Lyft, Inc.

Good afternoon and welcome to the Lyft third quarter 2024 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. If you should require operator assistance, please press star then zero on your test drone phone. And as a reminder, this conference call is being recorded. I would now like to turn the conference over to Al Rioran, North, Vice President, FP&A, and Investor Relations. You may begin.

Thank you. Welcome to the LEAST earnings call for the third quarter of 2024. On the call today, we have our CEO, David Risher, and our CFO, Erin Brewer. We'll make forward-looking statements on today's call relating to our business strategy and performance, partnerships, future financial results, and guidance. These statements are subject to risk 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 filings. 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. Additionally, today we are going to discuss customers. For ride share, there are two customers in every car. The driver is the lift customer and the rider is the driver's customer. We care about both. Our discussion today will also include non-GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of our historical gap to non-gap results can be found in our earnings materials, which are available on our IR website. And with that, I'll pass the call to David.

Thank you, Aurelien. Good afternoon, and thanks for joining us. Once again, our team executed on all parts of our strategic plan, resulting in a spectacular third quarter with progress on what matters most to riders and drivers, more than 2 million times a day. Aaron will get into the details about our performance this quarter, but a driver from North Carolina put it well when they called Lyft superior to the other guys because of better transparency and overall better pay-per-ride. As we outlined at our investor day, our customer obsession engine was fueled by several product innovations, progress with Lyft Media, and some big partnership announcements. First, we said we would differentiate with product innovation. Our strategy is simple but effective, obsess over our customers. That's what we did for commuters when we introduced Pricelock. Commute rides make up nearly half of rides Monday to Friday, so it's no wonder Pricelock is performing beyond our expectations. By the end of September, we already had more than 200,000 active passes, and this number keeps growing. We see that Pricelock riders take on average four more rides per month than they previously did before purchasing the pass. Not only is Pricelock helping commuters, but also drivers by creating more predictability on when and where to drive. It's a win-win. We're pleased with how Pricelock is performing and we're taking feedback from early users to further enhance the product. Related to this, we're always thinking about and providing more value to our riders. So here's an update on that can of whoop-ass I mentioned last time on prime time, which is our term for surge pricing. Prime time continues to decrease and is now down more than 40% year over year and 20% quarter on quarter on a per ride basis. In the regions where prime time declines fast, conversion goes up along with rides and market share. Chicago is a great example where we saw prime time decline very fast in Q3, resulting in conversion improvements ride growth acceleration, and share gains. I've said before that our strategy was to take Rideshare's most hated feature and turn it into a reason to choose Lyft, and again this quarter, we're seeing the proof that that's the right strategy. More recently, we launched a new set of improvements for drivers to better ensure that every ride and every minute they spend on the road is worthwhile. Imagine driving with Lyft and you accept a ride for a given amount of pay, but you end up sitting in unexpected traffic. The ride takes longer, And on an hourly basis, you earn less than you expected. Not a great experience. So we addressed it. Now drivers can count on their earnings being increased any time a ride takes five minutes longer than estimated. Drivers now also see the estimated dollar per hour rate for every ride on the Accept screen to help them decide if a ride is worth their time. And if you drive an EV, you can choose to only match with rides that fall within your battery range, a really important change that takes care of range anxiety. All told, just this year, we've launched 33 new products and features, a true testament to our team listening to drivers and riders and delivering on the innovations they want. As a result, we're seeing all-time highs across both driver and rider metrics. Drivers are spending more time with Lyft than they ever have, as driver hours in Q3 reached yet another all-time high. According to interviews, driver preference for Lyft is now 12 percentage points higher. than our main competitor. At Investor Day back in June, we said we expect driver hour