grow hours from drivers to meet strengthening demand and fact incentives classified as contra revenue increased 92%.
Quarter over quarter to over 375 million well above the 26% sequential increase and revenue still with lyft, achieving adjusted EBITDA profitability.
Since our inception skeptics have debated the ridesharing business model and the events over the past year encourage some day question why going deeper and transportation network makes sense. We have now demonstrated the tremendous value of our transportation focus going forward, we expect to remain adjusted EBITDA profitable as we increased.
And to fuel long term growth.
Before I move on I want to note that unless otherwise indicated all income statement measures that follow are non-GAAP and exclude stock based compensation and other select items a reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and may be found on our earnings release, which is furnished on form 8-K filed today.
With the SEC.
Let's move to the details and.
And as we previously reported average daily Rideshare ride volume decreased slightly in April relative to March despite.
And despite elevated prices beginning in May rideshare ride volume rebounded and then further accelerated in June as more states, reopen and including California and.
And Q2, the number of active riders increased by over $3.6 million quarter over quarter to $17.1 billion. This represents 27% quarter over quarter growth and nearly 100% year over year growth as states begin to reopen we benefited from a return of riders from prior quarters.
As well as new rider, Activations, which increased 26% quarter over quarter.
Revenue per active rider decreased slightly quarter over quarter and increased by more than $5.50 year over year to $44.63.
Rider Activations increased 7% month over month, and May and increased a further 9% and June.
Rider Activations near the end of the quarter are typically dilutive to revenue per active rider since it's less time to generate revenue flow.
To offset this headwind with the recognition of licensing revenue from Argo related to data to help accelerate the development of autonomous vehicles.
The combination of these trends, especially the addition of over 3.6 million active riders led to and over $150 million sequential increase and second quarter revenue to $765 billion.
Q2 revenue was $75 million.
Above the midpoint of our revenue outlook of $680 million to $700 million.
Similar to the first quarter elevated rideshare pricing and Q2 drove record rideshare revenue per ride, which had a beneficial impact on profitability metrics since certain costs are relatively fixed depreciation or less correlated to the price of rise for example computing costs. This led to all time record contribution margin.
And adjusted EBITDA margin.
Contribution margin and the second quarter was 59, 1%, which well exceeded our outlook of 56, 5 to 57, 5% and was up substantially from the 35% and Q2 of 2020.
The outperformance on revenue and contribution margin relative to our outlook helped drive strong Q2 contribution of $452 million.
Which is nearly 4 times the level generated in Q2 and 2020.
We exceeded the midpoint of our contribution outlook by nearly $60 million or 15% for each dollar of incremental revenue growth contribution increased by over 70.
As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. As we've previously discussed to help reduce volatility and our financial results on April 20, we signed an.
Agreement to reinsurance captive insurance entity for select historical periods and the second quarter. There was no adverse development net of reinsurance recoverable from this policy.
Let's move to operating expenses operations.
Operations and support expense for Q2 was $86 million, a decrease of 2% year over year.
Operations and support expense as a percentage of revenue declined to 11, 3% and Q2 down from 13, 7% and Q1.
R&D expense in Q2 was $130 million roughly flat with the level in Q1 as a percentage of revenue R&D expense declined to 17% and Q2 down from 21, 7% and Q1.
Q2 sales and marketing was $89 million as a percentage of revenue sales and marketing was 11, 6% roughly flat with Q1 and 11, 4%.
Within sales and marketing incentives were only $10 million or 1.4% of revenue. This represents a decline of over 20% quarter over quarter.
G&A expense in Q2 was $153 million down 9% from the year ago period.
G&A expense as a percentage of revenue was 20% and Q2 down 550 basis points quarter over quarter.
In terms of the bottom line, our Q2 adjusted EBITDA profit of $24 million was over $60 million better than the midpoint of our Wap outlook of between 35 and $45 million.
It's worth noting that Q2, adjusted EBITDA increased $16 million of benefits related to 2 items.
First we were able to ultimately settle on long outstanding receivables as Hertz exited bankruptcy.
Separately, we've captured gains from the remarketing of flex drive and Lyft rental vehicles, given the strong market for used cars without these gains totaling $16 million. Our Q2, adjusted EBITDA profit was $8 million.
Unrestricted cash cash equivalents and short term investments slightly increased quarter over quarter to $2.2 billion we.
We expect unrestricted cash cash equivalents and short term investments to increase again in Q3 with the sale of level 5 which closed in July.
Before I move to our Q3 outlook I want to remind investors that while declining COVID-19 case counts and Q2 fueled a rebound and our business that pandemic is not yet over especially with emerging variance and a return of restrictions in certain markets.
