Lyft, Inc. (LYFT) Q3 2021 Earnings Call Transcript

Good afternoon and welcome to Lyft's Third Quarter 2021 Earnings Call. At this time, all participants are in a 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. You may begin.

Thank you. Welcome to the Lyft earnings call for the quarter ended September 30, 2021. Joining me today to discuss Lyft's results and key business initiatives are our Co-Founder and CEO, Logan Green; Co-Founder and President, John Zimmer; and Chief Financial Officer, Brian Roberts. A recording of this conference call will be available on our Investor Relations website at investor.lyft.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, the performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects. We will 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 2021 filed on August 5, 2021, and our Form 10-Q for the third quarter of 2021 that will be filed by November 9, 2021, as well as the current uncertainty and unpredictability in our business, the markets 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 and may also be found on our Investor Relations website. I would now like to turn the conference call over to Lyft's Co-Founder and Chief Executive Officer, Logan Green. Logan?

Thanks, Sonya. Good afternoon everyone, and thank you for joining our call. We had a great Q3. We beat our outlook on every metric and reported a second consecutive quarter of adjusted EBITDA profitability. Demand remained strong and we have seen a material improvement in drivers so far. We are now positioned for continued recovery and we're excited about the solid foundation we've built to continue to scale our business. Let me turn to a few highlights for the quarter. Revenue increased by 73% year-over-year and was better than our outlook. Active Riders grew by nearly $2 million versus Q2 as more riders returned and resumed prior use cases, and new riders started using Lyft. Although recovery trends still vary regionally, it's clear that local riders are on the move. During each month of the quarter, we saw improved revenue from rideshare rides. Nights out and weekend use cases picked up, and airport rides nearly tripled year-over-year in Q3. Additionally, we saw strong demand for bikes and scooters with bike rides hitting an all-time high in the quarter. Citi Bike in New York is just one example of the exclusive content we made available to Lyft, and in Q3 Citi Bike rides made up 40% of our total ride volume in the region. It's strategically valuable as we look to deliver increasing value to this user base. Switching gears, driver supply materially improved and retention has been strong. In Q3 Active Drivers increased by roughly 45% from the past year. New driver growth was robust, up 60% year-over-year. Keep in mind in September the enhanced federal unemployment benefits sunset, and we saw the highest level of new driver activations since COVID began. Just to be clear, the number of drivers matters, but so does the number of rides they give in an hour. We have found that drivers have been giving more rides versus 2019 for some time. In fact, in Q3 drivers gave 20% more rides per hour than they did in Q3 2019, on account of innovations in our marketplace engine and higher earnings. When drivers are busy, they can optimize their hourly earnings and support more rider demand. This is beneficial for drivers, riders and our business. We achieve all this against the backdrop of consistently tightening major markets. The unemployment rate reached a multi-decade low just before the pandemic hit. Driver earning requirements vary a lot from city to city. Ultimately the playing field is level. Our competitors have to navigate the same factors. As a marketplace, when conditions change, our pricing adjusts automatically and dynamically as an offset. We've seen this dynamic play out this year. We've demonstrated improving leverage even while driver earnings have remained elevated, and I'm confident in our ability to build on this momentum in our business. Turning to Q4, early trends have been positive. October is typically the strongest month in the fourth quarter for rideshare rides due to seasonality. Brian will talk more about this, but people are usually more movable in the summer and less so in winter or around holidays. This is especially the case with bikes and scooters. Looking further ahead, although the pandemic continues to create operating uncertainties, we are optimistic that the recovery will continue and drive additional rideshare use cases, as well as fuel its growth. John will provide key business updates, but before he does I'll turn the call over to Brian to review our financial performance.

