Q3 2023 Lyft Inc Earnings Call
Okay.
Good afternoon, and welcome to <unk> third quarter 2023 earnings call.
At this time, all participants are especially not only to prevent any background noise.
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.
This conference call is being recorded I would now like to hand over to Paul <unk> head of Investor Relations you May now begin the conference.
Thank you welcome to the Lyft earnings call for the third quarter of 2023.
On the call Tonight, we have our CEO, David Russia, and our CFO Erin Brewer. In addition, christiansburg check our president is here for the Q&A session.
We will make forward looking statements on today's call relating to our business strategy and performance future financial results and guidance.
These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call.
These factors and risks are described in our earnings materials and our recent SEC filings.
All of the forward looking statements that we make on today's call are based on our beliefs as of today and we disclaim any obligation to update any forward looking statements, except as required by law.
Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results.
Reconciliations of our historical GAAP to non-GAAP results may be found in our earnings materials, which are available on our IR website.
So please be aware that today, we've announced changes to our key business metrics. These changes are described in our press release and our supplemental slide deck, which are also available on our Investor Relations website.
With that I'll pass the call to David David.
Thank you Sonya.
And good afternoon, everyone and thanks for joining us.
I'm thrilled with our progress, creating a customer obsessed and financially strong lift.
More drivers and riders are choosing lift every day.
In fact this is post Q3, just in the past few weeks, our gross bookings have been the highest in our history.
The actions we've taken over this year to refocus our business on drivers and riders, including pricing more competitively and improving the customer experience are producing incredible results.
And the first nine months of 2023, we supported over half a billion rides and generated more than $10 billion in gross bookings.
<unk> growth has accelerated each quarter this year up 10% year on year in Q1, 17% in Q2, 20% in Q3.
With better balance in our markets marketplace Primetime is at the lowest level, it's been in years and drivers pickup times have gotten faster across our regions.
These factors underpinned, our very solid Q3 performance.
A big headline this quarter is it more drivers are choosing lift and they're driving more often in Q3. This resulted in an almost 45% year over year increase in the number of hours drivers spent using lift with not incentivize driver hours growing even faster.
Our focus for drivers is on making lift the simplest way to earn and it's paying off.
So even while rider demand accelerated our conversion rate.
That means the share of right intent that converts to rides taken was stable and that translates to a higher volume of completed right.
Overall, our execution with impressive our team has worked in lockstep to prepare for back to school and return to office and delivered very strong results.
For example over the roughly 70 regions, we targeted for back to school and here, we're really referring to University towns Rideshare rides grew by 25% year on year, reflecting a surge of new high.
Returning riders and drivers and with return to office morning, commute rides grew even faster up more than 30% year on year. The last week in September.
This means more after work activity too, we're seeing a pickup in weekday evening rides, particularly Thursdays and Fridays.
This great execution bottom line were happening more people get out and get connected which is core to our purpose. It's something we're really excited to see.
And we will continue to listen to customers and act on what we're learning to create differentiated experiences.
Women plus connect which we introduced in early September is a great example.
It's a feature that prioritizes matching women and nonbinary drivers and riders.
Giving them more comfort more come rotary and more control and they use lyft.
And our early access cities, we've seen great results.
More than half of eligible drivers have opted into this future very unusual and are keeping the feature turned on nearly the entire time their online actually you want to give you a little color just on this.
The feedback we've gotten has been amazing ambrosia whenever that drivers in Chicago told us quote having women plus connect actually encourages me to drive more than.
And Amy a driver in Phoenix.
I myself driving more at night with 100, plus connect which has allowed new opportunities for me to earn money.
So listen carefully to what the drivers are saying both examples speak how customer obsessed features can directly improve their experience, but also our business metrics.
This case, increasing driver hours, which of course leads to more rides on the platform.
Last thing I'll say about this right now as customers and city officials have taken notice and they're asking us when aluminum plus connect will be available in their market.
Why we accelerated the rollout of women plus connected to an additional 50 cities and towns last week and we expect it to be available nationwide early next year within the plus connect is a great example of the type of innovation that customers want and they can reinforce our brand expand our addressable market and helped drive preference and growth overtime.
Yeah.
As we move into the holiday season, we will continue to deliver new customer obsessed features targeted to driver and rider needs as.
As one example, we want to make getting to and from airports dress fleet. We've already done a ton of work this year to make scheduled rides highly reliable and we actually have a big announcement coming tomorrow that will provide even more peace of mind to writers going to the airport. This holiday season.
Stay tuned for that.
Finally, I wanted to touch on our small, but growing part of our business that can improve our margins over time.
<unk> media.
We have a great opportunity to connect brands with our millions of riders in ways that deliver differentiated relevant messages and experiences.
In Q3, our lift media unit launched in App advertising, which adds to our in car.
On car and on street offerings that you've probably seen if you've been in Manhattan recently.
We can tailor ads to wear a rider is heading and to their lifestyle.
So imagine you're on the way to the movies.
And getting an AD that allows you to preorder your drinks and your popcorn.
Experience means you're even readier to go by the time you get there. This is whats opening up conversations with partners like Universal Pictures do you want to help design and co launch.
New AD products, including in App video advertising, which will rollout this quarter.
It's still early days and this is a small business now, but we see a ton of potential to be creative in how we enable brands to engage with writers and relevant moments and build a meaningful and of course very high margin business.