We are cautiously keeping an eye on new developments and I expect continued volatility and variability amongst city's.
Future conditions can change rapidly and may impact our outlook.
Now in terms of average daily Rideshare right trends. Despite the recent growth and Covid case counts July was our best month since March of 2020.
Now to avoid impacting long term rider loyalty, we are focused on providing our users with the best possible experience.
To date writers have been relatively patient with a less than ideal prices and service levels since theyre faced industry wide, although we expect supply to tailwind from the expiration of federal unemployment benefits, we plan to maintain elevated levels of new driver sign on bonuses and incentives even as prices and our marketplace are expected to decline.
If growth is stronger than expected, we plan to incrementally increase investment debt more drivers given current service levels and expected demand recovery trends. This strategy will limit potential upside in Q3 revenue and adjusted EBITDA, 1 and improved rider satisfaction and be ready ahead of additional demand recovery.
We believe this is the right decision, even though it was temporarily GAAP in Q3 revenue growth and adjusted EBITDA leverage.
It's also important to understand that certain factors and the second quarter were unique and are not expected to recur to the same degree, especially the elevated prices up right.
The pricing environment and the second quarter caused by the demand inflection contributed to a 7% quarter over quarter increase and rideshare revenue per ride, which positively impacted our top line operating leverage and profitability.
As I mentioned, we are maintaining elevated supply investments to help lower prices and Q3 for a rider community and as a result, we expect rideshare revenue per ride will decline on a sequential basis now.
On our Q3 financial results will benefit from the sales level, 5 which closed on July 13th with a mid July close we expect to remove roughly $20 million of related costs in Q3 relative to Q2, we also expect to generate licensing related to the commercial agreements. However in Q3, the impact of lower <unk>.
Prices along with the elevated driver supply investment will exceed the quarterly cost savings of the level 5 sale.
In terms of our outlook barring a material decline and the operating landscape due to Covid, we expect revenue of between 850 and $860 million. This implies growth of between 70% to 72% year over year and between 11% to 12% quarter over quarter.
This outlook Embeds, an estimated $30 million to $40 million impact from lower prices combined with elevated new drivers sign on bonuses and incentives and to repeat as demand growth is stronger we expect to increase our supply investment.
In terms of profitability, which is net of the $30 million to $40 million headwind I. Just described we expect Q3 contribution margin to be between $58, 5% to 59% as we generate expense leverage from volume growth and offset the lower pricing environment and supply and investments.
When evaluating quarter over quarter trends Q2 contribution margin was 58, 1% adjusted for the 100 basis point uplift from the remarketing gains.
In terms of the bottom line, we expect our Q3 adjusted EBITDA will be between 25 and $35 million inclusive of the impact from the supply investments and lower prices.
This is relative to the $8 million of adjusted EBITDA in Q2, excluding the $16 million of benefit from Hertz and remarketing.
Just to repeat my earlier comment to the extent and we realized incremental leverage beyond our target range, we plan to reinvest and additional supply given the industry wide service levels and expected demand recovery trends.
Q3 outlook implies adjusted EBITDA margin of between 3 and 4%. This compares with the 1% and Q2, excluding the $16 million of benefits.
Separately based on our momentum and the anticipated second half recovery. We now expect that Lyft will achieve adjusted EBITDA profitability on a full year basis, and 2021, which is another important milestone.
So in closing I want to emphasize 2 key points first we've built a much stronger business. Our exceptional second quarter provides clear visibility and to the extent of the improvements. We've made and these changes are designed to be lasting we continue to expect to emerge on the other side of the pandemic structurally more profitable and more.
Fish and provides and we were going in.
Second we are a growth company achieving profitability is an important milestone to demonstrate the strength of our model and we plan to maintain adjusted EBITDA profitability going forward at the same time, we believe it is and the best interest of shareholders for Lyft to avoid over rotating on profitability too early.
On the recovery, we have a large untapped market opportunity in front of US we have a tam and access of 1 trillion, which provide a long growth runway, we plan to reinvest a portion of our adjusted EBITDA profitability and new growth initiatives, which we look forward to discussing and the coming quarters.
These strategic investments expand on our core competencies and monetize assets that are part of our underpinned the lyft ecosystem.
As Logan shared we expect and build a significantly larger company as we attack the massive market opportunity in front of us as a transportation focused pure play.
Going forward, we will thoughtfully balance investments and growth and profitability considerations, while deliberately leaning more towards growth, especially in these early days, our financial North star is to maximize long term free cash flow growth per share.