Thanks, Logan. Good afternoon everyone. Before I walk through the numbers, let me start with an update on supply. As Logan shared, we are extremely pleased with the significant impacts and results of our Q3 supply investments. We entered the quarter determined to improve service levels given growing demand trends. In Q3, driver activations increased 34% quarter-over-quarter and jumped over 100% versus the number of activations in the first quarter of this year. The growth in new drivers contributed to strength in active drivers, which increased nearly 20% quarter-over-quarter. In this improving supply position, we delivered 73% year-over-year revenue growth and on a quarter-over-quarter basis, we nearly tripled adjusted EBITDA to $67 million. We also achieved record contribution margin and revenue per Active Rider. And keep in mind that we generated these results despite the impact of COVID variants, which delayed the return to the office for many companies. 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 press release. 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 is furnished with our Form 8-K filed today with the SEC. Let's move to the details. Q3 had strong unit growth. Despite increasing COVID case counts, the sequential growth of Q3 rideshare ride volume accelerated and jumped by over 80% relative to the Q2 growth rate. This was fueled by broad sequential strength across cities. In terms of specifics, 99 of our top 100 cities generated positive sequential rideshare ride growth in Q3. New Orleans was the sole outlier given Hurricane Ida. Additionally, average daily rideshare ride volume increased each month in Q3. Beyond rides, we saw healthy growth in unique riders. In Q3, the number of Active Riders increased by 51% year-over-year and 11% quarter-over-quarter to $18.9 million. New rider activations increased by 47% year-over-year. Revenue per Active Rider increased by 14% year-over-year to an all-time record of $45.63. Revenue per Active Rider benefited from a 6% sequential increase in ride frequency, which we partially attributed to improving service levels. The combination of these trends led to a $99 million sequential increase in third quarter revenues of $864 million, which was above our revenue outlook of $850 million to $860 million. It is worth noting that bikes and scooters provided roughly $10 million of the $99 million increase given their seasonal strength. For the second quarter in a row we achieved a new record contribution margin level. Contribution margin in the third quarter was 59.4%, which exceeded our outlook of 58.5% to 59%, representing nearly a 10 percentage point increase from Q3 of 2020. The outperformance of revenue and contribution margins relative to outlook helped our strong Q3 contribution of $514 million. For each dollar of incremental revenue growth versus Q2, contribution increased by over $0.60. As a reminder, contribution excludes changes to liabilities for insurance required by regulatory agencies attributable to historical periods. In the third quarter there was no adverse or positive development net of reinsurance recoverables. Let's move to operating expenses. Operations and support expense for Q3 was $103 million, a decrease of 12% year-over-year. Operations and support expense as a percentage of revenue was 12% in Q3, up slightly from 11.3% in Q2, which is primarily from bikes and scooter rental activity as well as growth in background checks related to driver onboarding. R&D expense in Q3 was $109 million, down approximately $20 million quarter-over-quarter resulting from the sale of our Level 5 self-driving division which closed in July. As a percentage of revenue R&D expense declined 12.7% in Q3, down from 26.2% in the year-ago period. Q3 sales and marketing was $99 million. As a percentage of revenue, sales and marketing was 11.5%, roughly flat from Q2 at 11.6%. Within sales and marketing, incentives were less than 2% of revenue. G&A expense in Q3 was $167 million, a decrease of 18% year-over-year. G&A expense as a percentage of revenue was 19.3%, a decrease of 70 basis points quarter-over-quarter. In terms of the bottom line, our Q3 adjusted EBITDA profit of $67 million was above our outlook of between $25 million and $35 million and nearly tripled the $24 million achieved in Q2. It is worth noting that Q3 adjusted EBITDA included $18 million of benefits related to two items. First, we captured additional gains of $8 million related to Flexdrive selling vehicles. Second, we were able to settle a legal matter and released accrual that provided a combined $10 million benefit to G&A expense. Without these gains, our Q3 adjusted EBITDA profit was $49 million. Unrestricted cash, cash equivalents and short-term investments increased quarter-over-quarter to $2.4 billion. Before I move to our Q4 outlook, I want to remind investors that the pandemic is not yet over. Future conditions can change rapidly and may impact our outlook. With that, let me share what I can. In terms of supply, given our success in Q3, onboarding new drivers and expected tailwinds, we plan to taper supply investments in the fourth quarter. Of course when it's extra busy, we will use dynamic pricing to fund extra incentives to help retain and attract additional drivers onto the platform. In terms of rides in October, we achieved our sixth straight month of growth in average daily rideshare ride volume. As a reminder though, in North America rideshare faces seasonal headwinds in November and December given the impact of holiday demand in both 2019 and 2020. Pre-COVID, as well as during COVID, October was the peak month of the fourth quarter in terms of rideshare rides. We expect the same trend this year. Additionally, there is a population of drivers who have not yet revealed their full range of pre-COVID activities. Moving to ride volume, it increased over the summer. In Q3 we were still down about 35% from our peak. The reasons and circumstances vary. Some people are concerned about the recent surge in case counts or are awaiting boosters. There are parents who are preventing certain activities until their kids are vaccinated. Some are waiting for mask mandates to be lifted, and for some it’s a combination of these factors. Secondly, with the summer rise in COVID case counts, many companies postponed their return to the office until Q1. This is especially true in a city like San Francisco. The data point in Q3 indicated that rideshare rides in San Francisco were down by more than 60% versus Q3 of 2019, meaning quarterly rideshare rides were less than 40% recovered from two years ago. Given the delayed return to office and other contributing factors, the recovery is likely to be a first half 2022 event, especially in key cities like San Francisco. We typically see tailwinds that we are hoping will boost volume next year. It is a matter of when, not if. For these reasons, year-over-year revenue growth for the full year 2022 is expected to exceed the rate for 2021. So in terms of our outlook, we expect revenue in Q4 to be between $930 and $940 million. This implies growth of between 63% and 65% year-over-year versus the 73% achieved in Q3. This outlook includes the typical Q4 rideshare seasonality and the delayed reopening acceleration. In addition, remember that Q3 is also the seasonal peak for Micro-Mobility in North America. In the fourth quarter, bike and scooter revenue is expected to decline by up to $20 million quarter-over-quarter, which is included in our outlook. In terms of profitability, we expect Q4 contribution margins to be around 59% given the impact of seasonality among other factors. The midpoint of our outlook for revenue and contribution margin implies an all-time record for contribution, including levels seen in Q4 2019. We continue to expect contribution per ride to be greater post-COVID than it was pre-COVID. In terms of the bottom line, we expect our Q4 adjusted EBITDA to be between $70 million and $75 million versus the $49 million in Q3 adjusted to exclude the $18 million of benefits. Similar to revenue, we face seasonal pressures in Q4 and for that matter in Q1 as well that may pressure EBITDA trends. In 2019, so pre-COVID, our adjusted EBITDA loss increased between Q3 and Q4. Last year, we undertook layoffs in Q4 that obscured the typical trend. So the fact that we expect to increase adjusted EBITDA profitability sequentially in Q4 despite these headwinds speaks to the improvements we've made to our cost structure. The Q4 outlook implies adjusted EBITDA margins of approximately 8%, compared to 7.8% in Q3 or 5.7% without the $18 million of benefits. Separately, based on our momentum, we continue to expect that Lyft will achieve adjusted EBITDA profitability on a full-year basis in 2021, which is an important milestone. In fact, year-to-date through Q3, Lyft has already generated cumulative positive adjusted EBITDA of nearly $20 million. The midpoint of our outlook implies annual 2021 adjusted EBITDA of approximately $90 million, representing an improvement of roughly $880 million year-over-year. Through our inception, we've overcome a number of formidable challenges by remaining resilient and focused on our execution and strategy. The pandemic is no exception. Over the past 18 months, we have transformed our operating model, achieved adjusted EBITDA profitability ahead of expectations, and are now demonstrating improving leverage. Looking forward, as we emerge from the pandemic, we expect to be a stronger company with greater leverage. We plan to build a significantly larger business as we attack the massive market opportunity ahead of us. We see exciting opportunities to lean into growth and deliver solutions that serve and expand our addressable market. At the same time, given our growing scale and expected tailwinds from the recovery, we are positioned to unlock natural business leverage. Therefore, we expect that we can fund these growth opportunities even as we generate improvements to overall profitability. So, with that, let me turn it over to John to provide key updates on the business and our strategy.

