Q3 2022 Lyft Inc Earnings Call
[music].
Good afternoon, and welcome to the Lyft third quarter 2022 earnings call.
At this time, all participants are in listen only mode to prevent any background noise.
Later, 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.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Sonya Banerjee head of Investor Relations you may begin.
Thank you welcome to the Lyft earnings call for the quarter ended September 32022 <unk>.
Joining me to discuss lifts results and key business initiatives, our co founder and CEO Logan Green co founder and President, John Zimmer and Chief Financial Officer Elaine Paul.
A recording of this conference call will be available on our Investor Relations website at Investor Dot lift dot com. Shortly after this call has ended.
I'd like to take this opportunity to remind you that during the call we will be making forward looking statements. This includes statements relating to the expected impact of the continuing COVID-19 pandemic macroeconomic factors the performance of our business future financial results and guidance, including the impact of our cost reduction initiatives straw.
<unk> long term growth and overall future prospects. We may also make statements regarding regulatory matters. These 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.
In particular those described in our risk factors included in our Form 10-Q for the second quarter of 2022 filed on August 5th 2022, and in our Form 10-Q for the third quarter of 2022 that will be filed by November 9th 2022 as well as risks related to the current uncertainty in the market and economy.
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 in addition 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 as well as in our earnings slide deck.
These materials may also be found on our Investor Relations website.
I would now like to turn the conference call over to lift co founder and Chief Executive Officer, Logan Green Logan, Thanks, Tonya and good afternoon.
First I want to thank all the team members that we had to say goodbye to last week I'm grateful for all of their contributions towards building the business and advancing the mission.
While difficult the reduction enforce sets us up for a strong 2023, where we can focus on execution. Knowing we are in a strong position in the face of external uncertainty.
Thank you again to the entire team for your continued hard work to take care of drivers riders and our business.
I'm going to kick things off by Recapping. Our Q3 results then I'm going to focus my comments on the actions, we've taken to accelerate key business initiatives and deliver on our 2024 financial targets.
With a strong Q3 adjusted EBITDA beat the top end of our outlook revenues of $1.054 billion were the highest in our company's history.
In active riders active drivers in total rides all reached the highest level since COVID-19 began which was great to see.
Demand was strong.
Airport trips were 10, 4% of rideshare rides in Q3, beating.
Beating the record set last quarter.
And bike and scooter rides reached a new all time high reflecting growing demand and warm weather seasonality. Additionally.
Additionally, Lyft business managed bookings grew by more than 50% year over year and reached a new high with strong adoption of our <unk> offerings, including lift pass and concierge.
And even more drivers are organically choosing lift.
Q3, the number of active drivers using lifts showed the strongest quarter over quarter growth in a year <unk>.
New drivers grew at an even faster rate helped by strong organic tailwind.
In fact more than half of new drivers in Q3 were acquired organically or.
Our network gives drivers valuable access to supplemental earnings opportunities on demand, we expect to see more people looking for these kinds of opportunities in a recessionary environment.
Overall service levels on our network keep getting better.
Across the U S. Our average rideshare EDTA it was faster in Q3 than it was in Q2 'twenty two and.
And got even closer to where it was before COVID-19.
And our Q3 rideshare conversion rate was the highest it had been in several years.
Additionally for riders the average price per mile declined quarter over quarter, reflecting less primetime.
Drivers were also incredibly productive in Q3.
Active drivers gave 17% more rides on average than they did in 2019.
An average U S drive our earnings this quarter were north of $35 per utilized our including tips and bonuses, which is up 7% year over year.
Now I'm going to talk about Q4 and the go forward.
In anticipation of continued economic headwinds and rising insurance costs, we've been taking prudent and decisive action.
This includes taking a hard look at all of our costs to make sure we're using our resources to accelerate initiatives with the strongest returns.
All in the cost reduction initiatives, we've been implementing since Q2 are expected to result in roughly $350 million of savings on an annualized basis.
This reflects the work that we've done across three categories head count operating expenses and real estate.
First on head count.
Earlier this year, we significantly slowed and then froze new hiring.
Last week's action reflected a continuation of our commitment to carefully manage our team size and expenses in this environment.
One focus was to remove management layers to accelerate decision, making and execution. It was a hard decision, but we're confident that it's the right step for the business.
Second operating expenses.
Starting in Q2, we reduced various operating expenses inclusive of professional services and limited discretionary spending particularly related to marketing.
Third our real estate.
Many team members now enjoy working remotely we are reducing our office footprint and cutting the related real estate costs by approximately half.
These actions go hand in hand, with the continued prioritization and streamlining of our highest ROI initiatives that will further enable greater operational efficiency and speed.
We are also using other levers in our marketplace.
Even the uptick in insurance costs, we've increased our service fee to help provide this important coverage with gas prices moderating. We were also able to remove the fuel surcharge that had been in effect since March so the net impact on riders has been roughly neutral. Additionally.