Now before I turn the call over to Eric It's worth taking just a moment to reflect on the road. We've traveled over this year and really over my first seven months or so we've refocused our business we've streamlined our cost structure and we are operating in a healthy and competitive way.
We're also building a culture of true customer obsession operational excellence. These are all foundational to our ability to deliver profitable growth in fact appraised Youll hear me say several times as customer obsession drives profitable growth and Thats what were seeing so as we move on to 2024, we've got our foot on the pedal I want to say huge.
Thanks to the entire Lyft team for their unbelievable work, we've got a lot more to do but we're super excited about the road ahead, Eric over to you. Thanks.
Thanks, David and good afternoon, everyone and thanks for joining us today I'm going to kick things off by addressing the changes, we're making to our key business metrics and then I'll review, our Q3 results as well as our Q4 guidance.
Sure I dive in I want to remind everyone that unless otherwise indicated all income statement measures are non-GAAP and excludes select items, which are detailed in our earnings materials.
Starting with new metrics today, we introduced gross bookings rides and adjusted EBITDA margin as a percentage of gross bookings if.
If you haven't seen in our supplemental slides. Please take a look at them as they contain detailed information.
<unk> seven quarters and two fiscal years of historical data. We hope you find this information useful.
Overall, our expanded disclosures better align our reporting with our strategic priorities and how we are managing the business.
Let's start with rides, which represent how much our platform is used across rideshare as well as bikes and scooters.
At a high level when we grow rides it shows the drivers and riders are choosing lift.
Our objective is to grow rides within the construct of building a durable healthy and profitable business.
Next gross bookings.
Which reflect the aggregate size and impact of our business on a rideshare side gross bookings includes applicable fees tolls and taxes invoice to riders, but excludes pips to drivers. This is consistent with our largest competitor.
Gross bookings also includes amounts that are invoiced to our non rideshare operations for example related to bikes scooters Express drive data licensing and advertising.
We're also moving to reporting adjusted EBITDA margin as a percentage of gross bookings.
Please note that our definition of adjusted EBITDA as described in our earnings materials in our SEC filings is not changing.
As a reminder, in connection with our IPO, we disclosed our rides and bookings metrics I'm going to touch on how these new metrics compare.
Our definition of rides is consistent with the prior metric.
However, our S. One disclosure would have reflected a significant volume of shared rides, which as a reminder was largely sunset earlier this year.
Next the gross bookings metric. We've released today is largely consistent with the definitions of bookings included in our S. One.
In our S. One pass through fees like tolls and taxes were excluded.
And today, we have included those pass through fees in our definition of gross bookings again, which is consistent with our largest competitor.
Given our focus on gross bookings, we are shifting away from formally providing metrics that anchor to revenue.
Of course, you'll still be able will still continue to disclose revenue cost of revenue adjusted EBITDA and active riders. So you will still be able to calculate revenue based metrics.
However, beginning in Q4 2023, we will no longer present as key metrics revenue per active rider contribution contribution margin or adjusted EBITDA margin as a percentage of revenue.
With that lets now move to our third quarter performance.
We came together as a team with purpose to deliver a great experience for drivers and riders and saw strong results consistent with our outlook.
Driver and rider demand and engagement increased in our rides growth accelerated let.
Let me share a few operational and financial highlights for the third quarter, we supported $187 million rise and $22 4 million active riders.
Total rides grew 20% year over year.
Within this rideshare rides grew 22%.
Ride frequency, referring to the average number of rides per active rider was the strongest it's been in more than three years, but remains a significant growth opportunity.
We saw continued momentum in travel with airport trips growing by nearly 15% year over year.
Regionally the West Coast showed the biggest sequential improvement in Q3 with nights out and continue leading the way.
Gross bookings were $3.554 billion up 15% year over year.
This reflects strong rides growth, partially offset by lower prices year over year, given our competitive focus and improving health of our marketplace.
Revenue was $1 billion $158 million up 10% year over year and slightly above the high end of our outlook driven by rideshare strength.
Cost of revenue was $638 million up 15% year over year, driven by higher ride volumes, along with higher per ride insurance costs, reflecting last years third party insurance renewals.
Operating expenses were $455 million down 18% year over year.
As a percentage of gross bookings operating expenses were 13%, reflecting an improvement of five percentage points versus Q3 of 2022 primed.
Primarily driven by our recent cost restructuring actions.
Relative to Q2 of 2023 operating costs increased by $45 million sequentially, reflecting targeted marketing investments along with volume driven costs related to bikes and scooters.
Adjusted EBITDA was $92 million, which as a percentage of gross bookings was two 6% and reflects momentum across the business.
We ended the quarter with a solid cash position with unrestricted cash cash equivalents and short term investments of approximately $1 7 billion.
Now turning to Q4.
We're off to a great start our teams are executing extremely well and demand was strong for the month of October driver hours maintained their 45% year over year growth and our rideshare ride growth accelerated above the 22% we achieved in Q3.
We also delivered a great Halloween week experience for drivers and riders with driver hours right intense and rides.
Each reaching new multi year highs.
With that let me review, our Q4 guidance.
I'll highlight that our outlook is consistent with our previous directional comments on the fourth quarter.
We expect gross bookings of $3.600 billion to $3.700 billion up 13% to 16% year over year.
We expect total rides growth year on year will accelerate slightly from the 20% year on year growth rate, we saw in Q3 driven by rideshare.
