LYFT - The Amazon Effect

Investment Analysis Clubs Saul’s Investing Discussions
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We live in new reality. Companies like LYFT and various other Saul stocks have made real dollars for you folks. I owned a bunch of them like TTD or OKTA but I never had the stomach to buy companies losing millions of dollars growing revenue at 50%+ and filling my entire portfolio with it. But you folks did it and are profiting handsomely. LYFT is exactly that type of stock. They had approximately 2 billion in revenue and managed to earn a negative 45% profit margin of $900 million. The funny thing is, when they had lower revenue they lost only $600 million. It appears that as they grow they manage to lose more.

Yet investors are forgiving. They take a chapter out of Netflix and Amazon investing. These companies lost a lot in early phase but are profitable today. Of course I don’t know if their losses were to the same extent as LYFT. I believe they were moving in the right direction whereas LYFT is not.

Investor behavior is spoiling the managements of companies like LYFT. Why other making a profit when investors just rewarded them with a $22 billion valuation. I believe the new formula is simple. P/S of 10 as long as you grow your business. Profits be dammed. Why try earning a profit of few million when you can manufacture a stock price appreciation of billions.

Of course I believe all this will come down to a crashing halt. Once the music stops, you better not have the parcel invested. In some sense this is worse than bitcoin. Bitcoin doesn’t lose real dollars. These companies lose real dollars. Both are speculative. I would stay away from both. Yet i looked like a fool when folks were profiting from bitcoins speculative gains. Same during the tech bubble or housing bubble. I looked like a fool staying away while everyone was flipping tech stocks or houses.

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They had approximately 2 billion in revenue and managed to earn a negative 45% profit margin of $900 million. The funny thing is, when they had lower revenue they lost only $600 million. It appears that as they grow they manage to lose more.


        revenue     profit (loss)
2017    1.1 B        (688.3M)
2018    2.2 B        (911.3M)

Look at the trend you will see the loss as percentage of revenue is shrinking.

If you don’t do anything, you lose nothing. :slight_smile:

Saying Lyft is worse than bitcoin is just insane.

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Saying Lyft is worse than bitcoin is just insane.

yes, I know, I am saying insane things criticizing a company that improved its profit margin from approx -65% to -45%. Or are those defending this valuation digging a hole for those who believe them?

Anyody can improve sales and steal marketshare by giving away their product at a loss. Insults aside, will they ever be able to make a profit once they stop giving away incentives to attract riders? I recently rode Lyft a few times. The price was consistently lower than Uber to the point, that I stopped checking Uber. Uber must be insane passing up business, even if it means, losing 45% on the revenue generated from each ride.

Is LYFT thinking that the rider will stick around once the incentive goes away?

In any case, my criticsm is not just for LYFT, but every stock that is playing this game. Sure, one out of 10 will eventually turn profitable, and maybe, hopefully LT investor will break-even. But let’s face it, the game most short term investors are playing is similar to the game those people who played the bitcoin game played. Bitcoin didnt generate any revenue because its not a business, hence didnt lose any money. That’s why it is atleast a beter speculative instrument than LYFT which has a market cap of $22 billion, whereas any “sane” investor would pay nothing for the honor to generate a $911 million loss in a single year. OK maybe they would pay something for a potential successful outcome (success defined as profit at some point, not just growing revenue and losses).

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There is a big difference between Lyft and Amazon. Amazon was first and unique and dominant. Lyft is not first, is not unique, is not dominant.

It will therefore be a far less desirable investment than Amazon.

Not a real stretch to say that but it stands true for most of the successful investments we hold here.

Certainly holds for the ones David Gardner is most high on. The reason is pretty obvious why.

Tinker

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Without commenting specifically on Lyft (as I have not done DD on it), huddaman’s caution is important as the greater fool theory still holds and it is not different this time. While there is careful attention on this group to carefully picking apart the stocks which have become popular here, in general, there are an increasing number of symbols who are being bid up simply because they can fog a mirror.

It is always important to keep an ear tuned to the music and an eye on an empty chair.

Jeff

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The Lyft valuation seems ridiculous. I don’t think of it at all like I think of SaaS companies. But I do agree that we must be careful not to measure the valuation of a SaaS company just be comparing it with other SaaS companies (balloon thinking). I believe we have to continue to question how SaaS companies are valued, asking the hard questions. That is one of the things that this board is good at.

$.02,
Brian

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“Bitcoin doesn’t lose real dollars. These companies lose real dollars.”

Bitcoin doesn’t lose real dollars? Hmmmm. So then how do you buy bitcoin?

Just ask all the folks that bought Bitcoin at the top if they lost real dollars or not.

Or the smarter ones that sold out of Bitcoin at the end of its amazing run if the dollars they received for their bitcoin are real.