Additionally, we're focused on providing drivers competitive earnings opportunities and fuel rewards.
So while we expect an $82 million sequential cost of revenue headwind in Q4.
Our insurance renewal, we also expect to more than offset the impact to adjusted EBITDA keep.
Keep in mind, our insurance fiscal year began on October one.
Reflecting updated risk transfer agreements that are locked in for 12 months.
So starting in Q1 the quarter to quarter changes in insurance costs will reflect the typical differences in ride mix volumes and mileage in each period.
The bottom line is we expect the actions we are taking will more than offset the entire impact of higher insurance costs in Q4 and over the next 12 months.
<unk> off a strong Q3, we're continuing to take a prudent approach to managing our business to ensure we're successful over the long term.
As I said last quarter and we'd like to reinforce today, we're confident in our ability to continue navigating near term headwinds to deliver strong long term business results.
Time, and time again, we've proven our ability to make hard decisions and overcome difficult challenges.
This is what we did after we first set our adjusted EBITDA profitability goals back in October of 2019.
And we delivered on our target sooner than expected during a global pandemic.
The work, we've been doing sets us up to accelerate execution and deliver strong business results.
We now feel even more confident in our ability to deliver $1 billion of adjusted EBITDA and more than $700 million of free cash flow in 2024.
Let me turn the call over to Elaine to share the details on our financials.
Thank you Logan and good afternoon, everybody and the third quarter, we delivered all time high revenues of $1.054 billion.
Up 6% quarter over quarter, and 22% year over year.
Q3 revenues came in towards the high end of our outlook of $1 billion $40 million to $1.060 billion.
Revenue growth was driven by rideshare strength in addition to bikes and scooters with total rides up more than 10% year over year.
Active riders of $20 3 million reached the highest level in more than two years, reflecting strong new rider growth.
Revenue per active rider reached a new all time high at $51 88.
Up 4% quarter over quarter, and 14% year over year the.
The increase reflects higher revenue per ride associated with longer trips given the sustained pickup and travel through Q3.
Before I move on I want to note that unless otherwise indicated all income statement measures are non-GAAP and exclude stock based compensation and other select items as detailed in our earnings release our.
A reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC.
Contribution margin in the third quarter with 56%. This was a 100 basis points higher than our guidance of 55% with the outperformance, reflecting rideshare strength.
Relative to Q2 'twenty to contribution margin declined by 360 basis points.
Normalizing for $15 5 million in discrete accounting items in Q2 contribution margin decreased sequentially by 200 basis points, reflecting our risk transfer renewal in Q3 that has now shifted to align with our normal Q4 renewal timeline.
As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods and.
In the third quarter, there was adverse development of $93 million. This adverse development is primarily related to claims between October 2018, and September 2021, and is specifically associated with the legacy third party claims administrator that did not close these claims out as effectively as we would have.
As expected the longer claims take to close the more expensive they can become especially when subject to the inflationary pressures that are affecting the broader insurance industry.
Working quickly to resolve the remaining open 10% of claims that were handled by our legacy partner.
Let me provide a quick update on the insurance structure. That's in place for the next 12 months.
Just as we did for the previous insurance fiscal year, we've transferred a significant majority of risk to best in class Third Party partners.
So as of October 1st.
All of our risk transfer agreements have been locked in overtime, we believe that our risk transfer strategy will limit our exposure to future adverse.
Let's move to non-GAAP operating expenses below cost of revenue in Q3.
In the aggregate these expenses declined as a percentage of revenue by roughly 150 basis points quarter over quarter, and 270 basis points versus Q3 of 'twenty one let.
Let me start with operations and support as a percentage of revenue operations and support was 10, 6% up roughly 60 basis points from Q2, but down 140 basis points from Q3 of 'twenty one.
In absolute terms this expense was $111 6 million in Q3.
The sequential increase is a reflection of bike and scooter seasonality, which typically peaks in Q3 at.
At the same time relative to Q3 of last year, we achieved better leverage on our operations and support expense, even as ride volumes grew and we on boarded more drivers.
R&D was 10, 2% of revenue in Q3 down roughly 40 basis points from Q2, and 240 basis points from Q3 of 'twenty. One in absolute terms R&D expense was $107 7 million in Q3.
Year over year comparisons reflect the partial impact of the divestiture of level five that closed mid July of last year.
Relative to Q2, 'twenty, two R&D increased by $2 million, reflecting incremental investment in rideshare related infrastructure and support.
Sales and marketing as a percentage of revenue was 11, 3% in Q3 down 170 basis points from Q2, and 20 basis points from Q3 of 'twenty one.
This is a reflection of organic cowen to supply and demand as well as our continued discretionary cost discipline and.
In absolute terms sales and marketing expense was $118 $7 million within sales and marketing incentives for 3% of revenue.
G&A expense as a percentage of revenue was 26% in Q3 flat with Q2 and up 130 basis points from Q3 of 'twenty one and.
In absolute terms G&A expense was $216 9 million.