We believe this is the metric most aligned with how to generate long term shareholder value.
So with that let me turn it over to John and provide key updates on the business and our strategy.
Thanks, Brian I'm energized by our Q2 performance and excited for the quarters ahead of Us again.
Again, I want to thank the Lyft community for making this possible.
And look forward to maintaining profitability as we self fund initiatives that will drive long term shareholder value.
Let me start with near term dynamics I'm going to talk about overall marketplace conditions and the progress we've made.
Demand in Q2 came back faster and stronger than initially anticipated that.
And that's fundamentally a good day.
Industry wide, we've seen demand outpaced supply and service levels and prices have been less and idea for riders.
We know people depend on us for excellent service and we are working hard to improve the experience.
Great hospitality is core to our brand our efforts to improve wait times for riders are critical to delivering on this and to grow usage by drivers and riders.
To that and we ramp our investments and driver supply and Q2 and welcomed 50% more new drivers versus Q1.
In fact, we achieved post COVID-19 quarterly record for new driver Activations.
Divers also earn anymore and some of our busiest market drivers have been earlier and more than $35 an hour on average over all online time. This includes time drivers may have been earning on other app based platforms.
We saw continued driver of growth in July and earnings have remained elevated versus pre COVID-19.
It's clear that ride sharing remains a highly compelling earnings opportunity 1 with exceptional flexibility, which we believe will serve as an ongoing tailwind to meet more demand.
In addition to keep the most active drivers engaged we are working to build out our rewards program to include benefits that can help them reduce their maintenance costs and received priority access to ride requests.
We will also continue to experiment with new incentive structures to make it even more rewarding for drivers to use the lyft platform.
Ultimately, while exact comparisons are difficult the higher earnings opportunities that may be available with ride share versus other forms of App based work can help lyft supply as the recovery progresses.
We expect the rollout of enhanced federal unemployment benefits will also serve as a tailwind, especially since the majority of drivers use lyft to generate supplemental income.
In Q2, we saw an uplift and driver uplift, Inc growth and state that opted out of the federal program early ahead of their participation ending.
Likewise and vaccines continue to rollout we are hopeful that life can resume a more normal cadence.
Going back to school can get households, more flexibility and people may have more reasons to seek out incremental earnings opportunities to standard of vacations weddings and other personal activities.
We've also been investing and our technology to make the driver experience better and better in July we launched a major app redesign that was the product of nearly a year of engineering work.
This is 1 example, we've now made it much more intuitive for drivers to easily identify earning opportunities while offline or idle.
The rollout of our new interface had an immediate impact on our marketplace, resulting in an increase in both driver hours and rights.
The bottom line is we've managed similar marketplace dynamics for a decade and are very confident and the strategic actions, we're taking for both the short and long term.
Let me switch gears and talk about the Lyft network more broadly.
Rideshare is critical but the power of the network is more than that and Lyft network is the culmination of all the transportation demand the options, we make available across rideshare bikes scooters rentals and transit as well as our marketplace and platform technology that has been built and optimized over the last decade.
This robust technology platform is what powers every ride match and every dispatch among many other things we.
We will continue to invest and building the best technology as these investments can generate significant returns today and far into the future.
For example over the last few years, we've been investing and building our own in house mapping technologies, specifically for our transportation network.
That doesn't match for Lyft pilot, we are working to be able to recommend better routes to drivers..1 is that can promote safety and reduce our insurance risk improve the reliability of that pickup and drop off experience and better optimize our overall marketplace.
Enhancements like these can bring multiple sets of additional margin to each right.
Adding up to millions of dollars each year.
We are testing our own navigation experience and select markets today and have over a million and a half miles under our belts already.
As we progress through this year, we'll continue iterating and working to launch the best dedicated and navigation experience possible.
Our goal is to pass the savings we achieved from initiatives like these all providers.
And more value riders and received from Lyft, the more likely they are to use lyft more often and more likely we are to attract new riders.
Ultimately to unlock more of our Tam rider should be able to spend less on transportation overall up more on the Lyft network and.
And by establishing ourselves as their trusted transportation network. We believe riders will increasingly turn to lyft to help them transition to transportation as a service.
We also delivered significant value to users with our exclusive content means.
Meaning with the bikes scooters and car rental and vehicle services that are only available through the.
Our vehicle service centers high customer satisfaction scores reflect the work we've done to re imagine the auto care expense.
In addition, we've found that way less frequent rideshare rides and start using our bikes and scooters and quickly start using both more often.
Differentiated content can help us increase our touch points with riders and grow our share of that consumer transportation wallet.
