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What Can We Learn From Numbers Recently Leaked by Uber and Lyft?

Here at Flywheel we work very closely with drivers and passengers, and pay attention to companies like Uber and Lyft that compete with cabs for business. We often see the huge numbers associated with these companies $60 billion valuations, $500 million fundraises and millions of rides. But what can we learn by examining numbers closely? How do top level decisions and business plans affect the drivers and passengers?

In the past couple weeks, both companies have had significant leaks of their internal numbers and BuzzFeed, Bloomberg Business, Business Insider and Mattermark have dug into the nitty gritty to see what we can learn.

Let's Start with Uber...

BuzzFeed was given data on over a million rides in late 2015 by Uber drivers and was able to put some real world dollar amounts to what has otherwise been kept internal.

First, it used the data to calculate how much drivers are actually taking home after expenses like gas, insurance, Uber's cut and vehicle expenses. These hourly rates appear to be a far cry from a 2013 statement from Uber to the Wall Street Journal where it said the "typical" driver earns about $100,000. The actual take home for drivers is unsurprisingly far less. Of the sample data Denver drivers averaged highest earnings at about $13.17 an hour and Detroit averaged the lowest at about $8.77 an hour. For Detroit, that puts them just 27 cents over Michigan minimum wage which is $8.50 an hour.

Check out the graphics created by BuzzFeed.

As Uber has decreased the rates it pays its drivers it has also shifted its messaging. As we saw above they were promising drivers a well paying full-time job before, whereas now their messaging focuses on driving part-time to supplement other income. If you are looking to make extra money after work $8.77 an hour might be attractive, but it probably isn't a living wage.

We also learned that the practice of cutting rates to try to stimulate demand was bad for both the average driver and passenger in Detroit. When they lowered the rates drivers had to complete more rides, burn more gas, etc to make the same money. As one driver interviewed said, "If you’re making 20 bucks an hour at your job, and your boss says, ‘Steve, you’re going to make more money, but I’m cutting your per-hour to 11 bucks, and you’re going to work 80 hours per week to make up for it,’ why would you want that?” (via BuzzFeed).

The article also reveals that decreasing the rates led to fewer drivers on the road and more surge pricing. So drivers work more for less, and passengers ended up paying more. Lose, lose.

What about the Lyft numbers?

We learned this week that Lyft had their biggest month ever in May. Bloomberg and Business Insider have the full details, but the most important numbers are 12.7 million rides and a projected 12-month revenue run rate of $1.9 billion. This all sounds great but what are the costs of growth?

Lyft also says that it won't lose more than $600 million this year, which while staggering seems to be a reasonable number for investors in doing battle with Uber. They don't expect to grow significantly in June.

In general, these numbers are murky because we don't know exactly how Lyft calculates its "net revenue." We don't, for example, know if this figure includes incentives paid to drivers. We also don't know what percentages of rides were paid for in full by passengers Vs. paid for by Lyft. We do know that roughly for each two new paid rides they gain (11% increase in May), they give away a ride (5% Increase in May). Growing is very costly.

Alex Wilhelm stares at numbers all day for Mattermark and had some interesting insights into the Lyft losses:

However, the figures do paint an interesting picture. A loss of $600 million in a year works out to $50 million per month. That’s not Lyft’s costs, mind. That’s the negative result of Lyft’s revenue minus its costs. To figure out what it likely costs to operate Lyft, we can compare revenue, and implied loss. Employing our 20 and 26 percent cut estimates, which generate $32 and $41.2 million each, it isn’t hard to see that Lyft spends much more to run than it takes in.

In fact, the higher the percent that Lyft takes of rides—again presuming that the $1.9 billion figure is all cash-based gross platform spend—the more it spends; given that its loss rate is now confirmed to a certain cap, boosting Lyft’s estimated revenue in comparison to a static loss implies higher spend. At the same time, the higher Lyft’s revenue, the smaller its $600 million deficit becomes on a ratio basis. Mixed blessings.

Things completely fly off the rails if Lyft’s $1.9 billion ride value run rate doesn’t discount for discounts. That would cut Lyft’s net revenue, making its implied running expenses lower, but also its negative margins worse.

Until we have more hard data, how to view the $1.9 billion figure is up to you.

While we shouldn't jump to conclusions without having more information on how Lyft comes to its numbers, it is clear that there is a very real cost to growth. It may explain why they are reported to have hired M&A banker specialists Qatalyst Partners to help fuel the growth through sale or more rounds of funding.

The transportation industry is moving very quickly, but sometimes it pays to take a few minutes to break down the numbers and see what you can learn. What is the cost of growth? Are drivers being compensated fairly for their efforts? Are short-term incentives setting us all up for longer term pitfalls?

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