growth in line with business growth, and right now we're ahead of that target. On the rider side, we see the same. Active riders hit an all-time high, growing at a pace ahead of the long-term target we shared at our Investor Day. We had record rides again this quarter, with commute rides surpassing their all-time highs from 2019. Ride frequency, the average number of rides taken by each active rider, increased for the seventh consecutive quarter. It is also in line with our long-term target. Riders are taking more bike and scooter rides, too. Our bikes and scooters mode had strong performance in Q3, breaking another record in quarterly rides. Bottom line, Lyft is still growing. Up next is more expansion in Canada, where right now we're onboarding drivers in Winnipeg. At this point, roughly 12% of all Canadians have taken a ride with Lyft, and we look forward to riders in Winnipeg joining us soon. So now onto Lyft Media. We've been building Lyft Media into a highly performant platform, and we continue to improve it for our ad partners. Last month, we expanded how we measure campaign performance. Brands like Foursquare are now helping us measure foot traffic to brick and mortar stores. NC Solutions provides insights on brand loyalty for consumer packaged goods companies. And Coachava is measuring digital outcomes like app installs and purchases. Overall, Lyft Media continues to gain great traction with in-app ads growing nearly 3x year over year in Q3. Now I want to take a look at two partnership-focused initiatives that will help strengthen this position going forward. We are very proud of the best of what we do in Rideshare. We are the pure play in on-demand mobility, and that allows us to be 100% focused on getting it right for drivers and riders every time. As we said at Investor Day, that approach includes deeply partnering with other companies for the best of what they do. For food delivery, that's DoorDash. DashPass has millions of subscribers and with last week's partnership announcement, we're giving every one of them a reason to prefer Lyft. So I encourage each and every one of you to link your accounts immediately so you can save the next time you go out with friends and then on that late night snack when you get home. Second, Today, we announced our next step in helping bring autonomous vehicles to millions of people. And again, we're doing that in partnership, beginning with Mobileye, Nexar, and May Mobility. Let me talk about each of these briefly. With Mobileye, our partnership makes our rideshare platform available to all vehicles with Mobileye Drive Level 4 self-driving technology. These vehicles will be lift-ready, giving small and large fleet operators seamless access to Lyft's platform network of riders. With Nexar, our partnership combines Lyft's vast network with Nexar's intelligent video telematics with the goal of accelerating how AVs learn. And finally, we're very excited to partner with May Mobility to make their autonomous vehicles available to Lyft riders in Atlanta next year. Each of these partnerships plays a different role, but collectively, They helped Lyft become the best option for AV stakeholders and asset holders to go to market. At Lyft, we envision a robust future that brings together human drivers and autonomous vehicles in an always-on transportation network. Adding AVs is a huge opportunity, and we look forward to partnering with even more leaders in the industry to shape this future. Stay tuned, because this is just the beginning. Before I finish up, I want to share something with you that is foundational the way we lead our company. And that's our purpose. The team at Lyft has always been passionate about having an impact. It's often cited as a reason people love our brand and why people choose us. It's one of the reasons I came here, too. And it's good for business in ways beyond brand love. Research shows that purpose-driven organizations have returns that significantly outperform the S&P 500. Lyft's purpose is to serve Let me say that again because it's new. Our purpose is to serve and connect. On service, we want to reset the bar, serving drivers and riders better than they have ever experienced before. And on connection, in an increasingly virtual, physically disconnected world, we're going to fight hard to keep bringing people together in person. Lyft is moving ahead. Quarter after quarter, we're winning drivers and riders over with our service. As a result, people are choosing rideshare more, and when they choose rideshare, they're increasingly choosing Lyft. Sure, we're competing against the other guy and are more than holding our own, but increasingly, you'll find that we're playing a different game. We're competing with your car, even with your couch. Every day, over 2 million times, we serve and connect, and I hope you see how early we are in that journey and just how important that purpose is. Over to you, Erin.