Longer term each of the strategic investments, we are making and the Lyft network put us on the best positioned to win the economist transition.
Both on mapping investment and fleet management work are perfect. Examples of our focused transportation strategy that has high value and both the short and long term.
And the near term riders and drivers benefit with better and more affordable service and and the long term lyft can be the go to transportation network for autonomous vehicles, because of our holistic transportation services that drive preferred economics.
In fact, our recently announced partnership with Argo and forward reinforces this unique role and Lyft network and play to help advance the performance and safety of autonomous vehicles.
And our ultimate commercialization.
We look forward to building on these partnerships and to welcoming new partners to our network.
Finally, before we move to Q&A I'd like to take a moment on the Massachusetts ballot initiative.
This week the coalition of workers and companies that were a part of it and moving forward with potential for a valid initiative for the November 2022.
While our priority is to find a legislative solution and Massachusetts. This is part of our continued efforts to advocate with the vast majority of drivers want a flexible earning opportunities on our platform provides plus and your benefit.
While we are pursuing the valid option. We are also closely engaged with the Massachusetts State legislature and are continuing to work with them on a potential legislative solution.
We're now ready to take questions.
And can I ask a question you will need to press star 1 on your Touchtone phone.
And our first question is from Doug Anmuth of Jpmorgan.
Good question.
Great. Thanks for taking our questions just a couple on driver supply and incentives and so.
Hoping you could just help us understand where you are on with driver supply and just relative to current demand, maybe if theres a percentage way of looking at it relative to like a 100% for a fully balanced marketplace and then second can you just talk about how much youre roughly targeting in terms of incentives for <unk> coming off.
And the $375 million and and <unk>. Thank you.
Sure Doug This is Brian.
Let me take that in reverse order, let me talk about Q3, and I will just talk about overall driver supply.
So on the third quarter, we plan to increase supply and investments just given current conditions and it's helped prepare and marketplace for.
Additional demand recovery. So we do expect Q3, <unk> revenue to exceed $376 million now given this strategy and the expected impact from the Q2 investments as John pointed out.
New driver growth in Q2 jumped 50% quarter over quarter.
We expect prices to decline in Q3, as we improve the service sorry supply condition. So the financial impact of maintaining elevated new driver bonuses and incentives while prices decline is estimated at 30% to $40 million. So you really have to sort of look at those combined and just to call out again. If this is built into our outlook of 850 to 8.
<unk> hundred $60 million and to the extent, we realized incremental growth and leverage in the third quarter, we plan to further reinvest and supply and grow driver Activations just the right thing to do right now to prepare for additional demand and again. This is after we achieved adjusted EBITDA profitability and expect to maintain it.
In terms of just the recovery overall the driver front.
It is important to understand that and Egypt can't measure in terms of the number of drivers.
You have to measure in terms of looking at the number of hours or the number of rides per driver as well and we have seen the number of rides per driver increase.
Versus pre Covid periods, and so the data point in the second quarter of this year. The average number of rides per driver with more than 20% greater and Q2 and 2019 and the number of drivers is also increasing as we onboard new drivers. So again, we increased driver activations by more than 50% quarter on quarter and Q2 and.
Looking forward and we're going to continue to invest and building supply to improve service levels and these efforts are already paying off just as an additional data point in July we increased new driver activation, 11% month on month.
Great. That's helpful. Thank you Brian.
Sure.
Our next question is from Inc.
<unk> of Wedbush Securities. Your line is open.
Hey, guys. Thanks for taking the question.
And I wanted to ask on rider incentives.
Scientists and.
As you can.
Right now Youre cutting back rider incentives, obviously, there was significant demand what's your outlook over the coming kind of months and quarters for how that for how that normalizes and then second any update on business travel.
Specifically, maybe given the.
Both varian and that Spike and what are you seeing any kind of.
Backwards moving momentum anything youre seeing early on or expectations. Thank you.
Sure.
Oh go ahead on Brian.
Well, let me, let me comment on the on the sales and marketing and <unk>.
Chart, there so I mean just.
If you look.
<unk>.
And Q2.
This is our fifth quarter in a row, where we kept sales and marketing below 15% right and when you look at the incentives and sales and marketing as a percentage of revenue on Q4 were 3.5% and Q1, we were at 2.2% and we just now and a quarter at 1.4%. So again, we feel really good.
About.
Where we are in terms of on.
On the demand side.
As pointed out.
Active riders jumped over $3.6 million and Q2, and if you look at rider Activations. So these are new writers for the first time on Lyft, those jumped 112% year over year and Q2, so we feel great about that but I think just to repeat what we're trying to stress in terms of our long term strategy, we want to win on product innovation and stuff that that John was describing.