Thanks, Brian. I'm excited about the momentum in our business and the significant market opportunity ahead. Near term, we're focused on navigating and strengthening through the recovery. This includes relentlessly advancing our technology to optimize our real-time market balance, which makes our network even better for drivers and riders. On the driver’s side, we are continuing to innovate to deliver the best possible user experience. As one example, we have been testing a new app interface that gives drivers more granular visibility into our market conditions before they start driving. The early results have been fantastic. We saw a roughly 25% increase in the number of times drivers engaged with our app and an almost 5% increase in the number of hours they drove. Similarly, incremental refinements to our prime-time dynamic pricing technology can support a higher ride volume, improve pickup times, and increase driver pay, all at the same time. We will continue our diligent focus on this, as these types of enhancements can result in higher driver engagements and retention, better marketplace dynamics, and ultimately tens of millions of dollars in leverage every year. On the rider’s side, we have scaled new modes that provide our riders with more options while also delivering valuable benefits to our real-time marketplace. A rider mode like Wait and Save, which allows riders to wait a little longer for a pickup and pay a little less compared to the classic ride, is one example. It delivers significant value to riders by allowing them to prioritize what's most important to them at the moment: price or time. The mode also helps distribute demand in a way that enables us to optimize driver utilization and increase overall usage of our network. Less expensive options like bikes and scooters, along with different use cases such as Lyft Rentals, further help us to maximize the overall utilization of Lyft's transportation network. These advancements and services add value today and help us prepare the infrastructure for the future, as we continually deliver more transportation value to consumers. They also build on our core competencies and deepen our competitive differentiation. The Lyft network is the product of nearly a decade of engineering investments, and we are achieving new levels of efficiency and functionality with a focus on transportation. The tremendous value of our specific approach will become increasingly apparent in the next few years. Looking forward, we see a very long runway to capture more individual transportation spending from our riders, as our work on addressing the trillion-dollar transportation market opportunity is just getting started. The critical profitability and product milestones we've hit this year set us up well for the quarters and years ahead. Each year in the U.S., around 4 million people turn 18 and become eligible to use Lyft on their own. These cohorts tend to have digital-first preferences, value green transportation options like bikes, scooters, and EVs, which we can offer through our express drive program, and have significant lifetime value. Our focused execution will allow us to establish Lyft as the preferred transportation partner. To that end, we currently work directly with more than 150 university and college partners to develop transportation solutions for over half a million students. Through these partnerships, students can access fully funded or discounted rides as well as our bikes and scooters, potentially for the first time. For these riders, this represents a low-risk trial period to get to know Lyft. For us, it's an opportunity to cement our relationships with these riders, as we become ingrained in their daily routines and grow with them over time. Before we move to Q&A, let me give an update on the regulatory fronts in Massachusetts. The Coalition for Independent Work reached an important milestone in Q3 with the certification of its ballot initiative. It's worth noting that Massachusetts drivers overwhelmingly support this ballot measure by a 7 to 1 margin because it allows them to keep their independence while also securing historical benefits. We're now full steam ahead on both ballot and legislative solutions and are highly optimistic we’ll be successful in establishing an independent, more beneficial model for drivers. We're now ready to take questions.