If youre doing comparisons on a sequential basis.
Note that our outlook implies a slight decline in total rides again sequentially Q2 bike and scooter seasonality.
We expect adjusted EBITDA of approximately 50 million to $60 million.
And an adjusted EBITDA margin as a percentage of gross bookings of roughly one 4% to one 6%.
This reflects a full quarter impact of our third party insurance contract renewals that went into effect on October one.
Yeah.
As you May recall last quarter, we provided directional Q4 outlook in terms of revenue.
So just to sync that up for you here's how our formal guidance compares.
We now expect our fourth quarter revenue will grow mid single digits quarter over quarter, which is at the high end of our prior directional comments.
On a year over year basis, our outlook implies revenue growth in low to mid single digits, reflecting our competitive focus and greatly improved marketplace health versus Q4 of last year.
We expect fourth quarter adjusted EBITDA margin as a percentage of revenue will also be at the high end of the prior directional comments and roughly in line with the 4%. We achieved in Q2 2023 again this refers to adjusted EBITDA margin as a percentage.
Of revenue.
And finally, as we make the transition and reporting consistent with our updated key metrics I thought it would also be helpful. This quarter to share some comments on cost of revenue and operating expenses.
We expect our fourth quarter cost of revenue will increase by approximately $100 million quarter over quarter, reflecting the impact of our third party insurance contract renewals, along with higher rideshare ride volumes.
We expect operating expenses will be roughly flat quarter over quarter.
With that I'll bring our prepared remarks to a close our team is focused on building a business that is both customer obsessed and financially strong I've been impressed with the team's solid execution and focus on delivering great experiences for drivers and riders we've had a really great start to our fourth quarter.
And I am excited about the road ahead.
Operator, we're now ready for questions.
And gentlemen, we are now open for the question and answer session, if you'd like to ask a question.
<unk> and number one on your telephone keypad. Our first question comes from Mark Mahaney from Evercore. Your line is now open.
Okay. Thanks, I'll make it a point never to congratulate management teams, but congratulations on the much greater disclosure I think it's a huge win for investors and for you. So thanks for doing that two questions. I had one is you talk about the long term drivers. If we think about the long term drivers of the company.
In terms of riders rights provider bookings for I'd take rate et cetera.
Aaron you mentioned.
Particular confidence about increasing the rides per rider, but just long term as you think about those drivers, which which do you think you have the most power to move where we're at.
It would be the biggest driver of growth going forward and then secondly, just a small question on scheduled rides, what's the kind of penetration rate you are seeing with that now and just talk about the benefit that has to the to the model I assume that's higher margin rates for you. Thank you.
Yeah, Hey, Mark it's David I'll start and then Aaron and I will kind of tag team on this.
First by the way thanks for the congratulations on the increased transparency is something that Aaron has been focused on since day, one and it's just wonderful to see the team to be able to deliver on that so glad you like it and I hope it helps.
On growth Here's how we think about it.
Is that kind of surprising to hear customers sessions with drives our focus here and.
Let's just start and I'm going to zoom out for just a second so forgive me for a little bit of a long answer, but let's just start with doing the basics right you do the basics right every single day day in and day I turned 65 days, a year and customers really noticed that and Thats, where you see things like pricing in line with the market come.
Take rate in line with the market and so forth.
Then on top of that you really build expectation execution excellence.
And if you look a couple of examples that we've had I.
I mentioned back to school in my remarks that didn't just happen right back to school getting 25% year on year growth in 17 markets requires a lot of work.
Did the same around Halloween and as we alluded to those are not just recent year highs. Those are all time highs we achieved in two weeks.
In the first couple of weeks of October in terms of gross bookings, so really exceptional performance there.
It speaks to the importance of just ongoing operational excellence, which is a real focus.
And then when you add on top of that you can start to look at differentiated products and services.
Mentioned women plus connect.
That's not a small market, we're talking about 50% of the population are women of course, only 23% of our drivers of women by the way only 15% of driver hours are driven by women and 15%.
So there's a huge upside in focusing on making women feel more comfortable driving and writing, obviously, which can really generate all kinds of growth over the long term.
Let's take another use case commute you probably saw.
100 articles have been written in the paper over the last couple of months about return to office.
We read those articles were participating ourselves people are back in the office here, a lift and we're out there selling the companies, we've got relationships with Amazon, but Netflix with Linkedin, where we're trying to take the worst part of community, which is the nonproductive kind of high stress time and make that into a better time for employees, which obviously.
Works well for Lyft as well so that's a.
A big deal and so with differentiated products that give people a reason to choose lyft or Uber, but they also give us a way to accelerate our growth.
And then the end on scheduled rides skip arises so interesting right now it only makes up about 5% of our rideshare rides, which is actually sort of surprising right. It's actually a little bit less because if you think about it just using the airport use case, you know youre going to go to the airport and by the way so to weak because oftentimes you'll linked up.
Calendar and so we can remind you about that.
So since you know we can start to get ready right. We can remind you when you make your scheduled ride and then we can really double down on making sure that that is a great experience and we're actually going to be talking more about this tomorrow, we've got a pretty exciting product launch to come through tomorrow around this but it really is around distress in your life, particularly around the holidays by the way.
Scheduled rides, it's obvious when youre talking about.