Thanks, David. Good afternoon, everyone, and thanks for joining us today. I'm excited to share an update on our results for the third quarter, as well as the outcome of our recent insurance renewals, the next steps regarding our capital allocation plans, and our increased outlook for the full year 2024. Now let's get into the details of the quarter. I'll start with my usual reminder that unless otherwise indicated, all income statement measures are non-GAAP and exclude select items that are detailed in our earnings materials. For the third quarter, gross bookings exceeded $4.1 billion, up 16% year over year, with double-digit rides growth in both ride share as well as our bikes and scooters mode. Q3 saw strong demand, with active riders growth of 9% and frequency up 6%. driven by growth in Canada, our back-to-school activations, and the success of new products, all underpinned by our focus on operational excellence. While demand exceeded our expectations in the quarter, gross bookings per ride and the continued reduction in prime time were in line with our expectations. As we discussed last quarter, reducing the variability from prime time addresses a significant concern for our riders. ultimately drives preference for Lyft and makes our platform healthier. Revenue exceeded $1.5 billion, up 32% year-over-year. During the quarter, we delivered revenue margin expansion both year-over-year and sequentially, reflecting efficiency in the deployment of incentives. Consistent with the framework we outlined at our Investor Day in June, our focus is on generating efficiencies on a per-ride basis across total incentive spend. During the quarter, incentive expenses in contra revenue and sales and marketing combined declined 17% on a per ride basis year over year, well ahead of the annual multi-year target of 10% we outlined at Investor Day as we continue to improve the balance of our marketplace. Operating expenses were $602 million or 14.7% of gross bookings, including planned investment in rider engagement and higher legal and insurance expenses, some of which are accrued on a per-ride basis. In the third quarter, adjusted EBITDA was $107 million, which as a percentage of gross bookings was 2.6%. Third quarter adjusted EBITDA included the benefit of a one-time $14 million tax accrual release. Gap net loss in the third quarter was $12.4 million, which includes restructuring charges of $36 million related to the previously announced restructuring plans in our bikes and scooters division, now known as Lyft Urban Solutions. We ended the third quarter with a strong cash position with unrestricted cash, cash equivalents, and short-term investments of approximately $1.9 billion, and we generated $243 million of free cash flow. As a reminder, our free cash flow trends will vary quarterly due to the timing of insurance payments, so I'd encourage you to focus on a 12-month view. At quarter end, for the trailing 12 months, we've delivered more than $641 million in free cash flow. This outpaced our previous target, driven primarily by higher insurance reserves directly related to higher ride volume, coupled with lower cash payments related to our legacy book. Moving to capital allocation, I want to reiterate our current strategy, which focuses on three main areas. First, It's crucial for our scaled marketplace to maintain ample liquidity for operations and to comply with our existing covenants. Next, we're prioritizing investing in profitable growth. We have plans to invest in initiatives like building partnerships and enhancing our ad tech platform, which are important to our long-term growth strategy. And third, we're focused on shareholder returns, starting with dilution management. After restructuring last year, we've seen improvements in stock-based compensation dilution and remain on track to our commitment for 2024 stock-based compensation of approximately $340 million. Building on that progress, starting later this month, we will leverage our improving cash position to transition to net share settlement. to address the tax withholding obligation for all employer-restricted stock units. This will reduce the number of shares that would otherwise be issued into the market upon vesting. In 2025, we expect to use approximately $100 million of our cash balance, which will reduce dilution by approximately two percentage points compared to our prior tax withholding method. The use of cash will be reflected in the financing section of our statement of cash flows beginning in the fourth quarter of 2024. Now, on to guidance. Our Q4 outlook includes both the impact of the DoorDash partnership as well as the renewal of our third-party insurance agreements. As we laid out at our Investor Day, partnerships are a key component of our profitable growth strategy, and we're very excited about the opportunity to partner with another category leader. In the fourth quarter we're investing in the launch and we're excited about bringing the benefits of Lyft and DoorDash to riders and DashPass members throughout the US. Our experience with large scale partnerships tells us that achieving broad consumer adoption happens with time and we look forward to sharing more updates in the coming months. Next. The renewal of our third-party insurance agreements reflects our success in continuing to bend the insurance cost curve through product and safety initiatives. We expect our fourth quarter cost of revenue will increase by approximately $50 million quarter over quarter, reflecting the impact of our 10-1 third-party renewals. That's significant progress versus last year's increase, driven by the multi-year strategy we outlined at Investor Day. Additionally, I'll remind you that last year, we moved some agreements to a biannual cycle, creating less disruptive impacts throughout the year. As such, we're comfortable that we can manage the insurance cost increase within our operating and financial plans. For the fourth quarter of 2024, We expect gross bookings growth of approximately 15% to 17% year over year, or approximately $4.28 to $4.35 billion. We expect adjusted EBITDA of approximately $100 to $105 million, and an adjusted EBITDA margin as a percentage of gross bookings of approximately 2.3 to 2.4%. For the full year 2024, we are raising our outlook and now expect rides growth in the mid-teens year-over-year, gross bookings to grow approximately 17% year-over-year, adjusted EBITDA margin as a percentage of gross bookings to be approximately 2.3%, up from the prior outlook of 2.1%, and free cash flow to exceed $650 million. 2024 is the first year of our multi-year plan laid out at our investor day in June. Through customer obsession and operational excellence, we're delivering on all our commitments and are on pace to achieve our long-term targets. With that, I'll bring our prepared remarks to a close. Operator, we're ready to take questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star one. And we ask that you limit yourself to one question, and for any additional questions, please re-queue. Your first question comes from the line of Doug Anmuth with JP Morgan. Please go ahead.