[Operator instructions] For our first question we have, Doug Anmuth from JP Morgan. Doug, your line is open.

Great, thanks for taking the questions. Maybe first, just on driver supply. You talked about strong new driver trends and a supply increase of 45% versus last year. So I mean, you're tapering the investments into Q4, but can you kind of help frame what that means more and perhaps explain a little bit around what percentage recovery you might be versus current rider demand, if there's any more color you can add there? And then secondly, just on Citi Bike. If I heard you correctly, you talked -- I think you said 40% of rides in the New York region are related to Citi Bike, can you just talk about how that's kind of driving customer acquisition between bike and core rideshare? And anything else you can add on just acquisition trends, characteristics of those users and what you see versus kind of regular Lyft users? Thanks.

Sure. Hey Doug, this is Brian. Let me start and then I'm going to hand off to John. Look, we definitely played offense in Q3 to invest in supply and improve service levels. We're tapering because we see more drivers returning to the platform, and as Logan pointed out, they're giving more rides. There are three contributing factors: the sunsetting of enhanced federal unemployment benefits, this increase in productivity, and there is also a pool of potential drivers who are being cautious, so let me just touch on each of these. We believe that the sunsetting of enhanced federal unemployment benefits is acting as a tailwind. It's too early to tell the long-term impact. But in September, driver activation, which includes new drivers, jumped 17% month-over-month, and grew further in October. If we look at the full third quarter, driver activations increased 60% year-over-year. It’s important to understand that last year, 85% of drivers drove less than 10 hours per week on our platform. The significant majority of drivers are using the Lyft platform for supplemental income. If you're getting $300 per week from the federal government plus whatever the state added, it really eliminated the need for some folks to drive for supplemental income purposes. The jump in new drivers after the enhanced benefits expired is providing some organic tailwinds. Second, as Logan pointed out, productivity has increased on the platform. So when analyzing supply, you don't just have to look at the number of new drivers, but also the number of rides per driver. We've seen the number of rides per driver increase versus pre-COVID. For instance, in Q3, the number of rides per driver was more than 20% greater than Q3 of 2019. Finally, some people remain cautious about resuming driving or applying to drive, and there are different reasons. Some have concerns about the recent surge and are awaiting boosters. There are parents who are waiting until their kids are vaccinated, and others simply do not want to drive all day while wearing a mask. I think conditions will improve over the coming months, and we expect to see people shift from delivery to rideshare, where earnings tend to be higher based on historical studies.