Normalizing for $12 million of discrete accounting items in Q2, 'twenty, two G&A increased by roughly $1 $2 million quarter over quarter.
In terms of the bottom line, our Q3 adjusted EBITDA profit of $66 million came in above the high end of our outlook of $55 million to $65 million.
Adjusting for $29 million in discrete accounting items in Q2 for every one dollar of sequential revenue growth in Q3, roughly 26 cents flowed to adjusted EBITDA.
We ended Q3 2002 with unrestricted cash cash equivalents and short term investments of $1 $8 billion.
And today, we announced we've entered into a revolving credit facility for $420 million that will provide us with additional available liquidity.
Now I'd like to address the difficult, but responsible step we took last week to reduce our workforce as.
As we disclosed in the 8-K filed on November 3rd we expect to incur a charge of between $27 million and $32 million related to this restructuring, which we expect will be incurred in Q4.
In addition to this amount we expect to record a stock based compensation charge in corresponding payroll tax expense related to affected team members as well as restructuring charges related to a decision to exit and sublease, where ccs of certain facilities.
However, urine able to estimate these charges at this time because they depend in part on our future stock price. We will exclude these restructuring charges in our calculation of non-GAAP metrics.
Before I move to our outlook. It is important to note. The macroeconomic factors are impossible to predict with any certainty future conditions can change rapidly and affect our results.
Now, let me share our Q4 outlook, we expect revenues of between $1 billion 100 and.
$45 million and $1 billion $165 million up 9% to 11% quarter over quarter, and 18% to 20% versus Q4 of last year.
To be clear even at the low end of the range our guidance implies a new all time high for our business. Our Q4 revenue guidance assumes sequential rideshare wide growth consistent with the seasonality. We saw in Q4 of last year, which is stronger than what we saw from Q4 of 2019.
Let me share an update on what we've seen so far in Q4.
For the month of October our total company bookings are on track to reach an all time high.
Rideshare rides grew roughly 6% month over month versus September .
Which is consistent with the seasonality we've seen over the past two years.
<unk> is stronger than what we saw in 2019.
Keep in mind, while October ride trends were robust, it's typically the strongest month in the fourth quarter.
Denver and December Rideshare trends are generally dampened with people spending more time at home around the holidays.
We also expect softening bike and scooter seasonality in the winter. This will impact active riders in Q4 since this metric captures bike and scooter riders in addition to rideshare.
In terms of profitability.
We expect Q4 contribution margin to be approximately 51, 5%. This is a decline of 450 basis points from Q3, reflecting the impact of roughly $82 million or roughly 700 basis points from our insurance renewals. However, we expect this headwind will be part.
Lee offset by higher revenue per ride inclusive of the service fee change.
As a percentage of revenue, we expect operating expenses below cost of revenue will be roughly 46% to 47%.
This would represent a sequential improvement of roughly 600 to 700 basis points with the majority reflected in G&A and operations and support within operations and support there are savings associated with bike and scooter seasonality between Q3 and Q4.
In terms of adjusted EBITDA, we expect to deliver $80 million to $100 million in Q4, which would be an all time high for our business.
Guidance implies an adjusted EBITDA margin of 7% to 9%.
To put a finer point on it while we expect contribution margin will decline quarter over quarter. We expect adjusted EBITDA margin will increase sequentially by roughly one to two percentage points.
Given our Q4 outlook, we expect calendar year 2022 revenue of $4 billion $65 million to $4 billion $85 million up roughly 27% versus 2021.
We expect full year 2022 contribution margin of approximately 56%.
Finally, we anticipate adjusted EBITDA of $280 million to $300 million for the full year with a margin of 7%. This would be triple the level of adjusted EBITDA achieved last year with more than twice the margin.
We are laser focused on delivering on our 2024 financial targets.
The momentum we are seeing in our business, our product and marketplace work and our cost management, we are even more confident in our ability to deliver $1 billion of adjusted EBITDA with over $700 million of free cash flow, which is defined as operating cash.
Flow less capex, we continue to see multiple paths to achieving these milestones driven by industry bookings growth marketplace efficiency work and cost discipline with that let me turn it over to John .
Thanks Helane.
We're continuing to accelerate the work that will have the biggest impact for drivers riders and our company. Let me start with how we are increasing the efficiency of our overall marketplace using three specific examples on maps drivers and riders.
First lift maps.
Approximately 25% of our rideshare rides are now powered entirely by lift in house mapping and navigation.
And on average each ride that Leverages, our mapping technology can produce more than 10 cents of incremental value for lyft and Theres more ahead.
We are leveraging lift maps to optimize our routing this can save drivers and riders time and add to our marketplace efficiency.
This is helping us solve last mile problems that rideshare drivers encountered daily.
For example, when rider request lead to closed apartment complexes. We can route drivers to public entry points solving a pain point that couldnt be addressed with traditional mapping tech.