I never bought Bitcoin but in September of 2017 I did buy ETH and XRP and cashed out for a 70k gain beginning of January 2018. It was an obvious bubble. They gave me real Benjamin’s. At least I hope they did. :wink:

All of these stocks you are warning about. They are overvalued, they indeed may sell off, but it will only represent a buying opportunity. So I hope you are right. I’d love to have another opportunity to buy them all at a derp discount.

Chris

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Companies like LYFT and various other Saul stocks have made real dollars for you folks. I owned a bunch of them like TTD or OKTA but I never had the stomach to buy companies losing millions of dollars growing revenue at 50%+ and filling my entire portfolio with it. But you folks did it and are profiting handsomely. LYFT is exactly that type of stock…It appears that as they grow they manage to lose more…Of course I believe all this will come down to a crashing halt. Once the music stops, you better not have the parcel invested. In some sense this is worse than bitcoin… These companies lose real dollars. Both are speculative. I would stay away from both… I looked like a fool staying away while everyone was flipping tech stocks or houses.

Hi Huddaman, It seems odd to me that you are using LYFT to attack our SaaS companies as there is no relationship at all between LYFT and a SaaS company, besides each of them being a company. None! And you refer to:

LYFT and various other Saul stocks

Wow! I’ve never written a word about Lyft, never owned it, and never even considered owning it, so how do you refer to it as a Saul stock? Our board is not at all about Bitcoin either. It’s even off-topic here.

I’m sorry that you feel left out while we have been so successful, but it’s possible that you never understood the SaaS Model: that these companies are plowing all their profits back into acquiring more customers for the future, because when they acquire a company it means recurring revenue almost forever, while the acquiring cost, that makes you think they are losing money, is all in the first year.

Best,

Saul

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Okay everyone, I haven’t see one bit of productive conversation here around

  1. Finding great growth companies

Or

  1. Debating a company using numbers and meaningful examples

This very much feels like a post attacking the way we invest in general which is OT. Not that we want group thing here at all, but these discussions tend to be pointless.

Hudda, I’d love to hear your take on the bear thesis (based on facts/numbers) of any of the companies discussed here.

P.S. we have hardly discussed Lyft at all here so I’m not sure where that example came from.

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“I recently rode Lyft a few times. The price was considerably lower to the point, that I stopped checking Uber.”

Do you buy on amazon? Do you bother checking around other sites for $30 purchases or do you one click buy knowing it will be priced aggressively and will have it on your door in a few days? This has been amazon’s model for a long time. Be so low priced that customers don’t even bother checking competition. This isn’t my theory I’ve seen it written by their management well over ten years ago. And it sure worked considering they have 50% market share and people like me don’t want to go through the hassle of entering credit card info on another site.

Not sure if that will work for lyft but it might. They have nearly doubled their market share over the past 3 years and remain laser focused on ride sharing while Uber is trying to get into food delivery and freight.

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Do you buy on amazon? Do you bother checking around other sites for $30 purchases or do you one click buy knowing it will be priced aggressively and will have it on your door in a few days? This has been amazon’s model for a long time. Be so low priced that customers don’t even bother checking competition. This isn’t my theory I’ve seen it written by their management well over ten years ago. And it sure worked considering they have 50% market share and people like me don’t want to go through the hassle of entering credit card info on another site.

I read somewhere that James Sinegal, former CEO of Costco told Jeff Bezos that if you can get your customers to pay you for being on your platform, you automatically become their default vendor. Hence Amazon Prime was created and studies show that Prime users outspend non Prime users significantly. I am a Prime customer but the frugal me won’t let me blindly buy on AMZN. I usually check Ebay and Walmart.com also. All things considered if AMZN is close I will use them because of speed of delivery and ease of returns.

Rob

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I’m sorry that you feel left out while we have been so successful, but it’s possible that you never understood the SaaS Model: that these companies are plowing all their profits back into acquiring more customers for the future, because when they acquire a company it means recurring revenue almost forever, while the acquiring cost, that makes you think they are losing money, is all in the first year.

I believe as a person working in software I do understand the SaaS business model quite well. I also understand the need to earn a profit and that ultimately a business is only worth the present value of its future cash flows. However there is always a speculative element which is making you folks successful. That same element caused the tech, housing and the bitcoin bubbles. These aren’t new inventions of our times.

I am happy for you folks that at least you guys are making money. I had some TTD abd tripled my money on it. I also had OKTA. It’s not like I hate every single stock in this board. Otherwise I won’t be posting this here. I am actually quite impressed by this board. But I hope you don’t mind when I throw in some criticism. I do believe that many of your stocks are going up due to this speculative trend. Kudos to you for identifying this trend and profiting from it. Some folks did make money on bitcoin and tech stocks. Lot of average guys got burnt. Perhaps you aren’t average. I believe Jeff up board said very well what I was trying to convey.