This is John. Before I touch on the Citi Bike question, I also wanted to zoom out on the topic about drivers. One of the data points we look at is from the Bureau of Labor Statistics. We analyzed comparable labor markets, looking at the retail industry combined with the hospitality and leisure industry. From January through September, our Active Drivers grew at a pace five times faster than the recovery in the combined retail and hospitality sectors. One of the main reasons for this is the flexibility offered by our platform, as drivers can turn the app on and off and earn whenever they want. As people come out of COVID, we feel strongly that the type of model we provide is one that workers want. Moving on to Citi Bike. You're right; the stat is that Citi Bike rides accounted for 40% of our total ride volume in New York. As we've been stating for many quarters, the bikeshare acquisition we made, along with the contractual long-term category exclusivity we get from a program like Citi Bike, is strategically valuable. To delve deeper into your question regarding potential crossover, we observe a significant crossover between rideshare and bikes. Consumers often compare their transportation options, and we’re the only place where they can do so with Citi Bike. Year-to-date, the number of rideshare riders trying bikes for the first time is up nearly 100% versus last year, and in New York, this number is even higher at nearly 150%.

I'm going to actually answer a question you didn't ask, but I want to preempt one that I expect about contra revenue related to some of the driver investments we made in Q3. So incentives classified as contra revenue increased on a quarter-over-quarter basis by $47 million. As we previously shared, to the extent the quarter was stronger than expected, we planned to reinvest more into supply to improve service levels, and we’re pleased that we were able to do this while still exceeding our outlook on revenue, contribution margin, and adjusted EBITDA. It's also worth saying that we believe GAAP revenue, which is net of incentives, is the cleanest metric for investors. Contra revenue in isolation could appear misleading, especially if higher prices are funding the driver incentives. When it's extra busy and we need more drivers, we prioritize funding the required driver incentives through elevated prices. Therefore, actual GAAP revenue, which is net of the incentives, serves as the clearest metric to gauge the true impact of this relationship. We will continue to report the amount of contra revenue, but just remember we’re not focused on it. We care about GAAP revenue and overall EBITDA, and also keep in mind that the second quarter, not the third, was the peak quarter for contra revenue on a per-ride basis, given the volume growth in Q3. Generally, we're feeling much better about supply. Looking ahead, given the anticipated tailwinds and enhancing service levels, we plan to taper supply investments in Q4.

Thank you, Brian.

For our next question, we have Eric Sheridan from Goldman Sachs. Eric, your line is open.

Thank you so much for taking the questions, and I hope all is well with the team. Brian, my first question, I wanted to follow up on what you just said. As you think about 2022 and consider elements of pricing possibly normalizing and driver incentives also normalizing, but there being some inflationary elements around energy prices, how do you strike the right balance between incentivizing supply and retaining driver's earnings that they might have gotten used to during periods of supply-demand imbalance as we come out of the pandemic? I'm also curious about the consumer demand side. When you look at the gap between Active Riders returning to pre-pandemic levels and consider the comments you made earlier about specific pockets of Active Riders that haven’t returned, how much of that gap is time versus elements where the company needs to incentivize demand or lean into incentives to drive Active Rider growth? Thanks so much.

Sure. We're confident that we have the right levers to drive strong business results, regardless of the pricing environment. Longer term, as we fully emerge from the pandemic, we expect pricing to be lower while volumes will obviously be greater. It’s worth repeating that rideshare rides in Q3 were still down more than 35% from the Q4 2019 peak. As we recover, volume will help us leverage fixed costs within cost of revenue, like depreciation, and to a certain extent hosting. Furthermore, as we emerge from COVID, we anticipate an increase in ride frequency, which will help us realize savings associated with aggregated billing. Lastly, we expect marketplace efficiencies will enhance our monetization, ultimately benefiting contribution. In general, we expect to exit the pandemic as a structurally more profitable operation per ride than when we entered it. Regarding Active Riders, we’ve been disciplined with sales and marketing. As a percentage of revenue, our sales and marketing has been below 15% for the sixth consecutive quarter, while incentives classified as sales and marketing were only 1.9% of our revenue. We feel strong about our competitive position. It's worth reiterating that our long-term strategy remains unchanged. We aim to succeed through product innovation, customer experience, and brand preference—not coupons. Our R&D investments can generate competitive advantages and yield a stronger return on investment than coupons. We expect absolute sales and marketing expenses to grow as revenue rebounds, while the percentage of sales and marketing expense relative to revenue is likely to remain lower post-COVID compared to pre-COVID levels. It's just a matter of time. Additionally, every year, there are about 4 million new individuals who become eligible to use ridesharing in the U.S., providing a consistent inflow annually. There are structural growth trends at play that will increase Active Riders.

Thanks for the color, Brian.

Sure.

For the next question, we have Stephen Ju from Credit Suisse. Stephen, your line is open.

