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spk08: I'd now like to hand over the call to Sonia Banerjee, head of investor relations. You may now begin the conference.
spk04: Thank you. Welcome to the Lyft earnings call for the third quarter of 2023. On the call today, we have our CEO, David Risher, and our CFO, Aaron Brewer. In addition, Kristen Sperchuk, our president, is here for the Q&A session. We'll 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 filing. 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. Also, 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. And with that, I'll pass the call to David. David?
spk12: Thank you, Sonia. Hey, and good afternoon, everyone. Thanks for joining us. I am thrilled with our progress creating a customer-obsessed and financially strong Lyft. More drivers and riders are choosing Lyft 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. In the first nine months of 2023, we supported over half a billion rides and generated more than $10 billion in gross bookings. Ride 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 marketplace, prime time 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 that more drivers are choosing Lyft 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 Lyft, with non-incentivized hours growing even faster. Our focus for drivers is on making Lyft the simplest way to earn, and it's paying off. So even while rider demand accelerated, our conversion rate, which means the share of ride intent that converts to rides taken was stable, and that translates to a higher volume of completed rides. Overall, our execution was impressive. Our teams 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, ride share rides grew by 25% year on year. reflecting a surge in new and 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, all of this great execution. Bottom line, we're having more people get out and get connected, which is core to our purpose and something we're really excited to see. And we'll 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 non-binary drivers and riders, giving them more comfort, more camaraderie, and more control when they use Lyft. In our early access cities, we've seen great results. More than half of eligible drivers have opted into this feature. It's very unusual. and are keeping the feature turned on nearly the entire time they're online. I actually want to give you a little color just on this. The feedback we've gotten has been amazing. Ambrosia, one of the drivers in Chicago, told us, quote, having Women Plus Connect actually encourages me to drive more. And Amy, a driver in Phoenix, says, I find myself driving more at night with Women Plus Connect, which has allowed new opportunities for me to earn money. So listen carefully to what the drivers are saying. Both examples speak to how customer-obsessed features can directly improve their experience, but also our business metrics. In this case, increasing driver hours, which of course leads to more rides on the platform. Last thing we'll say about this right now is customers and city officials have taken notice, and they're asking us when Women Plus Connect will be available in their markets. That's why we accelerated the rollout of Women Plus Connect to an additional 50 cities and towns last week, and we expect it to be available nationwide early next year. Women Plus Connect is a great example of the type of innovation that customers want, and it can reinforce our brand, expand our addressable market, and help drive preference and growth over time. As we move into the holiday season, we will continue to deliver new customer-obsessed features targeted to driver and rider needs. As one example, we want to make getting to and from airports stress-free. We've already done a ton of work this year to make scheduled rides highly reliable. We actually have a big announcement coming tomorrow that will provide even more peace of mind to riders going to the airport this holiday season. So please stay tuned for that. Finally, I want to touch on a small but growing part of our business that can improve our margins over time, Lyft 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 Lyft 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 where 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 pre-order your drinks and your popcorn. It's a great experience. It means you're even readier to go by the time you get there. This is what's opening up conversations with partners like Universal Pictures who want to help design and co-launch new ad products, including in-app video advertising, which we'll roll out 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 riders in relevant moments. and build a meaningful and, of course, very high margin ad business. Now, before I turn the call over to Aaron, 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 and operational excellence. These are all foundational to our ability to deliver profitable growth. In fact, a phrase you'll hear me say several times is customer obsession drives profitable growth, and that's what we're seeing. So as we move on to 2024, we've got our foot on the pedal. I want to say a 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. Erin, over to you.