Have a great weekend.

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Yet investors are forgiving. They take a chapter out of Netflix and Amazon investing. These companies lost a lot in early phase but are profitable today. Of course I don’t know if their losses were to the same extent as LYFT. I believe they were moving in the right direction whereas LYFT is not.

Focusing on early losses or profits and movement is not what matters.

What matters is growth.

If you take the time to go through the Fool archives as I did a few years ago, you’ll find that a long time ago David Gardner chose Amazon.com over Pets.com. Today that’s viewed as a wise move, but if you read what he and others wrote at the time, the decision wasn’t based on Amazon growing to dominate internal retail. These were both niche internet companies, one selling pet supplies and one selling books. I think the management of both companies had intentions to grow well beyond the products they were currently selling, but clearly Amazon’s management was better able to balance current needs against future growth. Or, they just got lucky. Or, some combination of the two. As I pointed out earlier in this thread, even if you bought Amazon at the peak of the dot com boom, you’d still be doing better than the S&P today.

At any rate, I think the question about Lyft is not whether they’re losing money today or not, it’s whether Lyft can achieve their growth objectives. As a “taxi replacement” service, there are limits to what Lyft can become (even accounting for world wide versus local), just as an “internet retail” company we’ve seen the limit as to what Amazon could be. But Amazon was able to expand to web services, streaming music and video, etc. We all know that Lyft, like Uber, is looking at a robot driver service as a way to reduce costs and increase popularity. But, I suspect both companies are looking at the courier/package delivery market, or trucking, or vacation rental, or any number of transportation dependent businesses.

There was no way to know in 2001 that Amazon was going to invent and make a ton of money on Web Services in 2005 (ish). But, David Gardner might say that at the time he was betting on Bezos and Amazon management to be smart and do the right things to grow. So, perhaps the question for Lyft is whether you think their management is close to Bezos in ability to sustain the business while growing the business.

Because, it’s growth that matters to us investors. At least on this board.

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“But, I suspect both companies are looking at the courier/package delivery market, or trucking, or vacation rental, or any number of transportation dependent businesses. “

I feel that if you sat in on a management meeting at Lyft and they were discussing future plans that they would be talking about independent contractors driving their own cars to transport people to destinations.

Probably more along the lines of a fleet of autonomous car pods available to Anyone with a Lyft app.
You get in and the car takes you to your destination. Lyft throughout the day moves empty cars when needed to certain locations where it’s predetermined to have heavy ride need at certain times of the day like rush hour.

What Lyft looks like right now is just a set up for the future. They likely might merge or be bought out by a bigger fish. Either way this model today will morph into something very different just like a Amazon morphed into something very different.

Chris

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But, I suspect both companies are looking at the courier/package delivery market, or trucking, or vacation rental, or any number of transportation dependent businesses.

Uber already has expanded into Uber eats (restaurant delivery) and Uber freight ( a platform to help independent drivers to acquire loads and backfill runs so the have loads both ways).

Rob

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Probably more along the lines of a fleet of autonomous car pods available to Anyone with a Lyft app.

Yeah, sorry I wasn’t clear, but the delivery, trucking, vacation rental, etc. markets I was considering were all based on robot drivers. It’s a potentially big future, but the question is how long it’ll take and who’ll do it best/first/profitably.

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I picked up a few LYFT shares on Friday (around $81) and will be building up a full position over the following weeks.

LYFT revenue will probably increase 8-10X within a decade and since this industry is a duopoly with network effects, in my opinion, it won’t be easy for new players to enter/compete.

Autonomous driving in the future (many years out) will boost margins and LYFT will also probably end up as the platform for other autonomous ride hailing fleets.

My two cents.

GM

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I only rarely use Lyft over Uber because most of the time Uber is more available. And I still can’t shake the image of those cars with the stupid mustaches.

Usually I use Lyft when I have a promo or referral credit.

That said, I’d use whatever service was readily available, especially if they can use Apple Pay and not require a credit card to be entered. I’d use regular taxis if they could be called by an app, pay without cash, etc.

Until electric robo taxis become a thing, I don’t see how they ever turn a profit. The driver, gas, and downtime just cost too much. When they do become a thing, I don’t know whether Lyft, Uber, Waymo, or the individual car companies will lead the way, or if it will be like the car rental companies with a bunch of players.

I am much more likely to pay a subscription for transportation (to replace owning a car) through a car company that I trust than one of the ride sharing companies. If I had to bet, the first one would be Tesla, given how much data they have gathered and (supposedly) their existing fleet of fully autonomous capable cars.