Airport rides, but I'm looking at Christian our present inherent she revealed the <unk> case and it goes to apply its class or yoga I forget.
And she's going to start to schedule that because she knows what is going to happen it's easier than doing it on demand.
And reliable to your margin question, yes, it is a little bit of a higher margin product, it's a higher.
Reliability product and so as a result, we can charge a little bit more we can pay drivers a little bit more which encourages them to be there on time and it's a better experience for both rider and driver so lots of upside there and it's just I think one example of one of our modes that as we lean more into.
We can really drive growth products. So I know that was a long answer but to the point that kind of cover a bunch of basis, Eric anything you want to add.
No Mark the only thing that I would say is.
David I think you've covered it.
Any of the levers and so I think it's important to understand that we really do have multiple growth levers across the business.
But you also talked about frequency as you think about active riders and it's really gratifying to see that frequency as I think about that year over year or even sequentially quarter over quarter is increasing I'm sure. Some of that is again getting out and about after the pandemic are returning to office, but.
We still think there's obviously more opportunity there in addition to that all of the other levers that David mentioned.
Thank you Erin Thank you David.
Sure.
Our next question comes from Doug Anmuth from Jpmorgan. Your line is now open.
Thanks for taking my questions David after a couple of years of price inflation. It feels like we're starting to see some moderation on a like for like basis, and then combined with the mix shift perhaps into more affordable right options for consumers just curious how youre thinking about pricing exiting the year and into 'twenty four and also just want.
To ask about another ride mode in terms of weight and Steve I think you've talked about that is around 30% of rides in the past can you give us an update there on how that product is doing thanks.
Sure.
So sort of great points, both so on pricing.
Pricing has been fairly stable right now no major changes it bounces around a little bit as you would expect but it's not a significant we don't expect a significant change there we kind of like what we're seeing and frankly, our riders due to its one of the reasons why we've seen such great ride growth quarter on quarter and year on year and wait and save.
Really glad you brought it up because I think it's a great reminder.
People do not.
Price rides in a vacuum and there is a rider you don't.
You are not real choices not binary.
So if you are more price sensitive.
Rider or if youre out of more price sensitive time in your life or a period of time, where you frankly have a little at a time you don't mind burning because you want to get a coffee at Starbucks or whatever waiting to it's a great option and we see it Phil.
No major changes from where it was before I will tell you that wait and save.
Riders take.
<unk> doubled the rise of non wait and save riders. So that really suggests that there is a segment that you can really speak directly to and we can optimize that over time, we can prove the economic component, but it's a really important.
Part of.
The mix and just to answer a question that you didn't ask but I'll answer it anyway, which is that.
<unk> got a lower price conscious folks too.
It's called shared rides and we innovated there it's an area where we started we.
Largely a turn it off except for some very specific use cases, because we don't find a riders or our drivers like it very much. So we think just on a head to head basis, we've got a better more customers our strategy there.
Great. Thank you David.
Sure.
Our next question comes from Brian Nowak from Morgan Morgan Stanley. Your line is now open.
Thanks for taking my questions.
One on the list.
Quite take rate I appreciate the bookings disclosure. So I don't take rate can be somewhat crude, but if we sort of take the revenue and divide it by your bookings it looks like your effective take rate is sort of somewhere in the low thirties.
What higher I think than your than your your competitive peer in the U S. How do you think about that take rate over the next year or so to kind of load balance supply and demand it's more supply into the overall ecosystem.
Yeah, I'll start with that one.
As a reminder of course, we report as a single segment and that includes.
Both our rideshare business, but also a mix of bikes and scooters fully media et cetera, and so as you think about that total revenue as a percentage of gross bookings.
Theres more than rideshare, there, but I will say about that though as you think about TBS fleet and media.
That will drive revenue as a percentage of gross bookings up about two to three percentage points. If you will depending on seasonality and depending overall in the quarter, but what I would really say its bottom line as we of course track.
And in a very methodical way, how we are competing in the market. Both in terms of price sand as it relates to driver earnings we feel confident that since Q2, we've been operating and pricing competitively and in line with the market and if I can steal a phrase from David.
People are voting with their feet right more drivers and riders are choosing lift.
And that's again just another data point that gives us a sense of where we are competitively.
I'll just underscore the last thing that Aaron said, our driver of our strategy with drivers.
Pay them fairly for sure and have continued to make sure. It's a great way to earn and so we expect to pay in line with the competition, just us and where we priced and yes, I mean, we've seen 45% historic highs in driver hours. So really no material difference there I think it's more of a math issue around.
We present verses how embryos.
Okay. Thank you.
Our next question comes from Ken <unk> from Wells Fargo. Your line is now open.
Thank you appreciate it appreciate the question.
Could you. Please help me think about.
Medium term insurance inflation, how should we just think about those various dynamics that might play into that first and then second again kind of more medium term question, which is if you look at look out beyond the.
The next several quarters, how do you think about the various factors driving overall ride growth both from an industry level.
I'll, let level specifically thank you.
Thanks, Ken I'll start with the insurance question, and then and then hand it over to David So as a reminder, we renewed our most recent set of third party insurance contracts effective October one we renewed those very consistently with how we communicated on our previous earnings call.
So that gives us substantial visibility over the next 12 months. So nothing has changed there from what we have previously communicated.
Rising auto without being said rising auto insurance costs are a reality of our industry overall.