And it's innovation, it's the customer experience at the brand preference, it's not coupons. So we believe that the R&D investments and the right lever here to create competitive advantages and so we expect.
Absolutely sales and marketing will increase and future periods as obviously as revenue rebound, but longer term sales and marketing expense as a percentage of revenue will likely be lower post COVID-19 than it was pre COVID-19.
Thanks, and then.
Okay.
In terms of on the on the business side.
And I would say the 1 area that really stood out 1 use case that stood out in Q2 was airport rides and I think historically airport rides, there's obviously consumer personal travel that's baked on that as well as corporate travel.
In terms of just the overall impact to the results.
We did see strengthening and airport rides and so in June airport rides as a percent of total rideshare rides reached 8.3%, which is up 5 <unk> from the 1.6% at the bottom and April 2020, and quite frankly, it's approaching the 9.5% we had in December of 2019 and.
And so I think that is a combination I think in terms of.
Yes post.
And this recovery.
We expect all use cases to return we expect that commute rides to strengthen as more companies return to the office and and we expect business travel should begin to increase to accelerate around the same time. This year and then really accelerate next year.
Alright, thank you.
Your next question is from Stephen Ju of Credit Suisse. Please ask your question.
Okay. Thank you so much I guess kind of on interconnected question on the incentives. So alright, guys maybe for John on Logan, So, presumably as you increase the payouts of driver incentives and the third quarter.
And your competitor will probably respond in a similar way so.
And it looks like Youre going to reach over $1 billion of incentive spend this year and which is about <unk>. What you had been spending in 2019. So between the 2 of you kind of steps that you are about to take is this just a matter of making ride share more attractive and I guess on aerospace to both thing for drivers to be doing it through our money vs.
Other things that they can be doing.
And I guess on the rider side of things I guess, what are the things that we worry about.
Asps remain.
And had an elevated level as perhaps the danger of some of your rider switching off and using some something else if the prices on a 2 arm and especially if they have the options. So.
Just a question so coming back regardless, given the sequential growth here, but is there anything youre seeing and in terms of activity among existing users maybe size of it and the switching off for churning off.
And.
Thanks for the question and the Logan So first on the driver side, we've always viewed the.
The market and for drivers is large and broad and we've always looked at it.
Taking a broad view looking at the whole labor pool, and obviously COVID-19 has sent chalk through the whole and labor market.
That significantly impacted us and most other players out there as well as hosting and other businesses and so as we look at.
Sort of driver incentives and then.
Really.
Blend furnaces are running the business.
Along with just what is driver pay.
Whats the price of labor at that time of day and that city.
It is.
And is unique and is dynamic.
And it's our job to stay on top of it and to move with the market and.
And so we're always looking to.
And sure we're paying drivers competitively.
And provide the best service levels and.
And as we pay it.
Driver pay increases more drivers come onto the platform and it is not just pulling from.
From our closest competitor, it's pulling from the market more broadly.
So that's kind of our our long view, we really don't don't kind of look at it and and and narrow sense.
On.
Brian and I am wondering if.
And more color would be helpful.
Yes.
John's going to say something and then let me chime in on 1 other point I, just want to make us and UK and some of the numbers, Brian recently talked about.
Is that 1 thing, we've really invested deeply and over the last I'd say 2 years has been the marketplace technology.
Underpins almost everything we do so.
Therefore, these are not actual numbers, but if you have.
100 drivers and the region and.
And prior to improving your routing and mapping technology, which we talked a bit about.
<unk> completed 150 rise.
And then 1 hour period with us on the drivers there.
There are cases, where you can complete more now and say 175 to otherwise.
That same pool of drivers, whether that's good for drivers drivers or more.
And they have less downtime and it's good for the business and assist providers. So a lot of the investments that we've been making over the last 2 years.
<unk>.
We will really show and and.
And I think you report like this and we.
We hope in the earnings reports to come but often are hopefully invisible to the customer because it's more on the debt.
And Steve and let me just maybe it is Adam and I'll pivot to your second part of your question, Yes, I would say in general both companies team focus on on boarding new drivers.
And welcoming back drivers, who may have stopped driving during the pandemic and so according to third party data and the industry does continue to appear generally rational and the design and structure supply investments. So we don't see a strategic change here in terms of the competition and from our vantage. We just achieved adjusted EBITDA profitability and plan to maintain it and.
And I think beyond Q3, we believe is federal unemployment benefits expire we will benefit from organic supply tailwind. We also expect that we may see an influx of delivery drivers of delivery flows once communities fully reopen and just.