And in markets like Dallas, and Atlanta up to 20% of weekly pickups and drop offs can occur under these circumstances. So this routing improvement can have a meaningful impact.
We've also integrated lift maps with Android auto and car play. This integration is one of the most requested over the past few years and can make driving safer by reducing dashboard clutter and resulted in better overall driving experience.
Since launching in September drivers have given nearly 1 million rides leveraging this integration we're excited to be the first rideshare company to bring this to market and expect it to continue scaling in the months ahead.
Next we are accelerating initiatives that can increase driver preference upfront pay is a great example, in the markets where upfront pay has been available we've seen drivers spend more time, using our network and an uptick in drivers preference for lyft.
As of last week upfront information is available on more than 70% of rideshare rides on our network and we are accelerating the rollout with a goal of covering all rides by the end of the year.
Driver innovations can increase organic driver acquisition and loyalty and greatly improve marketplace balance.
Finally for riders, we are continuing to ensure we provide a full range of price points and REIT experiences.
Wait and save as one example on the affordable side of the spectrum that delivers great value to consumers as well as to our broader marketplace management.
This mode gives us more time to balance supply with demand and can increase driver utilization.
It also serves as a strong acquisition funnel for new riders in the past six months nearly 20% of wait and save writers were new to lift Friday pickup as another example, one that provides a premium experience with priority pickup writers have the option to pay a little more for a faster pickup.
This can result in a higher margin to lift.
The work we are doing to improve the rider experience helps us reinforce rider loyalty increase ride frequency and have better tools for both revenue management and marketplace management.
Finally, this continues to be extremely well positioned and consumer transportation and is set up to take on more and more consumer spend.
There are three big drivers fueling long term growth demographics.
Demographics infrastructure changes and new products.
Let me start with demographics as we've shared in the past every year roughly 4 million people in the U S become old enough to use ride sharing on their own younger.
Younger members of the population have a digital first preference and value the convenience and flexibility of on demand services.
Second infrastructure changes these happen over a longer timeframe and continue to provide important tailwind.
Consider the airport use case.
Took time for airports to get comfortable with ride sharing and now many airports allocate designated Curtis space and queuing lots plus rideshare serves as an important source of airport funding.
This is just one example of how infrastructure changes overtime help reinforce rideshare and People's lives.
And finally, new products lift launched 10 years ago with one rideshare option today, we offer a range of ride modes and price points, including wait and save and priority pickup. We've also integrated new categories like bikes and consumer rentals that reinforce our core with additional touch points in.
In fact, this year more than 2 million people use lyft for the first time because of our bike and scooter systems.
With continued product innovation, we expect to capture a larger portion of consumers transportation wallets in the months and years ahead.
I am very grateful to the team and Lyft community and excited about the road ahead of us.
Operator, we're now ready to take questions.
At this time, if you would like to ask a question press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Your first question is from the line of Doug Anmuth with Jpmorgan. Your line is open.
Thanks for taking the questions I have two first just on insurance costs. I think you said $82 million and for Q can you just walk through the offsets here on both the top and bottom line just want to make sure that we got those clearly and then also the impact to riders you said is neutral but wanted to get a sense of what drew.
Divers are saying with the changes in the surcharges and then.
If you could also just rollout.
Talk about the multiple paths to 'twenty for EBITDA and free cash flow that would be helpful. Thanks.
Yes, we got that line is going to take the first one on insurance and then we'll go to the other two.
Sure on insurance in Q4, we expect an $82 million increase.
And cost of revenue versus Q3, that's reflective of our Q4 insurance headwind and then in terms of the puts and takes.
Given our guidance.
Revenue is at.
About $100 million quarter on quarter.
And that offset that more than offsets the $82 million headwind and insurance.
An increase in absolute contribution margin quarter over quarter.
Then below cost of revenue.
Our opex in total will decline by roughly $20 million in Q4 versus Q3, that's reflective of a partial quarter impact of our reduction in force and other changes, we're making to opex.
Sure.
Taken all together, that's what's driving our projections and EBITDA increased from $66 million in Q3 to our guide of $80 million to $100 million in Q4.
Does that answer your question.
On insurance prices I'll talk about the driver side.
Yeah. That's helpful. Thank you.
Great.
So on the driver side, we're doing a couple of things number one is we're investing in the Lyft rewards program. So we increase the cashback.
On gas award.
Along with a lift debit card that has now bumped up to 7% cashback, which is pretty meaningful benefit. We additionally have.
<unk> had for the last year or so a partnership with a company called upside.
And that gives all drivers access to additional cash back on gas.
And we bumped that up with higher rewards for our gold and platinum drivers.
The bottom line is that since we have eliminated the fuel surcharge at the start of the quarter.
We have not seen any impact on driver supply.
And in October active driver growth accelerated month over month versus September .
Overall. Additionally drive return levels are meaningfully below our 2019 levels.
So broadly we feel like we're in a great position with drivers.
And then your last question was on the 2024 targets is that right.