spk06: Thanks, David. 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, Then I'll review our Q3 results as well as our Q4 guidance. Before I dive in, I want to remind everyone that unless otherwise indicated, all income statement measures are non-GAAP and exclude select items which are detailed in our earnings materials. Starting with new metrics. Today we've introduced gross bookings, rides, and adjusted EBITDA margin as a percentage of gross bookings. If you haven't seen our supplemental slides, please take a look at them as they contain detailed information, including 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 that drivers and riders are choosing Lyft. 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 the rideshare side, gross bookings includes applicable fees, tolls, and taxes invoiced to riders, but excludes tips 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 and SEC filings, is not changing. As a reminder, in connection with our IPO, we disclosed a rise in 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-1 disclosure would have reflected a significant volume of shared rides, which as a reminder was largely sunset earlier this year. Next, the gross bookings metrics we've released today is largely consistent with the definitions of bookings included in our S-1. However, in our S-1, 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, we'll 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 of 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, Let's now move to our third quarter performance. We came together as a team with purpose to deliver great experience for drivers and riders and saw strong results consistent with our outlook. Driver and rider demand and engagement increased and our rides growth accelerated. Let me share a few operational and financial highlights for the third quarter. We supported 187 million rides 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. And regionally, the West Coast showed the biggest sequential improvement in Q3, with nights out and commute leading the way. Gross bookings were $3,554,000,000, 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 $1,158,000,000 up 10% year over year and slightly above the high end of our outlook driven by ride share strength. Cost of revenue was $638,000,000 up 15% year over year driven by higher ride volumes along with higher per-ride insurance costs, reflecting last year's 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 5 percentage points versus Q3 of 2022. 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 2.6% 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, ride intents, 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 $3,600,000,000 to $3,700,000,000 up 13% to 16% year over year. We expect total rise growth year on year will accelerate slightly from the 20% year-on-year growth rate we saw in Q3, driven by ride share. If you're doing comparisons on a sequential basis, note that our outlook implies a slight decline in total rides, again, sequentially, due to 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 1.4% to 1.6%. This reflects a full quarter impact of our third-party insurance contract renewals that went into effect on October 1st. 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 in 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'm excited about the road ahead. Operator, we're now ready for questions.
spk08: Ladies and gentlemen, we are now open for the question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Mark Mahaney from Evercore. Your line is now open.
spk13: Okay, thanks. I make it a point never to congratulate management teams, but congratulations on a 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, rides per rider, bookings per ride, take rate, et cetera, I know, I think, Aaron, you mentioned a particular confidence about increasing the rides per rider, but just long-term, as you think about those drivers, which do you think you have the most power to move where where would be the biggest driver of growth going forwards and then secondly just a small question on scheduled rides what's the kind of penetration rate you're seeing with that now and just talk about the benefit that has to the to the model i assume that's higher margin rides for you thank you um yeah hey mark it's david i'll start and then um aaron and i'll kind of tag team on this um first by the way thanks for the congratulations on the increased transparency it's something that
spk12: Aaron's been focused on since day one, and it's just wonderful to see the team to be able to deliver on it. So I'm glad you like it and hope it helps. You know, on growth, here's how we think about it. You know, it's not going to surprise you to hear, you know, customer sessions what 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 out, 365 days a year, and customers really notice that. And that's where you see things like pricing in line with the market come, take rate in line with the market, and so on and so forth. Then on top of that, you really build execution excellence. And if you look at a couple of examples that we've had, I mentioned back to school in my remarks. That didn't just happen, right? Back to school, getting 25% year-on-year growth in 70 markets requires a lot of work. We did the same around Halloween. And as we alluded to, those are not just recent year highs. Those are all-time highs that we achieved in two weeks in the first couple of weeks of October in terms of gross bookings. So, you know, really exceptional performance there. And it just speaks to the importance of just, you know, 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. You know, I mentioned Women Plus Connect. You know, that's not a small market. We're talking about 50% of the population are women, of course. Only 23% of our drivers are women. By the way, only 15% of driver hours are driven by women, 15%. So that shows there's a huge upside in focusing on making women feel more comfortable driving and riding, obviously, which can really generate, you know, all kinds of growth over the long term. Let's take another use case. Commute. You probably saw, you know, I think, you know, 100 articles have been written in the paper over the last couple of months about return to office. So we read those articles. We're participating ourselves. People are back in the office here at Lyft. And we're out there, you know, selling to companies. We've got relationships with Amazon, with Netflix, with LinkedIn, where we're trying to take the worst part of commuting, which is the non-productive kind of high stress time, and make that into a better time for employees, which obviously It works well for Lyft as well. So that's a, you know, a big deal. And so differentiated products, you know, they give people a reason to choose Lyft over Uber, but they also give us a way just to accelerate our growth. And then to end on scheduled rides, you know, scheduled rides is 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 you're going to go to the airport, right? And by the way, so do we, because oftentimes you'll have linked up your 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 to 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 a pretty exciting product launch to come to tomorrow around this. But it really is around de-stressing your life, particularly around the holidays. By the way, scheduled rides, it's obvious when you're talking about, you know, airport rides. But I'm looking at Kristen, our president here, and she revealed that she occasionally goes to a Pilates class or yoga, I forget which. And, you know, she's going to start to schedule that because she knows when it's going to happen. It's easier than doing it on demand and reliable. To your margin question, yeah, 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 for us. So I know that was a long answer, but just want to kind of cover a bunch of bases. Erin, anything you want to add to that?