Remember in the gig economy rideshare tends to be king while exact comparisons are difficult. We believe the earning opportunities are greater and rideshare based on historical studies, which again does provide some organic tailwind I think in terms of your second part of your question in terms of.
Sure.
Our alternatives for riders and outlook.
And right now the industry is supply constrained given it's just so much demand.
But to date and riders have been relatively patient with a less than ideal prices and service levels that they are faced industry wide and though.
We do again expect some of these tailwind, we want and provider satisfaction and be ready ahead of additional demand and I mean.
And again keep in mind and Q2, we added over 3.6 million active Brian.
Which again was up nearly 100% year over year up 27% quarter over quarter and new rider Activations again. These are people brand new to Lyft as riders increased 112% year over year. So again.
We expect our marketplace to fully rebalanced and eventually we will exceed our.
Prior active rider Pete.
Thank you.
Our next question is from Mark Mahaney of ISI. Your line is now open.
Hey, Mark Mahaney. Your line is now open. Please ask your question I apologize I was muted could you talk about new use cases that you may have seen for lyft for ride sharing over the pandemic.
If you've noticed new patterns, new use cases, and and I guess throwing into that with still.
Safety concerns over potentially over tax season, and public transportation, whether that's created kind of at the margin incremental demand can you see that and the data and then secondly, the profitability goal that you reached clearly on a much lower levels that you had.
Prior to the prior to the prior to Covid. So does that what does that say about your long term profitability margins and I can't remember I think at the time and for your IPO you laid out some long term margins and Thats a world away. So what are you thinking now in terms of long term at scale, what kind of margins the business can generate given what you've now been able to accomplish.
We see a very different environment than we all thought would be the case a year or 2 ago.
Thanks Mark.
And as Logan and.
And in terms of use cases.
1 of the most I think exciting innovations is something we scaled up at the beginning of the pandemic risk product profile and wait and save.
And as we Sunset shared rides at the start of the pandemic, we wanted to give.
If our riders and other great option for trading off time, and money and Thats, what wait and save.
Unlocks.
And captured some of the efficiency and having.
<unk> wait a little longer until we haven't and nearby driver, we can match them with and.
And we still hit that within sort of specified on arrival window.
So we just started.
Weeks ago.
Reintroducing shared rides and so we're going to have both of those side by side and learn.
Learn what.
Prefer and how those work together.
In terms of kind of use case changes and there is definitely a good chunk of our riders who moved over from public transit and the pandemic.
Hit.
So we saw on new type of rider.
And I'm joined the network and sort of ride frequency and increase.
There and.
Yes.
It's tough to know exactly how much will stick and we imagine a good chunk sticks.
And I am sure we will go back to transit.
And transit.
Ridership has been kind of a little bit, but it's still kind of depressed overall.
And another another front and it's just on the bikes and scooter business, we've seen volume almost double year over year. So clearly there is a real preference for.
Outdoor transportation.
So seeing some interesting things there and then as we kind of take a.
A broader view on.
Where we're going with the company and transportation.
I think.
There is a lot of exciting things for us to do on the fleet side of the business and in terms of helping people manage their personal vehicles and we know a good chunk.
<unk>.
EFT riders and regular Lyft users.
Still have a car 2 parts a and attract way.
And so we're looking at more and more ways that we can help them and so broadly speaking.
We don't know the timing, but we expect the rideshare business to make.
So healthy and recovery.
And we expect.
To continue grow and more broadly.
Brian did you want to weigh in on some of the long term sure economic share.
So obviously the pandemic isn't over and so given continued uncertainty we're only providing a 1 quarter outlook at this time and in terms of just where we are look we went public now a little over 2 years ago. So it's still relatively early but I am incredibly pleased though and our progress to date and again our Q2.
Our results speak volumes on our progress.
But we're not going to speculate today on that timeframe or what ultimate margins could reach.
Okay understood, Thanks, Brian and thanks Lucas.
Your next question is from Abby a rumor of Keybanc capital. Please ask your question Hey, guys. Thanks for taking the questions I guess first.
Governing the rollout of shared rides and what is.
The consumer response, and thus far and then as a follow up question any update on Inc. And I know I think that JP Morgan agreement Sunset it while the retention of those customers and to paint that you onboard and see that product. Thank you.
Sure.
And on shared rides, where we're learning.
So we've done a lot of great work on the product too.
We took a took a lot of the year, while OSA and set to rebuild a number of underlying systems and experiences.
So that we can provide riders with better reliability, both experienced in terms of how quickly and they're going to get picked up in terms of how quickly theyre going to get to the destination and sort of maximum number of stops or reroute some on Hawaii.