Yes, the multiple paths exactly.
Yes, so feeling more and more confident in our ability to hit that $1 billion.
And adjusted EBITDA was $700 million in free cash flow.
And we believe we can achieve this regardless of the macro environment.
Been using internally to mend cases, one is the growth case.
Which assumes market bookings grow in the.
Low to mid 20% year over year.
And that the labor market stays as tight as it currently is.
Then.
Internally, what we call a recession case, where the market growth slows.
We see operating leverage through lower driver engagement and acquisition costs.
If unemployment rises so in both cases.
We we have a very confident path to $1 billion and in both cases.
We will continue to focus our R&D spend on marketplace innovation.
It helps.
Improve the.
Cost basis of the business.
Great. Thank you.
Your next question is from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you so.
Don't want to sit here and dwell too much on the reduction in force but.
Can you talk about some of the projects that you may have had to sunset or depot do you prioritize from.
Product development perspective, given the cost containment measures you talked about earlier and secondarily read.
<unk>, India insurance costs it.
It seemed like last had a bunch of irons in the fire between making greater use of telemetry data.
Changing driver behavior et cetera, So, which we're also of course to help lower cost longer term. So.
Should we be thinking about potential benefits over the longer term from these initiatives or are they.
Sideline for the time thanks.
Alright, Okay, great yes.
So first just to talk a bit about the reduction in force.
We wanted to be equally prepared for any scenario that we encountered 23, whether it's the growth scenario or the recession scenario and to try to put kind of the scale of the reduction in force in context.
Had star.
Started too.
And head count growth in late 2021 in the first half of 2022.
<unk> slowed and then froze hiring.
Preparing for a larger kind of faster post COVID-19 recovery.
The reduction of force effectively takes us back to the same team size that we were in Q3 of last year.
And.
Broadly speaking we always.
I believe having a lean team is always important.
And we try to focus.
These cuts cuts that would help us increase our <unk>.
<unk> so what.
One of the areas that we focused on was we're doing reducing layers of management.
Increasing span of control.
The organization operate faster.
One of the particular areas that we've been spending a lot of energy on Additionally, as how we support our drivers today.
Have both virtual online support through SMS channels and phone support.
Part of the reduction of course was focused on closing the majority of our in person support centers and we have seen through testing.
Over the last six months or so.
By offering premium driver support through our virtual channels, we're able to produce.
Great experience for drivers.
A lower cost point, and we felt like it was important for us to double down on that and focus on the virtual support experience.
Beyond that we are.
Yes.
A long list of kind of smaller areas, where were better either slightly unprofitable or just lower our ROI areas of investment or shifting resources.
And the last piece to note is that.
We are putting the vehicle service business up for sale running a sale process.
And that logic is very similar to the change we've made around lift rentals.
We are still dedicated to providing the rental and the vehicle service experience.
But.
Both of those first party businesses have real kind of significant scale thresholds that need to be achieved for that business to work well.
And it wasn't going to be the highest highest ROI investment for us to make it so we decided to exit those businesses.
We will be doubling down on.
Our strength.
Which is building a third party marketplace with third party partners. So that we're still able to provide our drivers.
And our.
Customers with.
Great vehicle service capability through partners.
I'll take the insurance question and just starting at a higher level than going into you asked about product work like telemetry.
But at a high level first the inflationary pressures and rising insurance costs that we see are an industry issue.
Our primarily driven by <unk>.
Rising premiums as a result of higher cost of used vehicles vehicle repair higher medical costs and increased litigation cost you see this across the board in both personal and commercial auto.
And so.
We've fully offset as we said previously on this call our insurance cost pressures that we had in Q3 and Q4 and are now locked in for the next 12 months. We do believe that there is likely a timing difference in our renewals and our competition where are centered on October and the competition is likely early next year. So.
We feel proud of the hard work the team did in Q3, and Q4 to offset that big increase in cost and we do believe that the product work, we've been working on around mapping into luxury.
Also as you noted.
Further upside.
Upside not just in reducing costs, but more importantly in reducing the frequency and severity of accidents that leads to additional costs.
Thank you.
Your next question is from the line of Mark Mahaney with Evercore ISI. Your line is open.
Okay. Thanks, you talked about sort of these two headwinds are issues going into the December quarter insurance cost in macro that the.
October trends that you talked about sounded reasonably healthy.
So are there.
I certainly understand that we're all concerned about macro showing up but is there anything that you've actually seen in your in either the rider volume length of trips have no frequency of usage something in there that.
That has you somewhat concerned about the fourth quarter since you called out macro, but I don't hear it in the October numbers and then just talk about shared rides I know that's been kind of a late cycle recovery for for ridesharing as a whole and for Lyft and I know it's important to your business can you just talk about where that is in terms of recovering back to kind of full 2019 levels I know, it's going to take a while but just where are we.
And the path. Thank you.
Yes, absolutely no we are not seeing any concerning trends sort of macro trends in terms of.
In terms of growth.