spk06: Yeah, no, Mark. The only thing that I would say is, you know, David, I think you covered, you know, many 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, you know, as you think about active riders. And it's, you know, really gratifying to see that, you know, frequency is I think about that year over year, even sequentially quarter over quarter. is increasing. You know, I'm sure some of that is, again, getting out and about after the pandemic or returning to office. But, you know, we still think there's obviously more opportunity there in addition to all of the other levers that David mentioned.
spk13: Thank you, Erin. Thank you, David. For sure.
spk08: Our next question comes from Doug Ennard from J.P. Morgan. Your line is now open.
spk01: Thanks for taking the questions. David, after a couple 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 ride options for consumers. Just curious how you're thinking about pricing exiting the year and into 2024. And also just wanted to ask about another ride mode in terms of wait and save. I think you've talked about that as around 30% of rides in the past. Can you give us an update there on how that product's doing? Thanks.
spk12: Yeah, sure. So sort of great points both. So on pricing, you know, we see pricing as being fairly stable right now. No major changes. You know, it bounces around a little bit, as you would expect, but it's not as significant. We don't expect a significant change there. We kind of like what we're seeing, and frankly, our riders do too. It's one of the reasons why we've seen, you know, such great ride growth quarter on quarter and year on year. On wave and save, I'm actually really glad you brought it up because I think it's a great reminder. You know, people do not – price rides in a vacuum. And as a rider, your choice is not binary. And so if you are more price sensitive as a rider, or if you're at a more price sensitive time in your life, or if you're at a time where you frankly have a little time, you don't mind burning because you want to go get a coffee at Starbucks or whatever, wait and see is a great option. And we see it still, no major changes from where it was before. I will tell you that wait and save riders take about double the rides of non-wait and save riders. So that really suggests that there's a segment that you can really speak directly to. And we can optimize it over time. We can improve the economics and so on and so forth. 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 Uber's got a mode for price-conscious folks, too. It's called shared rides. And we innovated there. It's an area where we started. We largely have turned it off, except for some very specific use cases, because we don't find our riders or our drivers like it very much. So we think just on a head-to-head basis, we've got a better, more customer-obsessed strategy there.
spk14: Great. Thank you, David.
spk08: Our next question comes from Brian Nowak from Morgan Stanley. Your line is now open. Okay.
spk14: Thanks for taking my questions. I have one on the implied take rate. I appreciate the bookings disclosure. So I know 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 30s, somewhat higher, I think, than your competitive peer in the U.S., How do you think about that take rate over the next year or so to try to load balance supply and demand and sort of bring more supply into the overall ecosystem? Thanks.
spk06: Yeah, I'll start with that one. You know, as a reminder, of course, we report as a single segment, and that includes, you know, both our rideshare business, but also a mix of bikes and scooters, fleet, media, et cetera. And so as you think about that total revenue as a percentage of gross bookings, You know, there's more than rideshare there. What I will say about that, though, is 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 on the quarter. But what I would really say is bottom line is we, of course, track, you know, in a very methodical way. how we are competing in the market, both in terms of price and 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, you know, people are voting with their feet, right? More drivers and riders are choosing Lyft. And that's, again, just another data point that gives us a sense of where we are competitively.
spk12: Yeah, I'll just underscore the last thing that Aaron said. You know, our driver, our strategy with drivers is to pay them fairly for sure and to continue to make sure it's a great way to earn. And so, you know, we expect to pay in line with the competition, just the same way we price. And yeah, I mean, we've seen 45 percent historic highs in driver hours. So really no material difference there. I think it's more of a math issue around, you know, how we present versus how Uber does.
spk15: Thank you.
spk08: Our next question comes from Ken Gorowski from Wells Fargo. Your line is now open.
spk10: Thank you. I appreciate it. I appreciate the question. Could you please help me think about medium-term insurance inflation? How should we just think about the various dynamics that might play into that first? And then second, again, a kind of more medium-term question, which is, If you look out beyond the next several quarters, how do you think about the various factors driving overall ride growth, both from an industry level and from a lift level specifically? Thank you.