Thanks for taking the questions. I have two, one for David, one for Erin. David, I was hoping you could talk about the benefits that you're seeing of less prime time and surge on the platform and just how that's showing up in terms of ride volume via frequency and retention. I know you mentioned higher conversion. Just wondering if there's any way you can quantify the benefits there. And then, Aaron, can you talk about the $650 million in free cash flow in 24? I just want to make sure that we understand the drivers of the the significantly higher outlook is that all function of more shift to 1P and captive. And then how do we think about that trend in 25 and sustainability? Thanks.

Sure. Doug, I'll start and then I'll pass it over to Aaron. So first, so primetime. Yeah, primetime sucks. And so we're really trying to focus on bringing it down. And as you heard, we're down 40% year on year, which is awesome. And so what we find when we look market by market is the areas where we get it down the fastest is where we see incursion and ride growth, conversion and ride growth increase nicely. So I think we mentioned Chicago in the prepared remarks. Boston's actually another city where we're seeing that work out super well. So it's great. It's great. And it's, you know, maybe I liken it a little bit to Starbucks move last week of getting rid of the stupid surcharge on oat milk and stuff. Like, it's just nobody likes it. Nobody likes that kind of variability, particularly when you're being charged for something that you didn't expect. I put it in a slightly broader frame too, to say, as we look at frequency, which continues to increase, you know, frequency is driven primarily by great service, right? The better service you have, the more likely you are to take another ride. And that's just, I mean, you know, tautological. Um, but then there's certain things we can do like price lock and some other things that'll actually increase frequency, um, you know, even more than that. So, and, and in prime time is it falls right in the middle of that, right? That's providing great service and also providing consistency. So sort of put it all together. I'm really liking what we see. I think our conversions actually increased, in other words, gotten better by about 0.1 percentage point. So we're seeing good increase there, but of course that averages all kinds of different things. So that's sort of the big picture on that. And then Erin.

Yeah, sure, Doug. On cash flow, I'll kind of start hovering up a little bit here. First of all, we're incredibly proud. of the performance that this team has been able to drive across the business, obviously strengthening our operating efficiency and improving our margins. And then given that we're a relatively low kind of CapEx profile business, you know, from a modeling perspective, you can assume that a significant portion of that adjusted EBITDA converts to cash. And that is, of course, before considering the impacts of insurance. So let me kind of talk about the dynamics that we're seeing this year and some of the dynamics that I mentioned here in the third quarter. So, you know, first is the function of our insurance accruals. And those are a bit higher because our, you know, our growth is a bit higher than expectations. So that's one part. The second part is lower cash payouts. So let me spend just a second here chatting through that. When we accrue for these expenses in period, we expect the total payout from any particular cohort to take approximately seven years to resolve. With the peak of that usually happening in year three and the majority of those claims paying out sort of year one through three, if you think about that overall horizon. So today, for example, it's fair to assume that the majority of claims that we're paying out are from the 2021 to 2023 time period where, of course, our rides volume were lower, therefore fewer claims, therefore a reduction in those cash outflows. You asked a little bit about what does that mean longer term. So, you know, looking further ahead, if you think about the near term phase of our LRP, you know, I think it's fair to assume that that conversion in that near term, say 2025 part would be a bit higher than 90%, but likely not as high as we're seeing here in 2024. And then as we move into the outer years of that LRP, we would expect that dynamic to normalize as insurance-related accruals and cash payments would be a little bit more balanced. So longer term, we believe that 90% plus adjusted EBITDA conversion target is appropriate.

Great. Thank you both.

Sure. Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking the question. Really just a two-parter. When you think about some of these new partnerships you're announcing with DoorDash and on the supply side with autonomous vehicle companies, I think for DoorDash, how should we think about that driving demand on the rider and ride side in terms of an underlying assumption of what that might contribute to incremental growth? And in terms of autonomous, maybe just refresh us on your view about how adding autonomous supply and partnering across the autonomous vehicle industry landscape might alter some of what you see in terms of the growth prospects and the margin prospects moving forward. Thanks so much.