Q4, we are trying to.
Reading all the same things I am sure you are.
We know that we can't sort of predict exactly how 'twenty three is going to shape up and we want to put ourselves in a position of maximum flexibility. So that we can.
Handle at any scenario and have the flexibility and agility to lean into that.
But no we're seeing strength in the business in Q4, and then on shared rides, it's still a small percentage of total rideshare volume.
But starting to look at the right markets to bring it back to.
Or additional markets like New York City, we just relaunched shared rides in New York City. This is a market where shared works really well because it's very dense.
The other perspective I'd give is that we're starting to see our affordable right options as more of a portfolio.
And so when we first had shared rides, we didn't have wait and save wait and save has become very popular among our writers as an option to wait an extra five to 10 minutes and save a few dollars.
And again that has become very popular.
Thank you very much.
Thanks.
Your next question is from the line of Brent Thill with Jefferies. Your line is open.
Thank you very much this is John again for Brent for Brent Thill.
Two questions I guess, if you could maybe give some color on how they use cases that trend Dan.
You gave the airport case, then you ought to use cases are trending in terms of commuting nights as well as business and then I don't know if you have any sense in terms of the.
Market share change, maybe especially on the west coast.
As well as.
Price trends on average thank you.
Can you repeat the second part of your question.
Yes, I wanted to see if you have any sense for.
The market share any subtle changes versus your main competitor.
And maybe even related to that in terms of how the west coast is recovering.
Okay.
Yes.
Use cases, as we mentioned airport rides being <unk>.
All time high of about 10, 4% of rides commute, we've seen pretty static I think around the 30% Mark.
And then I think there's still more upside and opportunity and where we're seeing some of the growth in the kind of more nights and weekends use cases people come continue to come back out that's on the use case on the West coast.
Still more runway ahead. It is improving Q3 right your volumes in our top U S markets, where 75% recovered versus Q4 19.
Within that the top 10 West coast markets were just 65% recovered.
So feeling good that we have more room on the west coast, where we have historically over over indexed.
Do you want to talk about market share, yes, so brought broadband market share third party data that we track shows.
A 1% drop in market share quarter to quarter based on our internal assessment that was primarily driven by additional driver incentives that the competition temporarily put into market along with their rollout upfront pay.
So those those incentives no longer appear to be in the market and over the last couple of weeks since those incentives have dried up we've seen our market share increased in a meaningful way. So we think there's always opportunities to take share and we are focused on durable growth and.
Driving the bottom line.
Thanks very much.
Thanks.
Your next question is from the line of Steven Fox with Fox Advisors. Your line is open.
Hi, good afternoon.
I was just curious you went through detail on some of the marketplace improvements you are making right now how do we think about those factoring into getting to $1 billion and how does it maybe help.
The contribution margins or the conversion margins over the longer term. Thanks.
So on the high level.
Martin marketplace work.
Something we've talked about in the past and has continued.
To be a big focus for us.
On the R&D dollars are spending is the use of the driver engagement spend so for example.
But.
One important thing to note is people often don't think about the fact that there is a variable pay component to what a driver mix as well as kind of the base.
He is going to be variable pay but you could either time at a week in advance or a Dana advance our just in time and are mixing.
<unk> learning that we're doing is getting more and more accurate than that.
Tools and incentives that we have to break up things like <unk>.
Nights and weekends as the time when there is the most demand or getting more targeted and so there's quite a bit of efficiency.
In driving the supply when you need it versus paying for it when it's less needed I'd say, that's the biggest opportunity on the marketplace side to improve the bottom line.
Okay.
What do you think there's sort of an efficiency curve. We should think about as you go to a billion dollars of EBIT dollars that mainly opex in copper engraving.
Thanks.
Okay.
What do you mean.
What specific cost curve are you speaking about.
In general for marketplace, So youre getting some significant improvements it sounds like now.
It sounds like there's opportunities to do that further but how much of a contribution is that to the $1 billion you're targeting for 2024.
And so it's a meaningful a meaningful part of that there is still quite a bit of room left.
In the last two quarters.
With the goal of.
Swallowing this insurance increase we did make some material progress.
But there is.
I would say.
Tens to hundreds of millions of dollars of marketplace efficiency over the next couple of years.
That's helpful color. Thank you.
Yes.
Your next question is from the line of Deepak massive Vernon with Wolfe Research. Your line is open.
Hey, guys. Thanks for taking the questions just a couple ones. So first if I look at the fourth quarter guide, it's about 100 million or so quarter to quarter increase it sounded like.
Sizable portion of that is coming from the incremental service fees I know the seasonality is a little bit different for rides and scooters and he said that the macro is not as much of an impact right now with what's factored in in terms of sort of organic <unk> growth maybe quarter to quarter. Maybe you can provide a little color on that that'd be great and then on the.
Long term guide our 2020 for expectations for $1 billion with the additional cost savings. It seems like you certainly have a lot more levers and.