spk06: Thanks, Ken. I'll start with the insurance question and then hand it over to David. So as a reminder, we renewed our most recent set of third-party insurance contracts effective October 1st. 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. You know, rising auto, that 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 impact on these rates is abating. But that being said, you know, a core part of how we think about managing our overall cost strategy is thinking about managing our strategy around insurance over a multi-year period. And it really encompasses, you know, not only thinking multi-year, but working across the company in a really cross-functional way. So it encompasses, you know, a couple of different areas. The first one is just around product and product improvements. The next one is really initiatives around safety. You know, 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 capabilities have become more sophisticated. So anything that helps promote safety, obviously reduce accidents, you know, 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, you know, we continue to be active on what we view as common sense policy reform, specifically as it relates to TNC insurance requirements. These, you know, function at a state level. but we are also working side by side with our insurance partners, you know, some of the largest insurance carriers, uh, certainly in the U S in their efforts as an industry to combat what's sometimes called a social inflation, other times referred to as legal system abuse. So it's, it's really a multi prong, you know, multi directional strategy, uh, 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.
spk12: So can I kind of pick up exactly where Erin is leaving off? So she's talking about the next 12 months in insurance. I'll maybe give a little bit of perspective over the next couple of years in terms of growth. If you think of, let's say this. Strong execution and just continued operational excellence, you know, can really, really drive a business, you know, strong. But if you want to look, you know, even longer, you've got to tap into things that are super, super deep. And it turns out people really like to be together. People really like to be, you know, enjoying their lives outside of just their houses and so forth and so on. And by the way, not only do people like that, but there are all sorts of other companies and organizations that also like that, cities like that, because it gets people out buying. Partners like that, you know, we've got a great partnership with Chase Bank, for example. We can talk about that more in depth later if you're interested. But, you know, the credit card partnership we have with them, with 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, you know, the next couple of years, it becomes a little bit less sort of what I think is a little bit of a tired story of kind of just, you know, Uber and Lyft and so on and so forth. And much more into how can organizations like ours that are really focused on doing, you know, really innovative work for customers. How can we really take our ride share network and make it a bigger and bigger part of people's lives? such that they end up having a bigger, better life, 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 at least a way we think about it.
spk15: Thank you.
spk08: If you'd like to ask any questions, please press star and number one on your telephone keypad. Our next question comes from Deepak Mativanan from Wolf Research. Your line is now open.
spk09: Hey guys, thanks for taking the question. Kind of a two-parter question on bookings growth. It was nice to see some acceleration in 3Q, 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 ride share kind of product like shared rides 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, you know, these products that you currently have as well? Thank you so much.
spk04: Hey, Bipak, really quickly, Sonia, can you actually hear us?
spk15: Yeah, we can hear you.
spk04: Okay, awesome. Go ahead.
spk12: Okay, sorry, a little technical glitch there. And my apologies, just as you were starting that question, we had a little technical thing. Can you just repeat the first part of that question one more time?
spk09: Yeah, yeah. No, I was just asking about your expectations for industry growth in 2024 in the U.S. right share space. Yeah.
spk12: Yeah. You know, we probably, and Aaron will chime in on this as well, you know, obviously we're not giving any, you know, 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 LRP, but that'll be at the beginning of next year. But, you know, I would just say, broadly speaking, you know, we see a lot of reasons to be really optimistic about growth. You know, 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. You know, not just talking about sort of, you know, just going back to 2019, but literally since day one. So that's, you know, super energizing. Number two, we see some secular trends. You know, travel will continue to be a big growth driver. You're seeing that across the sector. commute will continue to be a big growth driver. Again, you're seeing that across the sector as people, you know, come back to work, you know, post pandemic. So those are sort of, you know, secular trends. And then when you look at where we fit in, we really are, you know, again, we're customer obsessed, right? So we're really trying to take a look at large segments like women, for example, or like, you know, airport travel, which includes, you know, business travel, leisure travel and so forth. and say, how can we, you know, create more and more differentiated experiences that drive that incremental use and incremental frequency, right? And we all know this. I mean, heavy users of rideshare, because you asked about the sector, you know, they might use the service, you know, maybe a couple 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, you know, go to, you know, social activities a couple times a week. So in a lot of ways, I think we're really under-penetrated in terms of how people can use it in their daily lives. So again, I know maybe a tiny bit philosophical, but when we look at our 2024 trajectory, we feel super good.