Okay, thank you so much. So Logan or John, provided everything continues to improve with mobility and driver supply returns, you’ve brought back Shared rides in certain cities. Can you discuss the rider uptick there and whether it's time to roll that out more widely across the country? Brian, since the onset of the pandemic, it seems like you've resized your cost base in relation to the demand levels you were seeing at the time, especially in operations and support. Do you believe you have the resources in place to ramp up as demand and unit growth normalize? Thank you.

Thanks. As the pandemic evolved, we sunset Shared rides and launched Wait & Save, which met a similar market need. It’s a slightly lower service level, allowing riders to wait a few extra minutes to save a bit on each ride. We did experiment with launching Shared in one market, in Philly. However, we have paused further scaling, waiting for CDC guidance. We will eventually re-launch Shared rides, but we don’t have a definite date at this moment. I’ll turn it over to Brian.

Yes. On operations and support, this line can be volatile, especially in Q3 due to potential impacts from bike and scooter growth. Given the seasonality of bikes and scooters, operations and support expense as a percentage of revenue is expected to decline by about 100 basis points. Thus, we feel confident about our ability to scale up in that regard.

Thank you.

For the next question, we have Mark Mahaney from Evercore ISI. Mark, your line is open.

I want to ask a high-level question about rider and driver incentives pre- and post-COVID. I'm wondering if there could be an impact on the financial model due to COVID. It seems that while the service has compelling value for many riders, there's a lot of pricing power, which may decrease the need for rider incentives. However, there may be structural changes leading to a structural increase in the need for driver subsidies. Can you comment on this—do you see Lyft in the future as needing to provide more driver incentives and potentially fewer rider incentives because of COVID influenced changes and pricing power? Thanks a lot.

Sure. Let me address the rider side first, and then I’ll transition to the driver side. As a reminder, in the year before our IPO, sales and marketing was 37% of revenue. At the time of the IPO, we communicated that we expected it to be between 10% and 15% long-term, likely closer to 15%. We just reported a quarter with 11.5%. This serves as validation of that expectation. We would rather drive growth through innovation and providing superior service to riders rather than relying on discounts. I tend to agree that there's generally more pricing power than many believed exists in the industry. In terms of earnings for drivers, there are substantial factors to consider. Historically, rideshare earnings tend to outpace delivery because drivers must comply with more stringent requirements. We have observed that as earnings remain elevated, there are still some drivers on the sidelines due to concerns about the recent COVID surge—many are awaiting boosters, while others are hesitant about the mask requirement. Experts suggest we can manage this and adapt to different pricing environments. We have a diverse range of levers to promote growth and profitability within our financial model.

Okay, thank you, Brian.

With the next question, we have Alex Potter from Piper Sandler. Alex, your line is open.

Great, thanks guys. Maybe another high-level question. As you're probably aware, right now it's pretty challenging to buy a new or used car. All else equal, that should benefit the mobility model. Any insights on how you're trying to leverage this environment to encourage consumers to consider reducing their reliance on owning a second car and embracing ride-hailing instead? Any thoughts on that would be appreciated. Thanks.

Yes. I think that's a solid point. It counters what many were questioning during the pandemic regarding whether everyone would rush to purchase a car. We've spent years building our fleet business, primarily for drivers, but now there are opportunities emerging for riders as well. We’ve launched Lyft Rentals with both first-party and third-party vehicles. This supports our comprehensive approach to transportation, as we can offer rideshare, rentals, bikes, and scooters, all together. It’s an opportunity afforded by market shifts; when there are constraints on vehicles, we want to ensure our offerings encompass every aspect of transportation in order to enhance individual spending while simultaneously lowering their overall transportation costs. This strategy has remained consistent throughout the pandemic and will continue to yield results.

Okay, great. One last quick note, just on electrification. Obviously, the Hertz and Tesla news has been topical recently, so any additional comments on this strategy with regard to electrification would be helpful. Thanks.

Sure. Similar to what I mentioned before, we’ve dedicated a couple of years to building this aspect of our business—our fleet. Our ownership of Flexdrive gives us a considerable strategic advantage as we shift all vehicles on our platform to EVs. We're thrilled about this transition. Lyft was the first rideshare company to commit to a 100% electric vehicle fleet by 2030. Seeing other companies follow suit is a positive step for the planet. With our ability to offer EVs through our providers, we maintain optimal control. We've had EVs available through Express Drive for several years and are eager to lead this transition with Flexdrive and partners as necessary.

Great, nice quarter. Thanks guys.

Thanks.

For our next question, we have Ed Yruma from KeyBanc. Ed, your line is open.