Sure. Let me take, those are two chunky ones. And so I will, I'll talk to partnerships and then ABs, and then maybe Aaron can talk a little bit about the unit economics of ABs as well. We can both kind of tag team a little bit on this. Yeah, maybe not. We'll see. We'll see. We'll see what we cover. So on partnerships, so DoorDash, super interesting, right? So they've got about 18 million DashPass holders worldwide or 18 million customers worldwide. I think it's DashPass, right? Anyway, so that's a big number. And, you know, some of them obviously are Lyft users, but, you know, maybe a smaller number than you might expect. And so I think you're absolutely right, Eric, to sort of target the top line on this. This is about effectively rider acquisition, right? How can we acquire riders in a way that's super customer friendly? Because we know that people like to take rides when they go out. And then when they come home, they'll get something delivered. So it's off to a great start. I won't give you too many details. And I will say that all these partnerships, they take time to build. So let's not get ahead of ourselves. But we certainly like what we see so far. And we can see that riders are responding to it, signing up to link their accounts, and then maybe ordering something or maybe taking a ride that they wouldn't have taken otherwise. Yep, great to think about as a top line driver and something that's going to kind of unfold over time, but we like what we see so far for sure. On AVs, that one, if you don't mind, I'm going to sort of zoom out for a second. I mean, you asked specifically about additional supply, but I actually want to give a little bit of context because this isn't something we've talked too much about so far. So the first thing I should say about AVs is AVs are great. They're great, right? It's a good experience. You can see them on the streets of San Francisco. I mean, to be clear, it's a very bespoke experience right now. You know, it's a very expensive car, you know, and all kinds of things are going on behind the scenes to make sure that it works super well. And the scale is quite small in the grand scheme of things, but it's a really interesting experience. And so we absolutely see it as being, you know, a TAM expander for us, right? Because it'll bring additional supply and it'll bring a new experience for riders on that some riders, you know, will like, maybe others, you know, don't choose so much. And so, you know, the idea of having a hybrid between the two of them, between human driven cars and robot driven cars is, Super exciting to us. Our strategy is to become the partner of choice to any AV stakeholder. That might be an OEM, equipment manufacturer, any number of things. And for one basic reason, we want to be the best way to keep your AV utilized and therefore making money. And that's sort of the thing. Like these are expensive assets, they're going to be expensive for a long time. And so they got to be moving around, right? Just like an airplane or a restaurant's got to have people in the seats or airplanes got to be in the sky. Like these things have to be utilized. And so I'm going to break that down a little bit. And again, sorry for the long answer, but it's kind of a chunky area. So the first is demand generation. So three big pillars I want everyone to think about. First is demand gen, right? So you know this. I mean, we're one of two big scaled platforms in North America, 40 million active riders, 2 million rides a day. So that I think sort of stands to reason. The second place is marketplace management. So 1.4 million drivers today are on our platform every That's a lot of individuals. And what do they do? What do they rely on us today for? And then you can sort of fast forward and think, what are ABs going to rely on us tomorrow for? Well, they got to be onboarded. They got to be insured. They got to get paid. They got to get matched, right? 24 hours a day, seven days a week. You know, cars get matched with riders, which means that you have to estimate the ETA. That's their pickup time. You got to price it right. You got to do customer care when things are left in the car. All of this marketplace, you've got to manage pickup and drop off, and that sounds easy, but it's not because such and such an address on Fifth Avenue is secretly around the corner, all these sorts of things. So this marketplace management is quite complicated, and it's something that we do in massive scale every single day. And it's the second piece, the second big pillar that any AB asset manager is going to want to plug into. And then the third is fleet utilization. Okay, so this is actually a little bit subtle. And it sounds straightforward, but it's actually quite complex. Again, of course, it's onboarding, but then it's things like maintenance. Again, think of a car as an asset. Again, for some reason, at least I find it actually easy to think of airplanes as very expensive assets that you just have to make sure are flying around and not sitting in maintenance docks and so forth. And so if you think about what a car needs and an airplane needs, it needs maintenance. They need to be recharged. They need to get paid for their time, maybe insured, all these policy issues, all these customer care issues, all this sort of stuff. So we've been doing for about the past four years with our FlexDrive subsidiary a ton of this, just a ton of this. FlexDrive acquires, it leases, it manages, it maintains, it repairs, it resells. It does this for tens of thousands of cars every single year. And we are the only rideshare company that has this capability in-house. I will just say that again. We're the only rideshare company. company that has this capability in the house. And by the way, we're good at it. And I am going to brag on behalf of the FlexTribe folks. We achieved about 90% utilization over the course of the year, which is industry leading. Okay. So you put all that together and I think you can see why ABs are so exciting for us. They're a new form of supply. You can say it sort of tactically like that. They blend very nicely with driver driven cars, right? You don't have to choose between one or the other. You can do both. And we have the capabilities to put them to use. And by putting them to use, that makes all the stakeholders more money, which is great. And that's why they're going to choose this again and again and again. So I think it's more than just sort of any one of those pieces. I think sort of the whole is greater than the sum of the parts. And that is probably more than enough for AVs right now. And Erin, did you want to add anything to any of that?