Well conviction to reach dose levels, but what do you need to see to kind of raise those to a higher levels right now. Thank you so much.
Sure Helane, we will take that.
The question you had the first question you had.
Yes, so in terms of our Q4 revenue outlook.
It implies 9% to 11% quarter on quarter growth in 18% to 20% year on year growth and just reiterate that Q4 revenue range would be a new company high.
It reflects the service fee and growth in rideshare rides and as you noted that is partly offset by the seasonality, we see in bike and scooter revenue.
And just to reiterate the service fee is less than 50 cents right.
Alright.
With respect to the rides growth, we are assuming rideshare rides grow quarter on quarter in Q4 in line with the same sort of rides growth, we saw quarter on quarter last year and 2021.
So it's the combination of those two things service fee plus the rides growth.
Partially offset by the seasonality in bikes and scooters that are driving the incremental roughly $100 million increased quarter on quarter.
And then then on 2024, the two again as we've noted a few times on this call we have increasing confidence in our ability to hit our $1 billion.
Adjusted EBITDA target I would say the two kind of material differences between the two cases, we are tracking are one the rate of growth on the demand side or any recessionary pressure, which on the driver engagement side.
Is it lowers the cost of driver engagement and acquisition. So those are the biggest movers.
And in either direction would drive even further confidence.
Got it thank you so much.
Thank you.
Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the questions maybe wanted to double back and one more on the financials.
In terms of driving continued adoption of new riders.
Just give us a little bit of sense of would you see as the biggest.
Unlocked factors there or is it lower price rides is it more flexibility is it the product continuing to evolve because I think the biggest question we get from investors. A lot is just elements of continuing to deepen out widen the rider base over the next couple of years as an element of growth even if that results at.
More moderate price per unit type right. So just better understanding that I think will be helpful. And then looking at the financials.
Tony you could give us on some of the trends around stock based comp.
Not just for you guys, but generally across the industry. We continue to see sort of an upward pressure there how much is that driven by elements of hiring or retention or elements of where the stock price is or things that are more backward looking but forward looking some color on how to think about that would be super helpful. Thanks. So much.
Yes, so first.
In terms of in terms of really kind of the Tam growth and the opportunity one of the largest areas of opportunity that we see beyond the demographic trends.
Increasing reliability.
And affordability so first on reliability.
Yes.
The moments where the.
The EPA is too high or there is simply not a driver available.
That is sort of a latent demand in the system today that we are just not capturing and we should be there are many times where.
We can match.
There is a driver out there somewhere who would be willing to do that right at the right price and Theres a rider out there willing to pay that price.
And we.
We are simply not matching those two and we can be so increasing that reliability.
So that you can always get it right and you can count on it.
Any situation in any geography et cetera.
I think is probably the largest opportunity.
Secondarily as John was talking about earlier, our portfolio of lower cost options from wait and save to shared rides.
I think we've found to be very very powerful and the ride sharing sort of market is known to have.
Significant dynamic pricing, where supply tightens up the prices go up.
To maintain service levels.
But if being able to maintain a low cost option and flexing service levels. So that low cost option may mean, youre sharing the right or it may mean, you're waiting a little longer for the pickup.
But always having those those options at that price point, and having that flex coherently as a portfolio I think there's still a lot of room in terms of how we kind of pricing.
Price and organize the portfolio together to create optimal kind of experience for our customers. So those are those are broadly the kind of a big product focus levers that were focused on in addition to that.
The sort of demographic shifts over time.
And in terms of your question regarding stock based comp a couple of things that will.
Help reduce stock based comp going forward.
Obviously, the risk has an impact on reducing stock based comp.
In addition, we have.
U S New hire Inc. In the United States.
And with respect to <unk>.
<unk> going forward.
Shifting the nexus of our hiring away from largely U S too.
<unk> focus on international markets.
Where there is a different compensation model with low or no equity and markets like Canada and eastern Europe .
No.
We're proactively taking these moves to reduce the impact on our comp and Ben expense as well as.
The impact.
Stock based comp and effective installation.
Thanks, so much.
Thank you.
Your next question is from the line of Benjamin Black with Deutsche Bank. Your line is open.
Great. Thanks for the question.
Curious how should we be thinking about driver incentives level you mentioned it earlier I think last quarter, you spoke about incentive spend per trip being down sequentially sort of between the second and the third quarter, how should we thinking about trending in fourth.
And then it would be great. If you could kind of give us your perspective on the on the new Dol proposal for employee Trustification, where do you sort of see driver classification, the debate sort of ending up is there a path.
The C model to be more widely.
More widely adopted across the country. Thank you.
Yes with respect to your first question on driver incentives.
One thing that's really important to remind.
Everyone intent to point out is that driver.
Fintech and the extent to which they fluctuate quarter to quarter.
Largely driven by <unk>.
Time, and any imbalance that we see in the marketplace.