spk06: Yeah, the only thing I'd add to that, David, you know, obviously fully agree. As you think about our model, I think it's important to note that as we get into Q2 of 2024, you know, we will have anniversary to a couple of important things. You know, 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 Q2 of the current year, we enacted a cost restructuring program. So as you think about 2024, Q2 2024 will be the quarter where we anniversary those two items.
spk09: Got it. And then the second part on contribution from products like Shared Ride and potentially something similar along the lines of Reserve. How do you think about that?
spk12: Yeah. So in our world, you know, we started Shared Ride back in I think it was 2019, 2018, something like that. Oh, even further back. My apologies. But we actually found that it wasn't a particularly great experience for riders or for drivers. You know, riders didn't like it so much because it feels like a sort of a diversion from where they're going. You know, they're all taking a weird left turn and another weird left turn. And then drivers don't love it because for drivers, the least enjoyable part of a ride is the pickup and drop-off. And so it, of course, increases pickup and drop-off. So it's an area that we've decided largely to sunset. There are a couple of use cases where we still use it, but it's not a very consumer-facing product. And instead, we have wait and save, which allows people to wait or have a little bit more flexibility in return for getting some money off. As I mentioned before, it's a great product for us. It represents anywhere between 25 and 30 percent or so of ride volumes, something along there. What Uber calls reserve, that's our scheduled ride product. And you'll be hearing more about that tomorrow, where we're making an even stronger commitment to reliability on those so that when people particularly go to the airport, they've got a great experience. I think there's enormous upside there. I think there are a lot of times in people's lives where with a little bit of thought, reserving ahead of time can actually, you know, reduce the hassle and stress in their lives. And as I mentioned before, it has a slight premium price to it. It also has, you know, better economics for drivers as well, so they like it too. I'll bring up one 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'll give you a preview today, of launching a product called Extra Comfort. Extra Comfort is an affordable, you know, sort of higher-end ride. The cars are newer. The drivers are more experienced. The legroom is a little bit bigger. You can choose a quiet ride and so on and so forth. You'll see it if you open up your Lyft app today in almost all of the country and tomorrow even more. You'll see it. And it's priced at maybe a dollar or two above the normal experience. But it's a nicer experience. And, you know, you might think of it as comparable to Economy Plus. In airlines, and if you follow the airline industry, you'll know that that's a crazy profit driver for them. It's making up something. The prices are almost double economy, and they're selling out on it. So we look at that as an area, very customer-focused, because it allows customers to have, you know, 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 over time.
spk15: Thanks so much.
spk08: Our next question comes from Eric Sheridan from Goldman Sachs. Your line is now open.
spk00: Thanks for taking the question. Maybe just two, 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 as the mission-critical sort of two or three elements on either the product side or 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'd be number one. And then in terms of the Q4 trend, adjusted EBITDA as a percentage of bookings. Can you walk us through some of the headwinds and tailwinds 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 tailwinds, leaving 2023 into 2024, almost as a way to think about incremental margins going forward. Thank you.
spk12: Sure. Yeah, Aaron and I will tag team on this. I'll start off, Eric. So I think, I guess I would come back to differentiated products and services in 2024, and I'll mention two again. One we've already talked about, actually, which is Women Plus Connect. You know, 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, you know, roughly half the U.S. population. And if you look to And I encourage you to do so if you haven't on social media at the comments that we're getting, they give you a pretty good indication of why we're so excited about it. You know, literally women riders saying, you know, I am in tears 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 riding and a part of town where I'm not usually comfortable or for drivers saying this is going to allow me to drive more. or 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 rides or airport rides right now because I just don't feel comfortable or have not traditionally. But Women Plus Connect unlocks all that. So I think, you know, that's an existing product, but you'll see us continue to pour gasoline on that bonfire because it's great for riders and great for drivers and obviously drives ride volume and so forth. There are others, but, you know, I'm probably not in a good position to talk about them now because, I don't want to tell anyone else listening on the line. For drivers, similarly, you know, 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 it's not competitive, but it's such a great product, and frankly, it's doing really well, which is it's called Drive Within the Region, and it allows you as a driver to to say, you know what, I need to be home by 7 o'clock tonight to have dinner, or I need to be at my kid's school at 2 o'clock in the afternoon to pick them up. And there are actually two different products. One basically allows you to pick a destination. The other allows you to pick a radius within which you'll drive today. These are both innovations we've started over the last couple of months, and they're really picking up massive steam for drivers. In fact, actually, I don't want to roll here, so I'll tell you one more for drivers that I think is super interesting. It's called priority mode for drivers, and it allows drivers to, it gives drivers additional, you might 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 our more loyal, longer-term drivers, Absolutely love it. And because it allows them to earn more money on the platform. So, you know, these are all things, some of them are more, you know, kind of in front of the curtain, some of them are behind the curtain. But you add all them up and each one of them, I think, is a pretty significant growth driver. We talked about media. Again, we can go more into detail about that. I'm sure maybe later in the conversation we'll also talk about AI and some of the opportunities that gives us. But, you know, I don't think we feel at all constrained with ideas that are strong growth drivers. And I'll say this because otherwise, you know, Aaron will raise her eyebrows at me. We feel like we've got the right cost position to do this. In other words, we do not have to hire much more people or do much more 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.