No, you nailed it in terms of just, you know, I think there's a lot of great work being done out there about how this will fold over some period of time, the cost. the cost of the asset, how the regulatory and insurance environment, et cetera. But the bottom line, as you just said, is asset utilization is going to be incredibly important for unit economics.

That's it.

Thanks, Mark.

Your next question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Thanks for taking my questions. I have two. The first one on price lock, it's – Good early signal on adoption and frequency bump. I just wanted to ask you about, can you walk us through sort of the go-to-market strategy you're using on this? Is it available across all markets? Are you rolling it market by market? Are you targeting certain types of users and sort of rolling it that way? Just how do we think about kind of the strategic rollout of that business across the corpus of users is the first one. And then the second one, just on autonomous, There's a decent amount of discussion about sort of San Francisco and Waymo, et cetera. So anything you can tell us about sort of San Francisco trends and sort of what you've seen on San Francisco volumes over the last, call it three, six months. Thanks.

Sure. Let me take them in order. So on price lock, it's rolled out nationally. It's rolled out nationally. Every single person in the country, as far as I know, has access to price lock. it's targeted at commuters. And so when we do our internal targeting, so again, when we look at our daily volumes, about half of it Monday to Friday is commute volume, which is a huge, huge deal. And you can imagine how frustrating it is for people to sort of wake up in the morning. And literally people do this. I mean, if you talk to folks, in fact, as a driver, one of the people who got in my car a couple months ago was someone from Sausalito who literally said every morning she wakes up, basically if it costs 20 bucks, she'll take a lift. If it costs 30 bucks, she'll sort of think about it, but she'll still probably take a lift. or the other guys if they're cheaper, which doesn't happen because guess what? Anyway, and then if it's 40 bucks, she'll drive herself, which she hates. And it was actually on a Friday morning and she had cupcakes, all these sorts of things for her birthday. And she was kind of very happy that Lyft was priced well. So this was all before Price.com came out. So anyway, the product has really good product market fit because people don't like the variability. And again, it comes at a time which is particularly obnoxious, particularly in the morning when you need to get to work. One of the things we like about it is, aside from the four incremental rides that we've talked about, is it also gives drivers some certainty because we can use that as input to certain things we do in the background. And as a result, there's good marketplace management on this as well. And we know it's good because we can see that people who sign up for price lock tend to renew. So it's a low churn. Now, again, it's still new, right? We're a couple of months in, but we like the dynamics we're seeing, which brings us back to go to market. You can expect within sort of economic guide rails that we will continue to promote it more and more and more because once people sign up, they don't tend to leave and they tend to take more rides, which is just obviously a great sign all around. So stay tuned for more, definitely early days in that these features always take a time to kind of get to any significant scale, but we like what we see and it'll be certainly a nationwide product. On AVs in San Francisco, You know, we're obviously looking at it quite closely. If you've been in San Francisco, you certainly see a lot of Waymos around. You'll see Zooks around a little bit as well. They just announced last week, Jesse, the CTO at Zooks, just announced that they'll be on the road soon in San Francisco. So, you know, from a sort of density perspective, you know, they're obviously working pretty hard. But when we look at companies like that, we really see them more as partners than as competitors. Of course, they're going to do some R&D. Of course, they're going to want to understand customers directly. It makes all the sense in the world. But when we have discussions with all the partners that you would expect we're having with, really more around how can we partner to put these assets which are quite complicated to you know not just build obviously it's very complex but you know maintain on the road um you know keep repaired keep chart all these things you know how can we play a role there um i'll see one last little thing which is in san francisco it's interesting you see them a lot what's also interesting to see i'll just point this out it's a little bit of a side because you also see big parking lots with them right they have to stay somewhere This is quite expensive as well. And it's also an interesting thing. This is super just random, but I was just reading this thing about hail and how hail hits cars pretty hard and cause repairs and all these sorts of things. So it's really, my only point there is just the stuff that you're seeing at relatively small scale right now is super interesting. And it's a, it's a good experience and the companies are doing a good job, but they're also realizing is that they scale up to, you know, beyond hundreds of thousands, tens of thousands, hundreds of thousands. Some of the problems are going to change. And some of the issues they're going to confront are going to be quite different. And we're, we're, I'm super excited about partnering super deeply with them to help them with that.