And we think sort of top to bottom, it's about our products, but we haven't tested that and the real world and.
And so we're bringing that back to see how it performs.
And to see what Ryder reception and his leg.
Obviously, it's the 1 product where you are and the car with.
On multiple other other riders so we wanted to see what the reception looks like and as we learn.
And we will adjust and sort.
Dictate the rollout from there right now.
And Ah.
Very small.
On a small area for us to learn at low volume.
Can you repeat the second part of your question and delivers on Lyft Pink yes.
Yes, just wanted to and maybe an update on <unk> generally and I believe that the agreement you had with J P Morgan and where their customers at a 1 year, creating sunset and any sense as to kind of having those customers that maybe got the prior year state on the program.
Sure I can take the chase teams.
On the JP Morgan Chase piece and this is John and then pass it back to Logan for higher level thoughts on peg on.
Of all the case, we've been pleased with the program and the partnership.
And really give us millions of card members, even more reason to use lyft.
We actually extended the partnership benefits. This year to include a <unk> price promotion on all Lyft rides for cases co branded credit card members.
And we think this will continue to be attractive obviously as we come through the recovery and travel continues to rebound.
We're excited about continuing to work with this partner they've been they've been great across the board even.
Supported us on our Universal vaccine access program.
Yes, and just to be clear the program has not sunset. So it was always designed as a free year for all new.
Sapphire members.
And that's still out there and the market and in fact and extended for an additional 6 months.
For all those folks who participated.
So that is still active and live.
We're not disclosing any.
And a unique metrics around Inc.
And if the program were still very excited about.
And continuing on investing and adding new benefits.
And so now we have free upgrades when you book, a rental car or lyft.
And use the thresholds to book of fixed rental we will get a free upgrade if you I think remember.
We of course on leaning into a great partnership we have with Grubhub, we're paying members.
Net unlimited free delivery as part of the Grubhub price.
Program.
So we're going to keep leaning in to making Lyft pink.
And more valuable for our riders.
But as far as kind of.
Marketing pink at this moment.
Ben been holding back as we focus on the supply side of our market alright, So pink will play a big role and the future of the company.
But right now, it's all about supply and and so we're leaning in on on all dimensions to bring new drivers under the road and to.
Engage existing.
Drivers and make sure we have a great driver and waiting for every router.
Great. Thanks, so much.
Our next question is from Brent Thill of Jefferies. Please ask your question.
And in past releases, you've kind of monthly.
Monthly update for the last trailing month and pitch.
Release, I don't think you have that.
Any color on July and any kind of reason why you've left it at this time.
Yes.
And maybe we I probably spoke too quickly.
So if you look at average daily Rideshare rides July was our best month.
Since March of 2020, we saw growth month over month, and it was and all timeline.
Okay terrific.
Sure.
Our next question is from Nicole <unk> of Bernstein. Your line is open. Please ask your question.
Hi, Thanks for taking my question a couple if I may on.
On the driver side with the drivers that are reactivating.
And what kind of retention and engagement rates are you seeing are reactivated drivers sticking around.
R&D reactivating harp on maybe shorter durations to capture some of these incentives incentives and then second question again on the driver front as you mentioned that in certain states, where the federal funding programs to start to roll off seeing better driver applications, just any way to quantify what that benefit and looks like.
Versus other states. Thank you.
Thanks, Tahira. This is Brian I think on.
Well, let me let me just start with part 2 and I'll come back to par on so on on part 2 we saw this last summer to so we have a couple of data points here and when federal unemployment benefits. Initially expired last summer we did see leads jump.
Because again you have to remember most drivers its supplemental income.
And 2020, 85% of drivers drove less than 10 hours per week. So again, when you have federal unemployment benefit. It may solve that need that you are using lyft to generate income. It may you may just have enough on the benefits and so we saw last summer we saw in the states that sunset.
The benefits early debt leads jumped.
And so again I think were low.
And we'll see I think it's September 8 that the federal full program will sunset, but in general It does increase leads from folks who.
And we're earning enough on the platform.
Im sorry were the benefits from the government and maybe some state benefits on top where we're covering and whatever supplemental income needs. They need it and why they were driving lyft in the first place.
And then in terms of the on the drivers that are activating I will say I mean, directionally retention has been phenomenal, but you have to remember this environment.
We're excited that drivers are earning all time record hourly earnings right now so it's very lucrative to drive.
And so you can imagine if you onboard in this environment.