Thanks for taking the question. I find it really interesting to hear the strategic significance of the micro-mobility segment, particularly calling out Citi Bike. As you look over the medium-term horizon, are there other municipalities with open tenders for potential growth? Can you develop greater density in the municipalities that you're currently in? Additionally, any updates on improvements you've made for device longevity, considering that user behavior tends to be challenging on them? Thanks.

Yes, thanks for the question. Regarding markets, we already have relationships in Chicago with Divvy, similar to what we have in New York City with Citi Bike. We also have established partnerships in Boston and the Bay Area, among others. We feel quite positive about our presence in all major cities. These relationships are typically exclusive, which with success affirms our strategy. Regarding device sustainability, given that our largest market is New York, the bikes are designed to withstand challenging conditions—much like tanks built for that city's weather and street conditions. We’ve rigorously tested these bikes. The great news is we continue to leverage all learnings from bikes and scooters. We evaluate total cost of ownership for our devices, which involves considering not just the cost of procurement but also the expense of maintaining the bike over time. We’ve invested in making certain upgrades that enhance durability and performance, leading to a better overall product lifecycle. Additionally, I want to highlight something we're doing with Lyft Pink, our membership program. For the first time, we’ve rolled out a national Lyft Pink membership that includes unlimited access to our bike and scooter network alongside local bikeshare memberships. We're seeing significant uptake from this program, exemplifying how we can integrate our businesses.

You can think of the bikes in New York, as exclusive content—similar to a popular show on a streaming service. If you’re in New York and seeking transportation through a rideshare provider, you’re more likely to join Lyft since they provide unique access to Citi Bike.

Got it. Thanks for providing that context and for the clarity regarding Lyft Pink.

For our next question, we have Deepak Mathivanan from Wolfe Research. Your line is open.

Great, thanks for taking my questions. Brian, can you provide an update on the current volume of rides on a unit basis? Are you at 2019 levels currently? Considering some use cases are still lagging, can you highlight a few and how far behind they might be? This insight would help us understand the expected recovery timeline. Secondly, please discuss market share trends at present. Have there been any shifts, and do you think there's been a change in your strategic approach to market share at this point? Thank you.

Sure. Let me start with the use cases. While COVID continues to impact many aspects, we generally expect to see all use cases return. We anticipate a strengthening of commute rides as more companies return to office. We are beginning to see an uptick in business travel but it’s still early on. Interestingly, airport rides made up 8.5% of total rideshare rides in Q3. If you go back two years ago, airport rides accounted for 9.1% of total rides in Q3 of 2019. While leisure has been a strong component, we believe these airport rides indicate a resurgence in corporate travel. Looking forward to Q4, as previously stated, October has marked our best month, with last week being our best since April 2020 for rideshare rides. We've learned that COVID conditions can change rapidly, so I want to start with that caveat. In terms of specific data points, thanks to Logan’s comments, we see that October is historically our peak month, while some use cases remain subdued, HVAC recovery might lead to about 40% recovery in San Francisco. We have noted that historically, the startup's return is linked to additional ridesharing uses, likely to be more characteristic of first half 2022, particularly in cities like San Francisco. We have been waiting for this tailwind to help boost volumes next year, understanding that it’s a matter of when, not if. Regarding year-over-year revenue growth for the full year 2022, we expect it to surpass that of 2021. Concerning our outlook for Q4, due to ongoing uncertainties caused by COVID, we consider multiple scenarios for ride growth. Our revenue outlook is not based on a singular scenario, as we expect quarter-over-quarter growth in rideshare rides. At the midpoint, our outlook suggests revenue growth between 63% and 65% year-over-year. In terms of competitive trends, we’ve not observed any major changes in market share when comparing pre-COVID and current conditions. We believe there’s strong demand across the industry. We’re pleased to report a notable acceleration in volume growth from Q2 to Q3.

Okay, thanks, Brian.

For our next question, we have John Blackledge from Cowen. John's line is open.

Great, thank you. Two questions. Firstly, on driver supply—were there any geographies where driver supply returned to or even exceeded pre-COVID levels? If so, were ride volumes and service levels in those markets better? Secondly, the new rider activations number appears very strong. Were there particular cohorts or geographies that played a key role in driving those new rider activations? Thank you.

Yes. I would say that overall, we wanted to take a proactive approach in Q3. We've outperformed the industry in terms of achieving profitability in Q2, marking a significant milestone, and decided to operate with an offensive strategy. We’re thrilled that we could invest effectively. As you can see, supply is improving as we head into Q4. Generally, third-party data indicates that certain states with an earlier sunset of enhanced federal unemployment benefits witnessed faster returns on driver supply. Prices have also declined relatively more in those markets. Ultimately, the market is efficient and balances itself quickly. All use cases are showing growth; each category of rides, whether they be late-night rides or commutes, is producing significant returns.