Great. Thank you. Sure.

Your next question comes from the line of Ken Gorwalski with Wells Fargo. Please go ahead.

Thanks so much. Two, if I may. First, one more detailed one on insurance. Thank you for the guidance on the $50 million quarter-over-quarter on the cost of revenue side. I just want to get a sense... Are there any other differences in the cost of revenue line that we should be thinking about 3Q to 4Q other than the routine stuff and the insurance? That's the first question. And the second one is more broad on, as you think about next year in the domestic ride share market, how do you think about pricing? And specifically what I'm thinking about is, You've got primetime likely continuing to come down, and you've talked about battling against that primetime surge pricing. And then you also have rider incentives and think about things like price lock. Should we think about any upside you get from decreases in primetime be offset by –

uh by other initiatives or how should we think about just overall your pricing strategy looking into next year thank you hi ken so um on the cost of revenues uh side you the answer to question is no there's there's nothing uh other of significance or that you should be considering in that line in terms of the changes i outlined from uh from q3 to q4 uh with respect to pricing um You know, let me, let me kind of start and I'll, I'll hover up just a little bit. You know, our goal is to operate in a healthy and competitive way. We've talked about that previously, right? Pricing competitive to the market. There's no change to that. No reason to think that there would be any change to that as you think about the future. I think another level set is the price of rider experiences is a combination of many, many factors that includes. mode mix. It includes a distance. It can also obviously include prime time depending on the supply conditions at a certain geography at a certain time. And so our job, and I think our results speak for themselves, we've been doing this really well, is to bring value to riders. And that means having a selection of modes that are going to meet use cases that are important. It means providing reliable pricing. We've talked a bit about price lock and then obviously prime time coming down is really, really beneficial to that. So those are some of the, I think, foundational, if you will, theses as, you know, I think we would ask you to think about pricing. I won't talk about 2025 because, you know, I think it's, you know, I don't have anything specific to say there. You know, maybe offering a little bit of color as you think about the third quarter, our gross bookings per ride was down queue on queue compared to what we saw in the second quarter. And that is influenced by prime time continuing to come down, as we've mentioned. But also seasonally, Q3 tends to be the highest quarter for bikes and scooters, right? Weather related. So that's a pretty natural place for our gross bookings per ride to be lower. Q4, that seasonal mix shifts a bit, right? Q4 and Q1 in bikes and scooters. So all else being equal, you know, it's fair to assume that that gross booking per ride would increase, primarily driven by the change of mix. But, you know, hopefully that gives you, you know, some beneficial color on just how we think about pricing overall and some of the maybe more near-term dynamics.

Thank you so much.

Your next question comes from the line of Benjamin Black with Deutsche Bank. Please go ahead.

Great. Thank you for taking the question. So, Erin, I guess contra revenue and consumer incentives, they were down 17% year-on-year. Can you just help us understand what the drivers of the outperformance were and how should those trend as we look ahead? And then I guess besides what David or Aaron, but could you just touch on the returns you are seeing on your consumer incentive investments? Are you generally seeing growing competition for active riders in the US and Canada? And how should we think about the durability of the current active rider growth? Thank you.