spk06: And, Eric, as it relates to your question on Q4 adjusted EBITDA margins as a percentage of gross bookings, You know, what I would say are our tailwinds as you think about this sequentially quarter over quarter. You know, we talk about the health of our marketplace. You know, that has definitely been a tailwind for us. It continues to improve and will continue to do so 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's some leverage there. And then as it relates to the headwind, that is primarily reflecting that the increases we're expecting from our recent insurance contract renewals will fully flow through cost of revenue beginning at the start of the fourth quarter.
spk15: Thank you.
spk08: Our next question comes from Benjamin Black from Douche Bank. Your line is now open.
spk02: Good evening. Thanks for the questions. That's one on Lyft Media. Can you dig in a little bit into what the early takeaways have been? Where do you see the need to invest more to grow that business? Is it on the infrastructure side, Salesforce side, more products? It would really be great to hear how big you think the advertising business could become over the medium to long term. And then one on sort of contra revenue. So your competitor obviously spoke about favorable supply tailwinds, which is supporting lower contra. I'd be curious to hear how you're thinking about your current sort of driver incentive levels and how far we've been seeing a normalization here. And is there anything you can do or work from an operational standpoint that could structurally lower driver incentive spend per trip? Thank you.
spk12: Yeah, Benjamin, I'll take the first and Aaron will take the second. It'll be another tag team. So, yeah, let's talk media for a second because it's such an interesting opportunity. And we'll start super big picture. You know, today, if you are a brand and you're trying to come up with a new way to sort of speak with your customers, you know, gosh, the online world has gotten a little bit small for you. You know, you can buy Google AdWords and they'll charge you for that. And you can do some stuff on meta, for example. But if you really want to go where you're a 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, yeah, we know that our younger generations are super brand-focused and very responsive to brands. So people are looking for new areas. Now, TikTok, of course, is doing 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 a ride. What have they told us? They've told us not only where they're going from, but where they're going to. And then they've effectively told us that they're going to spend 5, 6, 7, 8, 10, 15, 20 minutes in a sort of captive situation, a place where they're not got a lot going on, you know, aside from just kind of looking out the car window. 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. In-app ads 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 ads be relevant and interesting. We're not interested in a cruddy experience. In fact, exactly the opposite. What we're seeing is very high click-through rate. We're 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 weren't 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 wait, they actually spend time interacting with that ad rather than canceling the ride. So that's super exciting for us. It's a win-win. Then you get in the car. Now, in the car, two things happen. Number one, you've still got the app on your phone, and people, maybe to a surprising degree, actually check the app as they're headed to their destination. So that gives us another ad service. But also, increasingly, we're putting tablets in cars. We've got about 8,000 screens right now in cars. It was spread across 14 markets. And what they do is they give us the opportunity, of course, for the rider. They can map their progress to their destination, and they can give the driver a tip and these other sorts of things. But we also have advertising there. Apple has been a very strong advertiser there, as an example, and they've re-upped. They're liking what they're seeing, and we can understand why when we look at the data. That's super exciting. And, again, we want those ads to be great, nothing like the taxi things that you see in New York, which are not so great. I will also say, as a quick aside, drivers participate in the economics of those tablets as well. And so when you are getting served an ad as a rider, you're also contributing to the driver, and the driver, of course, appreciates that, and that makes them more willing to drive for lips, which is wonderful. The third thing, which you might have seen, particularly in New York City, are the rooftop. These are rooftop screens. You know, a number of different organizations have these. We think our screen happens to be one of the best in terms of its resolution, in terms of its cost, its ease of use, its repairability, and so on and so forth. We've got about 1,000 screens right now, and we'll see that grow over time, which will allow us to do really interesting, you know, imagine a citywide takeover. Of course, they're all digital, so, you know, you can blast out, you know, a movie premiere, you know, across an entire city in a matter of hours. And then the fourth, because of our CBS business, you know, anytime you see a bike, you know, Station a docking station, you know, you'll see a panel next to it. Some of those are analog old-school Some of those are digital new school Over 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 that's 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 and you know, advertising is a multi-billion dollar sort of opportunity. I'm 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's up, I think, 4x year on year. And we really like where it's going.