The rate increases we saw in this most recent round were lower rate increases than in the previous year. So certainly some signs that I think some of the COVID-19 impact on these rates is abating.
But that being said a core part of how we think about managing our overall cost strategy is thinking about managing our strategy around insurance over a multiyear period and it really encompasses not only thinking multiyear but working across the company in a really cross functional way.
So it encompasses a couple of different areas. The first one is just around around product and product improvements.
The next one is really initiatives around safety, we've been working for many years on various initiatives around safety and we still think there's more.
Room to grow with that as our as our capabilities have become more sophisticated so anything that helps promote safety, obviously reduce accidents using our telematics to improve settlement outcomes is going to be a core part of our strategy and then finally, what I would say is on the policy side.
We continue to be active on what we view as common sense policy reform, specifically as it relates to TNC insurance requirements. These function at a state level, but we are also working side by side with our insurance partners some of the largest insurance carriers.
Certainly in the U S in their efforts as an industry to combat what sometimes call the social inflation other times referred to as legal system abuse. So it's really a multi prong multi directional strategy.
As it as it relates to insurance, but again for this year and for our renewals that we just completed we completed those as expected and we have substantial visibility for the next 12 months.
Yeah.
So kind of all kind of pick up exactly where Erin is leaving off so just talking about the next 12 months and insurance out maybe give a little bit of perspective over the next couple of years growth.
If you think of.
So let's say this.
Strong execution and just continued operational excellence can really really drive the business strong.
But if you want to look.
Even longer you've got to tap into things that are super Super deep and it turns out people really like to be together and people really like to be enjoying their lives outside of just their houses and so forth and so on.
And finally, not only do people like that but there are all sorts of other companies and organizations and.
We'd also like us cities like that because it gets people are buying.
Partners like that we've got a great partnership with Chase Bank. For example, you can talk about that.
Later for interested but.
The credit card partnership we have with them with our chase Sapphire is a great great partnership and one that I think in a lot of ways is just getting started so I think if you sort of look over the next couple of years, it becomes a little bit less sort of but I think it's a little bit of a tired story of kind of just uber and lyft and so on and so forth.
And much more into how can organizations like ours that are really focused on doing really innovative work for customers. How can we really take our rideshare network and make it a bigger and bigger part of People's lives such that they end up having.
A bigger better light and that our partners increasingly can support and get behind as well because it helps them out as well so it's a little philosophical and we can try to get a little more detail, but that's the way we think about it.
Thank you.
Sure.
If you'd like to ask any questions. Please press star and number one on that Chomsky pad. Our next question comes from Deepak <unk> from Wolfe Research. Your line is now open.
Okay.
Hey, guys. Thanks for taking the question kind of a two part question on bookings growth was nice to see some acceleration in <unk>, but more broadly how do you think about the market and sort of the industry growth.
For 2024, and then the second one related to that Uber is seeing some benefits from new verticals inside of the rideshare and kind of a product like <unk> and also products like reserve. How do you think about the opportunity for incremental growth from there and maybe can you unpack some of the contribution from.
Are these products that you currently have as well. Thank you so much.
Maybe talk really quickly can you actually hear us.
Okay.
Yes, we can hear you.
Okay Awesome. Okay. Please go ahead.
Okay sorry.
Technical glitch, there and my apologies just as you're starting that question. We had a little technical thing can you just repeat the first part of that question one more time.
Yes, no I was just asking about your expectations for industry growth in 2024 in the U S Rideshare space.
Oh, yes, we probably in aeronautics chime in on this as well, obviously, we're not giving any longer term guidance. Besides what we just gave for Q4, we're still very much on track for.
What we call our long range plan, the LLP, but that'll be at the beginning of next year.
But I would just say broadly speaking, we feel a lot of reasons to be really optimistic about growth.
Let's start with where we are today and then try to extrapolate a little bit again, just looking back the last couple of weeks, we've seen growth higher than we've ever seen in our corporate history.
Not just not.
Just talking about sort of just going back to 2019, but literally since day one so that's.
Super Energizing number two we see some secular trends.
Travel will continue to be a big growth driver you are seeing that across the sector.
<unk> will continue to be a big growth driver again, youre seeing that across the sector as people come back to work.
Post pandemic. So those are sort of secular trends and then when you look at where we fit in.
We really are again, where customer obsessed right. So we're really trying to take a look at large segments like women for example, or like.
Airport travel, which includes business travel leisure travel and so forth and say how can we create more and more differentiated experiences that drive that incremental use and incremental frequency rate and we all noticed I mean heavy heavy users of rideshare.
You asked about the sector they might use the service.
Maybe a couple of times a month that already gets to be a pretty heavy user and yet most people go to work three times a week at least most people go to social activity a couple of times a week. So in a lot of ways I think we're really underpenetrated in terms of how people can use in their daily lives. So again, maybe a tiny bit philosophical but.
When we look at our 2024 trajectory, we feel super good.
Yeah, the only thing I'd add to that David obviously fully agree.
As you think about our model I think it's important to note that as we get into Q2 of 2024, we will have anniversaried a couple of a couple of important things first and foremost that's really the first full quarter, where we.
Operated competitively and in line with the market as it relates to our pricing strategy.
And it's also the quarter obviously, we in in Q2 of the current year, we enacted cost restructuring program. So as you think about 2020 for Q2, 'twenty 'twenty four will be the quarter, where we anniversary those to two items.
