Early Investing

Uber and Lyft Are Bets on a Driverless Future

Uber and Lyft Are Bets on a Driverless Future
By Adam Sharp
Date March 29, 2019

The financial world is wondering… how will Lyft and Uber ever make money?

Well, it’s true that they’re hemorrhaging cash. Lyft lost $911 million last year. It did $2.16 billion in revenue on $8.1 in booking volume (gross value of rides/services provided). Lyft’s “cut” of the sales was 26.8% (the rest goes to the drivers).

Uber lost around $1.8 billion on total bookings of $50 billion for 2018. It takes an estimated 25% of the fare and gives the driver 75%. Uber is still growing by 38% a year, but its growth rate has slowed.

Lyft is growing faster at a 58% rate, but it’s still a fraction of Uber’s size.

Lyft’s valuation will reportedly be around $22 billion when it starts trading today. And Uber’s valuation may be more than $100 billion by the time it finally goes public.

These companies have impressive growth, but they’re bleeding cash and have to give approximately 70% of each sale away to drivers.

What’s the long-term plan here?

Automating Drivers

Uber and Lyft’s biggest expense, by far, is paying the drivers their cut of the fare. And in many cities, the companies compete fiercely for good drivers.

Both of these companies see driverless taxis as the future of their businesses. Imagine a fleet of millions of self-driving cars making money all day. The companies that win the self-driving market are set to reap huge rewards from automation.

Lyft and Uber don’t mention this angle too much publicly, probably because nobody likes talking about automating a lot of jobs. But it’s a big reason private investors have been so excited about these companies. We know driverless tech is coming, and taxis are likely to be an early use case.

Uber and Lyft are getting the users and infrastructure in place now, and they should be in a sweet spot when driverless tech takes off. They envision a world where most people don’t own a car, because it’s a lot cheaper to call a driverless taxi.

Uber has very ambitious goals when it comes to automation. It’s already live with driverless cars in a few cities, although the company had a major setback last year when one of its self-driving cars killed a pedestrian. This was tragic, and I do think Uber moved way too quickly in rolling out its self-driving program.

Uber has since pulled back its efforts and is cautiously moving ahead with its self-driving program in public. There’s still a lot of risk, but the prize is large. It has to go for it.

Lyft is also investing heavily in self-driving technology and has partnered with a number of self-driving enterprises, such as Google’s Waymo.

In my view, self-driving is the only really interesting angle for either of these companies.

But this whole self-driving thing is taking longer to materialize than people thought. Back in 2016, Uber projected that it’d have 75,000 self-driving cars on the road in 2019.

I suspect the shift to driverless cars will take longer than Uber and Lyft would like. The wheels of government turn slowly, and the technology still has a ways to go. Roads in the real world are complex, tricky and ever-changing.

Automation isn’t coming for the transportation industry quite yet, but it’s not too far off. Estimates vary, but some say driverless cars could prevent 85% of crashes and deaths. And driverless tech could virtually eliminate traffic once widely adopted.

I certainly think it will be adopted eventually. Driverless vehicles make so much sense economically that it’s bound to happen.

I also believe Uber has a significant advantage over Lyft in the race for driverless taxis. Uber has a lot more volume than Lyft in most cities, which is crucial for keeping drivers and riders happy. Uber also has access to more capital to research self-driving tech. It has a large international presence as well.

Lyft is a riskier play, but it claims 39% of the U.S. market. Lyft is spending a lot to acquire drivers and riders. It could pay off, but will investors remain patient long enough? Lyft is backed by some of the best venture capital firms on the planet, including Andreessen Horowitz. We don’t know who Lyft will ultimately partner with for self-driving tech. But so far GM has not worked out, and we’re unclear on how the relationship with Google (Waymo) is going.

In the end, I suspect Uber will be the better play on self-driving tech. Uber is better funded and in a better position to build that first fleet of driverless taxis.

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