spk06: Yeah. And I'll take the question on contra revenue incentives. You know, I might start with If you 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, you know, clearly since we've pivoted to the focus on, you know, competitively, you know, pricing competitively with the market, et cetera, I think that team is just delivered masterfully. You know, keep in mind that we operate one of the most complex sort of real-time dynamic marketplaces that exist 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, you know, the performance that that team has delivered, from a contra-revenue 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, doing a great job for drivers about sort of predicting the time and the places where we will see demand. And so I want to give that team a ton of credit. That being said, again, there's a dynamic nature here. So while on a contra revenue incentive In Q3, 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. So that piece of the incentive structure is still quite small. It's less than 5% of revenue, but I highlight 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, you know, the continued health in our marketplace and the balance that we see there.
spk02: Great. Thank you very much.
spk08: Our next question comes from Michael Morton from Morfitt Matheson. Your line is now open.
spk11: Thank you for the question and also the additional disclosures. I was wondering, your competitor has spoken to 1P insuring, self-insuring versus 3P model. I would love to hear maybe a little bit about the pros and cons of each strategy and how you think about that going forward. When we did the meet and greet in the Bay Area, you spoke about it a little bit, you know, keeping insurance companies honest. But that would be great to learn a little bit more about how you're approaching that.
spk06: Sure. For a number of years, what I would say is that we've had a mix, 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. And so we always look at this from a number of dimensions. You know, one, obviously ensuring that we are getting the best and most competitive rates. You know, we now have about 10 years of data across the marketplace, I think, that helps give us a really, you know, informed point of view instead of previous experience that helps us make smart decisions. You know, 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, you know, certainty as it relates to cash flow. And so having that mix, we think, is a good portion of our business. So I wouldn't expect that 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.
spk11: I forgot to ask. Are you able to quantify, like, what percentage of total booking passes and polls are?
spk05: The total pass-through is a percentage of total bookings? Is that what you're asking, Michael?
spk07: Yes.
spk05: That's roughly 10%. Great.
spk11: Thank you so much.
spk08: Our next question comes from John Blackledge from TD Cohen. Your line is now open.
spk03: Great. Thanks. Two questions. First, could you talk about Lyft's 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 and kind of where it is, where the ride volume is relative to pre-pandemic levels? Thank you.
spk12: Yeah, I'll say a little bit about the second, and actually soon you'll have to remind me, but West Coast grew fastest. I think it was actually our fastest growing region in the third quarter. And, you know, 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's also secular. You know, the West Coast has lagged a little bit and back to work, but we see that coming across super strongly. I don't think we'll talk too much about the other regional stuff unless someone else in the room has anything strong to say there. Yeah. The only thing I would just say generally is, you know, it's very interesting. You know, Lyft is both, you know, a North American, you know, ride share platform, of course, but it's also, you know, a very local ride share platform. And so we, you know, every week, to give you a little peek behind the curtain, you know, in our operational, we call it a weekly business review meeting, You know, we really go all the way, we helicopter all the way up to what we see, you know, macro, all the way down to the micro. You know, what's going on in Region A or Region B and why might things be moving, you know, in 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.
spk15: Thank you. Sure.
spk08: This concludes our question and answer session. I will now turn the call back to Lyft's CEO, David Risher, for any closing comments.
spk12: For sure. Thank you so much. And let me find my little notes here. Oh, yeah. Thanks for joining us all. That's the main thing I wanted to say. I want to say a huge thank you to the 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 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 that customer obsession is what drives our profitable growth. We're really excited about the momentum we've seen and the growth we've seen this past quarter. And we're looking forward to updating you on our business and progress in the new year. So thanks to all.
spk08: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Everyone else has. It looks like no one else is going to join this call. Goodbye.
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