Okay.
Got it and then the second part on contribution from products like Shanghai.
And potentially something similar along the lines of reserves, how do you think about that.
Yeah, so in our world.
We start in shared ride back in I think it was 2019 2018 something like that.
Even further back my apologies and but.
But we actually found that it wasn't a particularly great experience for riders or for drivers riders didn't like it so much because it feels like a sort of a diversion from where they're going they're taking a weird left turn in another weird left her and then drivers don't love it because for drivers.
The least.
Enjoyable part of Orion is the pickup and drop off and so it of course increases pickup and drop off. So so it's an area that we've decided largely the sunset.
Couple of use cases, where we still use it but it's not a very consumer facing product and instead, we have wait and see which allows people to wait a.
A little bit more flexibility in return for getting some money on as I mentioned before it's a great product for us it represents anywhere between 25% to 30% or so of <unk>.
Volumes coming along there.
Our.
What Uber caused reserve, that's our scheduled dry product and youll be hearing more about that tomorrow, where we're making even.
Even stronger commitment to reliability on those so that when people use it particularly go to the airport they've got a great experience I think there is enormous upside there I think there are a lot of times when people's lives, where with a little bit of thought.
Serving ahead of time can actually.
Reduce the hassle and stress in their lives.
And as I mentioned before.
It has a slight premium price to it. It also has better economics for drivers as well so they like it too.
I'll bring up on other thing since you mentioned.
Kind of ride types, we are just in the process and again, we'll be talking more about this tomorrow, but I will give you a preview today.
Launching a product called extra comfort extra comfort is an affordable.
Sort of higher end ride the cars are newer the drivers are more experienced the leg room with a little bit bigger.
You can choose a quiet ride and so on and so forth you will see it if you open up your lift out today and almost all of the country and tomorrow, even more youll see it and its price that maybe a dollar or two above the normal experience, but it's a nicer experience and.
You might think of it as comparable to economy plus.
And airlines and if you follow the industry, you'll know that.
That's a that's a crazy profit driver formats, making up something.
It's almost double economy, and theyre selling out so we look at that as an area of very customer focused because it allows customers to have a little bit of an upgraded experience.
A little better economics for us a little bit higher margin product and one that represents a very small part of our ride volume today and can grow overtime.
Thanks, so much.
Okay.
Our next question comes from Eric Sheridan from Goldman Goldman Sachs. Your line is now open.
Thanks for taking the question, maybe just two if I if I could in terms of capitalizing on the market opportunity. When you look out to next year, David We'd love to get your sense of what you see is the <unk>.
Michigan critical sort of two or three elements on these are the products side of the investment side to continue some of the momentum, especially as you move into an environment, where you'll be lapping some of the changes you've had to make to pricing. This year that would be number one and then in terms of the Q4.
Adjusted EBITDA as a percentage of bookings can you walk us through some of the headwinds and <unk>, we should be keeping in mind in the Q4 guidance that impact that margin guidance. Just so we better understand some of those velocities, both headwinds and <unk>, leaving 2023 into 2024, almost as a way to think about incremental margins.
<unk> going forward. Thank you.
Yes, Aaron and I will tag team on that.
I'll start off Eric So I think.
I guess I would come back to differentiated products and services in 2024 and all.
You mentioned two again.
One we've already talked about actually which is women plus connect that's a new product for US. We just launched it in 50 new markets last week.
By the beginning of next year or at the beginning of next year, we hope to roll that out nationwide again, that's not a small marketplace right. We're talking about roughly half the U S population.
And if you've looked and I encourage you to do so if you haven't.
Social media at the comments that were getting they give you a pretty good indication of why we're so excited and you got it.
Literally women riders, saying I am interiors now because of what you've done I am so appreciative that this will allow me to feel more comfortable in a new city at a time of day I don't usually feel comfortable writing and a part of town and I'm not usually comfortable or for drivers, saying. This is going to allow me to drive more.
Work with my friends to get them on the platform as a driver because it's a great opportunity, but I'm only using it for scheduled riser airport rides right now because I, just don't feel comfortable or have not traditionally, but women plus connect unlocks all of that so so I think thats existing product, but youll see us continue to pour gasoline on that bond bar because it's.
It's great for riders that are great for drivers and obviously, you've tried broad volume and so forth.
There are others, but probably not a good position to talk about them now because I don't want to tell anyone else listening on the line.
For drivers similarly.
Anything we do for drivers that increases driver supply.
It's a big win and I'll give you. An example of something that we've already launched so its not competitive, but it's such a great product and frankly it's.
It's doing really well, which is it's called drive within the region and it allows you as a driver to say I need to be home by seven o'clock Tonight to have dinner or I need.
I need to be at my school at two o'clock in the afternoon.
Pick them up and buy there are actually two different products. One is basically allows you to pick a destination. The other allows you to pick a radius.
Within which you'll you'll drive today.
These are both innovations we've started over the last couple of months and.
And they're really picking up massive steam for drivers in fact actually.
On a roll here. So I can tell you one more for drivers I think is super interesting.
Top priority mode.
The drivers and it allows drivers to.
It gives drivers additional.
I call it ride flow and in so doing they actually tend to make more money per hour, which is really interesting again I can go into detail if you're interested but the drivers that we've offered that to which tend to be they're more loyal longer term draw.