So we do project going from Q3 to Q4 and embedded in the guidance that we're giving we're projecting driver incentives to go up quarter on quarter in aggregate and on a per <unk> basis.
But for it to be entirely funded by primetime.
And that increase in prime time is largely driven by.
Things that we're seeing on the demand side.
<unk>.
Increased demand in peak periods, which we see as a good healthy sign.
On the.
Through regulation you asked about department of Labor. They released the proposed rule with 60 days of public comment. This was not at all a surprise that it was expected on day one of the administration.
No immediate or direct impact to the business and important to note. This rule does not reclassify lyft drivers as employees. It does not force led to change their business model and it's a very similar approach to that that the Obama administration took to use to.
To determine employee status.
And as previously applied to lift another app based companies and did not result in a reclassification of drivers.
Our base work as hopefully most people on the call know is quite fundamentally different than traditional nine to five work.
And we will continue to advocate for laws that drivers.
Consistently show they prefer that includes flexibility plus benefits.
Like the one that recently was enacted in Washington State, which gave drivers what they what they wanted that independents those benefits. So to your broader point I do think there will be more opportunities for.
<unk> for that type of law of independents, plus benefits and no major change from the federal policy.
Great. Thank you very much.
Thanks.
Your next question is from the line of Brian Nowak with Morgan Stanley . Your line is open.
Great. Thanks for taking my questions. Two just the first of all on the active riders I know there is theres a lot going on with the recovery in sort of getting back to pre COVID-19 levels, but just as you sort of think about the growth as riders is important going to bring new people into the population can you just help us better understand what percentage of your.
Our riders right now are our new credit cards, and new people that werent on the Lyft platform say pre COVID-19 swinging idea of new people come into the platform and then the second one I think insurance has been somewhat surprising to people. This year a little bit as you think about the path toward $1 billion of EBITDA what are your assumptions on insurance costs.
Between now and 2024.
You say that last thing each held off on the reinsurance cost base, yes, sorry, just.
Trying to get an understanding for your assumptions on insurance costs between now and 2024 and the EBITDA Guide.
Got it.
On the first point in Q3, we had the most active riders and ride volume since Covid started.
Quarter over quarter, it was 2% active rider growth.
Which was in line with the broader industry and if you look back and sort of look at absolute numbers. It's in line with the quarter over quarter growth. We saw back pre pandemic. If you look at Q3 2019.
And Rob as we've talked about before we continue to see service levels.
Peru, so you'll see better retro <unk>, we see less prime time declining over a quarter over quarter.
And our conversion rate.
In Q3 2002 was the highest its been.
In recent years, so we feel great about that we continue to market to and bring in new riders all the time.
We are.
In terms of new rider growth in Q3.
New riders grew by nearly 10% quarter over quarter.
It's something that we continue to invest and lean into and then you asked about the 2024 case and what's assumed on the insurance.
So.
The case of getting we're confident of getting to the $1 billion.
And we have baked in any assume changes in insurance on our <unk>.
Annual October renewal.
And we think going forward, we have much better.
<unk> of sight into those insurance rates. So again want to reiterate we feel quite confident in our path to $1 billion in 2024 and that does bake in.
Renewal offer insurance next October .
Okay.
Thanks.
Thank you. Thank you. Your next question is from John Blackledge with Cowen Your line is open.
Great. Thanks, two questions first.
What markets drove the strength in the third quarter and into October and then what markets were lagging it sounds like west coast still lagging a bit and then second on Lyft pay.
Any update on the subscription program and what percentage of bookings are from Lyft Pink subs. Thank you.
Sure. So just a quick response.
The markets are quite quite similar to what we've seen in the past continue to see kind of strength.
On the East coast.
Compared to pre pandemic markets like New York, and Miami continue to be extremely strong whereas the.
<unk> West Coast markets.
Just lagging behind but over the last two quarters, we have seen them start to pick up so no difference in that trend, which we talked about last quarter. Logan you want to talk about pink yeah. So.
So back in April we relaunched Henk at a new price point now priced at $9 99, a month.
<unk> a brand new headline benefit which is unlimited priority pickups, so priority pickup.
Typically costs $45 over the standard price a variety and it gets you a faster pickup you sort of cut the line ahead of everybody else and our.
Our members were seeing great product market fit our members are seeing on average over $29 of benefit per month. So it's like.
Roughly a three X return for them.
And we're layering in other benefits. So we're doing savings on sort of luxury and preferred rides waiving fees on cancellations.
And a really unique benefit as our roadside assistance.
We think is a lot better than AAA, you open up the app to click a button and you have to attract showing out the same kind of classic lift experience.
Additionally, we have the all access tank, which is 199 a month. This is where we are.
We then are.
Bike share membership programs. So this is an incredible deal.
Weaving in sort of first of its kind national Bankshare membership.
We see pink members, taking <unk> the number of rides compared to non members. So it is showing a lot of impact and.
While we're not disclosing number of subs.
We are starting to see some real growth in the program and we are very excited about it.
Thank you.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.