And regarding the new rider activations?

Yes, we've been really pleased with the new rider activations. For new riders, activations surged 8% quarter-over-quarter and shot up 47% year-over-year. We engage heavily in university programs, whereby these initiatives are financed by the universities or heavily discounted, which effectively familiarizes new users with Lyft. We appreciate the influx of digital-native users embracing Lyft, bolstered by the availability of bikes and scooters. Most importantly, there's a new cohort of business users stemming from the airport travel recovery, which is equally significant.

Thanks so much. That’s helpful.

For our next question, we have Itay Michaeli from Citi. Your line is open.

Great, thanks everyone. Just two quick questions from me. First, maybe, Brian, can you comment on where your service levels currently stand relative to your internal targets? Secondly, regarding electric vehicles and your target for 100% adoption by 2030, how do you plan to manage Lyft's asset intensity in the next several years? How many EVs are you willing to incorporate into your owned fleet as opposed to partnering with third-parties to remain more asset-light?

Yes. As I mentioned, we expect to boost driver numbers significantly, improving service levels under the current conditions. There are still some drivers who remain cautious, but as our study indicates, driver supply will ultimately increase, significantly impacting service levels. We maintain our focus on serving the drivers effectively as we anticipate more returning. Our strategy will keep evolving as circumstances shift.

On EVs, I believe we’re in an advantageous position with our fleet division. There are two main categories to consider within third party: operational third-party providers and financing ones. Operationally, we aim to control costs effectively, avoiding unnecessary fees. We’re looking at practical ways to finance EV acquisitions via third-party sources and are eager to explore various financing options that won't burden us. Our approach involves managing our transition to EVs through in-house methods in strategic markets while also obtaining coverage nationwide through third-party partnerships.

As for our capital expenditures, we now expect total CapEx for 2021 to be lower than in 2020.

Got it. Lower, thanks. It’s very helpful.

For our next question, we have Brent Thill from Jefferies. Brent, your line is open.

Thanks. I have a question around pricing. I know you've been investing in efforts to reduce ride times and lower prices. Can you share your perspective on where things currently stand and how you expect it to play out in the next few quarters?

I previously explained why it can be challenging to accurately assess average pricing. Despite this, it’s notable that our revenue figures indicate we're only down 15% relative to our all-time highest quarterly revenue, despite rides declining by over 35% from the peak. Looking forward, our projected Q4 performance suggests we're around 8% off peak levels. We are performing well in terms of monetization. As previously mentioned, the recovery in volume is critical to rideshare success. Our Q4 outlook reflects plans to increase our average take rate and contribution leverage despite seasonal changes. Furthermore, we look to improve our company’s transaction processing capabilities. For example, we have implemented aggregated billing, thereby billing riders’ credit cards once every 24 hours. As ride volume returns, this longer-term trend of increased ride frequency provides considerable benefits for our contribution metrics.

Great, thanks, Brian.

For our next question, we have Steven Fox from Fox Advisors. Steven, your line is open.

Thanks. Good afternoon. Just a follow-up on that last point. I wanted clarification and a question. First, to confirm, you said that you drop down about $0.60 of EBITDA for every dollar of revenue growth. And by indicating that, does it imply you're suggesting that this drop-down ratio could improve? For the question, I’m just curious about the many leverage options you’ve highlighted; where does the mix factor in regarding your leverage considerations for next year and perhaps beyond? Thanks.

Sure. We expect to see leverage increase in Q4, as we aim to grow our take rate and generate contribution leverage. In fact, we forecast contribution margin leverage to reach approximately $0.55 for each incremental dollar of revenue. If we adjust for the Q3 remarketing gains, it would be about $0.65 for the dollar in Q4, up from $0.62 in Q3. This also occurs despite the anticipated $20 million decline we expect to see in bike and scooter revenue, which, obviously will create a contribution headwind. I do feel it’s also important to note that the projected midpoint of our outlook suggests that contribution will reach an all-time record in absolute dollars in Q4, even with this headwind. Regarding mix, while we aren't providing a precise outlook for 2022 just yet, we expect all of our modes will see a return next year. Again, we want to ensure we are offering the right product at the right time for the right user, all of which shift depending on the day, week, month, and even seasonal travel differences. Ultimately, we’re highly optimistic about increasing our addressable market as these offerings evolve.

Great, that’s really helpful.

Thank you. All right, thanks so much, everybody. That is time, and we look forward to talking with everybody next quarter. Have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.