<unk>, absolutely love it and because it allows us to earn more money on the platform. So these are all things some of them are more kind of in front of the cart and some of the rope of behind the curtain, but you add all of them up in each one of them I think is a pretty significant growth driver you talked about media again, we can go more to detail about that I'm sure. Maybe later in the conversation will also talk about AI and some of the <unk>.
Opportunities that gives us but.
I don't think we feel at all constrained with ideas that are strong growth drivers and I'll say this because otherwise Aaron will raise our eyebrows that way.
We feel like we've got the right cost position to do this although we do not have to hire a bunch more people or do much for things like that we've got a great. Great team. That's doing amazing work. We just have to continue to focus on customers and drive more leverage on the platform.
And Eric as it relates to your question on Q4, adjusted EBITDA margins as a percentage of gross bookings.
I would say our tailwind as you think about the sequentially quarter over quarter.
We talk about the health of our marketplace.
That has definitely been a tailwind for us it continues to improve and we will continue to do so.
In our in our estimates here in the fourth quarter and we've got revenue going up in the fourth quarter and operating expenses staying flat. So there is some leverage there and then as it relates to the to the headwind that is primarily.
Reflecting that are the increases we're expecting from our recent insurance contract renewals.
We will fully flow through cost of revenue beginning at the start of the fourth quarter.
Thank you.
Our next question comes from Benjamin Black from Deutsche Bank. Your line is now open.
Good evening. Thanks, Thanks for the questions.
Unless media can you dig in a little bit into that.
Love the early take rates have been where do you see the need to invest more to grow that business is on the infrastructure side.
Our products.
Really great to hear sort of how big you think that.
Could could become over sort of the medium to long term.
And then one on sort of Contra revenue.
Your competitor, obviously favorable supplier wins is reporting lower contra.
I'm curious to hear how you're thinking about your current sort of driver incentive levels.
<unk> seeing a normalization there and is there anything you can do our work from from an operational standpoint that could structurally lower driver incentive spend per trip.
Yes, Benjamin and I will take the first and aerotech the second there'll be another attack team. So, let's let's talk media for a second because it's such an interesting opportunity and.
We will start Super Big picture today, if you're a brand and youre trying to come up with a new way to sort of speak with your customers.
Gosh, the online world has gotten a little bit small for you you can buy Google Adwords.
And they'll charge you for that and.
You can do some stuff on matter for example, but if you really want to go where your customer you're probably not as excited about Twitter anymore, sorry editorial comment there, but anyway. So these are the things that kind of brands are looking at and yet we know that.
Younger generations are Super brand focused and very responsive to brands.
So so people are looking for new areas now tick tock of course, there's a lot of work there and they're having a huge amount of success, but if you think about the experience that a rider has when they open up the app. They start to look for arrived what are they told us they told us not only where theyre going from but where they're going to.
And then they are effectively told us that theyre going to spend 5678, 10, 15 20 minutes in a sort of captive situation in a place where they're not got a lot going on.
Aside from just kind of look out the car windows. So so we have four products that we use.
And I'll go through them Super briefly so first we've got the in App ads NFS start literally as you.
Request, a ride and you go through what we call a ride matching screen, which might take 15 to 30 seconds or so.
We're serving on about 70% of those requests right now we're serving in App ads and our goal there is that those apps.
<unk> be relevant and interesting right, we're not interested in.
Experience effect exactly the opposite what we're seeing is very high click through rate, we are not going to talk about the numbers just yet, but they've been really nice to see and we're also seeing something very interesting and what we were hoping for but what necessarily expecting was that cancellation rates tend to go down in other words as people have something else to do besides sit around.
And kind of waste they actually spend time interacting with that AD rather than canceling the right. So that's super exciting for us it's a win win.
Then you get in the car in the car two things happen number one you still got the App on your phone and people maybe to a surprising degree actually check the app as theyre headed to their destination. So that gives us another AD service, but also increasingly we're putting tablets in cars. We've got about 8000 screens right now on cars that are spread across 2014 markets.
And what they do is they give us the opportunity of course failure right or they can map their progress to their destination. They can.
Give the driver at a tip and these are the sorts of things, but we also have advertising to their Apple has been a very strong advertiser there as an example, and they've re upped right there they're liking what they're seeing and we can understand why when we when we look at the data.
Super exciting and again, we want those ads to be great nothing like the taxi things that you see in the U S and the Ark, which are which are which are not so bad.
I will also say as a cook.
Side drivers participate in the economics of those tablets as well and so when you are getting served in AD as a rider Youre also contributing to the driver and the driver of course, I appreciate that and that makes them more willing to drive for labs, which is wonderful.
Third thing, which you might have seen particularly in New York city or the rooftop.
These are rooftop screens.
A number of different organizations have these we think are screened happens to be.
One of the best in terms of its resolution in terms of its cost its ease of use it repair ability and so on and so forth. We've got about 1000 screens right now and we'll see that grow over time, which will allow us to really interesting.
Citywide takeover and of course, they're all digital so you can you can blast out movie premiere across an entire city.
In a matter of hours and then the fourth because of our ABS business.
Anytime you see.
Mike.
Patient documentation Youll see apparel next door at some of those are analog old school with some of those are digital new school.
Time of course more would be digital as we electrify and we've got some really interesting work going on there for example in Chicago, but Thats another AD service and imagine again that city takeover of a movie premiere. So I know, there's a lot of detail, but that maybe gives you a sense of the scope of our ambitions. If you think of the scale of this advertising is mulch.