It's a great platform and it's a great time, so retention has been very strong and as John mentioned, we're seeing that strong activation growth to about 50% growth quarter over quarter, and Q2 and as I mentioned in just in the month of July we saw 11% growth month over month, and and new driver Activations.
Great. Thank you.
Our next question is from Brian Fitzgerald of Wells Fargo. Please ask your question.
Maybe 2 quick follow ups, 1 on drivers and it's just as you're Onboarding and these guys is it is it faster and easier to on board existing drivers versus new ones or is it just wrote volume is overlaying that and then I wanted to go back to a comment you guys talked about and that was hey, the marketplace technology optimizing routes and mapping.
And driving yields there how much of that is also predicated on ample supply of certain networks or experienced levels of drivers.
So that you can properly and do that routes for this experienced guy doesn't have to take a left in front of traffic and are those 2 those 2 flywheels impact each other and do you get.
As you get more drivers on can and does that just amp up the momentum you get out of your your marketplace PEC optimization flywheel.
So I'll start with the second part of the question, maybe Brian If you take the first and.
And I'd say that.
And our flywheel and it has improved by volume broadly.
More volume we have on the platform the more opportunities we have to learn and we learn what the safest routes are.
And we learn what the characteristics of the safest and most productive drivers look like more broadly so volume volume is.
Is important for driving learnings, we obviously have all of our historical data that we can learn from and so we're not sort of.
And the kind of real time data layer.
The layers on and that is another factor.
But we're not extremely sensitive to the kind of volume of real time data. We have is that kind of gets at the at the crux of your question.
Yes.
Brian if you want to talk to kind of.
Reactivation versus new driver activation sure absolutely.
Absolutely. So I think right now, it's not an either or it's an and right. So we are bringing on new new sorry, new drivers and as I mentioned and it's just it is an amazing time to activate on the platform because almost any hour of the day you can turn on the driver of which we redesigned and you can start hurting.
Almost immediately which has been fantastic. So as I mentioned retention of new drivers is looking really strong.
In terms of what we maybe I'll call. It deep resurrection. These are drivers who drove a ton on our platform and then maybe with the onset of Covid. They just didn't feel safe.
As we.
Get the nation vaccinated.
To get through Delta, which will potentially impact certain regions et cetera.
We are going to see some of those folks come back as I mentioned sort of and the ecosystem of the gig economy rideshare tens and based on historical studies and.
Has tended to allow folks to earn more and so we do expect that youll see folks.
Who like the independents.
From the gig work to come back to rideshare. So we're it's really.
And not on or yes.
Got it thanks guys.
Sure.
And our last question is from <unk> County on the CD.
Ask your question.
Great. Thanks, everybody just 2 quick ones for me first just on the financials on the op.
Operations and support expense it looks like you had 11% this quarter I think pre pandemic, you're in 13 and 14% range.
And I'm just curious how much leverage you think youll see there going forward as revenue recovers and then secondly, just hoping to touch on on the Argo announcement recently and maybe talk to any should we think about that agreement being any different and what youre doing with emotional or are they fairly kind of similar deployments.
Sure. So let me take part 1 and then maybe I'll hand off to John So I think for operations and support expense. This is an area, we probably expect it to tick up slightly in Q3 within operations and support we do have background checks.
And driving record checks is that expense hit that so as we drive up driver Activations Youll see an increase there and then it's sometimes correlated to the ride growth on bikes and scooters.
And so we do expect will probably go up a little bit I would say.
And probably I don't think were 11, 3% and Q2.
Probably around 12% or under so it will likely go up a little bit, but again I think it's primarily tied to the fact that we're activating more drivers and filling up our funnel, which I think is very good in terms of <unk>.
Setting up the marketplace for Q4 and beyond.
On the argon deal at fifth third deal and a string of commercial agreements between Lyft and major automakers and their affiliates focused on self driving technologies. So as you mentioned emotional.
Looking to deploy fully autonomous cars on our network starting in 2023 <unk> plus <unk> is the first time with all 3 pieces the cars the Avi software and the network I think what we're really demonstrating is that the path to commercializing self driving vehicles at scale is through the Lyft network and it goes back to the point we've made about the.
Marketplace technology.
Can help drivers be more successful lyft.
<unk> be more successful writers have more affordable right.
And Avi suppliers debt.
A better return on their cars because of all these investments we've made under the hood that are leading to this great quarter.
On the other part of the our go forward deal is that we had and the Anonymised service and fleet data partnership.
To help them also make sure they pick the right markets and the right technology to bring to the right routes.
That's all very helpful. Thank you.
All right with that thank you everybody for joining for being here for this exciting milestone and we look forward to talking with everybody next quarter.
Alright, and have a great 1.
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