$2 billion.
Opportunity not just talking about for us, but I'm talking about this type of advertising that I think is still in its early days for us it's fairly small, but it is up I think forex year on year.
And we really like what's gone.
Yeah, and I'll take the question on <unk>.
Contra revenue incentives.
Might start with.
Don't mind bragging on our marketplace team a little bit. This is the team that manages this piece of our business every day.
And clearly since we've pivoted to focus on.
<unk> pricing competitively with the market et cetera.
I think that team has just done.
<unk> delivered masterfully keep in mind that we operate one of the most complex sort of real time dynamic marketplaces that exists out there and so as a consequence, we are going to be making dynamic decisions as it relates to both driver and rider incentives, but to give you a sense on that.
Performance that that team has delivered from a from a contra revenue per incentive perspective.
We have become more efficient per ride in Q2 again in Q3, we expect that to continue to get more efficient in Q4, so they've just done a masterful job at.
Getting supply where it needs to be and you're doing a great job for drivers about sort of predicting the time in the places where we will see demand and so I wanted to give that team a ton of credit that being said again, there is a dynamic nature here so while.
On a contra revenue incentive in Q3 that got them.
That definitely got more efficient for example on the rider side, we spent a little bit more again in a very targeted way supporting our back to school efforts, which David highlighted highlighted so that piece of the incentive structure is still quite small its less than 5% percent of revenue, but I highly.
That just to give you a sense of how we will make those decisions.
In a reasonably dynamic way, but I'm really pleased with where we are overall in terms of the continued health in our marketplace and the balance that we see there.
Great. Thank you very much.
Our next question comes from Michael margin from Moffett Nathanson. Your line is now open.
Thank you for your question and also the additional disclosures I was wondering if your competitor has spoken to one P. M.
Ensuring are self insuring versus three P model.
I would love to hear maybe a little bit about pros and cons of each strategy and.
Do you think about that going forward and when we did the meet and greet in the Bay area spoke about it a little bit you know keeping insurance companies honest.
That'd be great tomorrow, a little bit more about how you're approaching that.
Sure Fair enough.
There are a number of years, what I would say is that we've had a mix of a portion of our book that is self insured and then a mix where we contract with third parties through relationships that extend over many many partners we've been with for many many years.
So we always look at this from a number of dimensions.
One obviously, ensuring that we are getting the best and most competitive rates.
We now have about 10 years of data across the marketplace. I think that helps give me give us a really informed point of view and instead of previous experience that helps us make smart decisions.
We like the mix that we have today you know certainly in terms of the portion of our book that we contract with third parties that gives us.
Certainty as it relates to cash flow and so having that having that mix. We think is a good portion of our business. So I wouldn't expect that total mix might move by a few percentage points on any given point.
In time in our renewal cycle, but I think overall, we're we're pretty pleased with the mix that we have and we think it's a very very competitive structure.
Okay, and I forgot to ask are you able to quantify like what percentage of total booking taxes and pulls are.
The total pass through as a percentage of total bookings is that what youre asking Michael.
Yes.
That's roughly 10%.
Great. Thank you so much.
Our next question comes from John Blackledge from TV Cowen. Your line is now open.
Great. Thanks, two questions first could you talk about <unk> competitive position in the third quarter and any Geos, where you might have seen some share gains and then second.
Just any further color on the growth on the West coast.
Where we're at is where the right volume is relative to pre pandemic levels. Thank you.
Okay.
Yeah, I'd say a little bit.
About the second and actually soon you'll have to remind me about the west coast grew fastest I think it was actually our fastest growing region in the third quarter.
And I think a lot of that some of that was focused execution frankly, we actually doubled down on a couple of markets to understand how to continue to grow those markets. Some of it also is secular.
West Coast has lagged a little bit and back to work, but we see that coming across Super strong right.
We will talk too much about the other regional stuff unless someone else in the room and even stronger to say there yeah. The only thing I would just say generally is is this it's very interesting.
Yes.
Lift is both.
North American.
Rideshare platform of course, but it's also a very local rideshare platform and so.
Every week to give you a little peek behind the curtain in our operational we call a weekly business review meeting, we really go all the way we'd helicopter all the way up to what we see macro all the way down to the micro what's going on in region, a region B and why Mike.
It's been moving unexpected directions, there so the way we run the business is very much at both levels.
But I think rather than go into more detail, we'll just kind of leave it there.
Thank you.
Sure.
Yeah.
This concludes our question and answer session I will now turn the call back to Mr. CEO, David Mitchell for any closing comments.
For sure. Thank you so much.
I mean, primarily military Oh, yeah, thanks for joining us.
Thats the main thing I wanted to say.
A huge thank you said, a lyft team Aaron mentioned the marketplace team, but they're not alone. When you look at what we've been able to talk about today, it's only because of the amazing work. So many of our team members have done.
Hugely hugely appreciate it.
We're super customer obsessed I think you've heard us say that a whole bunch of times, our focus is on creating a customer obsessed financially healthy business and our basic thesis is the customer section is what drives our profitable growth. We're really excited about the momentum we've seen in the growth we've seen in this past quarter and we're looking forward to updating you on our business and progress in the new year. So thank you all.
Okay.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Everyone else has seen it looks like no one else is going to join this call.
Goodbye.