Yeah, sure. Thanks for the question. So as a reminder, when we think about the deployment of incentives, it's really aligned with our broader strategy as a company. We make those investment trade-offs to keep the marketplace balanced. Incredibly important. I'll also remind you that in 2024, we're running ahead of our investor day targets for 10% efficiencies on a combined basis. And at the same time, we've made really, really strong progress. David mentioned this in his prepared remarks, focusing on drivers, innovations like earnings commitments. or a recent fall release that was just full of features that drivers love and attracts more drivers to our platform. And this allows us to invest. So, you know, you mentioned, what are we seeing? I think if you look at our really strong progress, we've been talking about it now pretty much consistently each quarter in 2024, growing active riders, the growth in frequency, riders taking more rides on the Lyft platform, coming to the platform and having a really, really good experience. So those are some of the, you know, results for the year and sort of foundations about how we think about it. You know, just to give you the specific data, because I know some of you get curious about this, that total incentive spend in Contra revenue and sales and marketing was about $274 million in the third quarter. That's about 6.7% of gross bookings and that's down sequentially from about 7% in the second quarter and is also in the third quarter, really the lowest mark as a percentage of gross bookings in the last six quarters. So absolutely driving efficiency there. And as we continue to build on the great momentum we've seen with drivers, it allows us to invest. So, you know, you asked a little bit about maybe how we think about investing, et cetera, and what we're seeing in terms of outcomes. I'll do the how first, because I think I've already talked about the outcomes in terms of growth and in riders and in frequency, et cetera. But, you know, we monitor that impact as we make those investments, whether it's, you know, a particular initiative around incremental rides or new riders or retention rates. It It really depends on the nature of the incentive, but we monitor the efficiency of that incentive deployment, and we've been really leaning in because we're seeing great efficiency and really good outcomes in the way that those are deployed.

So hopefully that's helpful.

Your next question comes from the line of Shweta Kajuria with Wolf Research. Please go ahead.

Thank you for taking my questions. Could you please talk about consumer sentiment in the quarter? There have been some mixed data points, but anything on resiliency of consumer spending? What specifically are you seeing in terms of maybe some of the drivers? And then the second question is just thoughts on your take rate and or revenue margin in the near to mid term as you think about its trajectory, at least especially getting going into next year. Thanks a ton.

Yeah, hey, Shweta, it's David. I'll take the first and Aaron can take the second. So we like what we see with consumer sentiment. We really do. And, you know, we look at this just like everybody does and try to sort of discern if there are things that are unusual or what have you. But I'll tell you a couple of data points I think are interesting. So first, we've already mentioned, so our biggest use case is commute, and that's going up. And you would sort of expect that because of return to office and obviously price lock and some things that we're doing. The thing that you might not expect would be that party time is actually our second biggest sort of lift, so to speak. And a party time, which we talk about, is sort of a Friday and Saturday night thing. And that's increased as well, nicely, quite nicely. And I can give you a very specific example, which is kind of fun. We've just been looking at Halloween data, and our Halloween this year was just a monster, just a monster. And it was all-time high. Sorry about that little joke there, kind of, sort of. But anyway, and then back a year ago, it was also a monster. So in other words, we're lapping a big increase year on year and super interesting to see. So that sort of suggests that that's discretionary, right? I mean, you don't have to go out on Halloween and you certainly don't have to take a Lyft, but people are and people are. So that suggests to us that what we're doing is working, that the service we're providing is landing with people, we're priced well, and so on and so on. As Aaron just kind of mentioned in a different context around pricing, we're very aware that in order to be a large-scale consumer brand, which we are, you have to have a value component. You have to, right? I mean, for all the people who are doing well, there are people who are struggling or frustrated. This is very real. So we look at wait and save, for example, our saving mode. We sort of look at it very carefully and try to continue to make that product great. I always give a shout out. little bit weird on this one but to our bikes um well just because for so many people it's a part of their daily lives we give 250 000 rides a day roughly at peak it's quite a large number and the um you know the per ride cost is quite low so so we sort of look up and down the stack all the way from the bottom to the top and the top being the what we call hvm's high value mode and we really see strength across the way not a huge nothing to to worry about so i know there's a long way of saying not seeing much but maybe that gives you a little color on how we're looking at

Yeah, and Shweta, on your question on revenue margins. So, you know, the revenue margin trends that we've seen in 2024, and absolutely true for Q3 as well, reflect the efficiency that I was mentioning a few questions ago in terms of overall incentive spend and the strong progress that we're seeing there. But also, you know, I would remind you in particular in the third quarter, there is a mixed impact on the revenue margin from our bikes and scooters business. So different from our ride share business, the bikes and scooters flow through pretty much one to one from gross bookings to revenue. So in the quarters where we've got more volume, that's going to have a larger impact. And so, for example, in the third quarter, that was about two and a half points attributed to the mix of the bikes and scooters mode. So hopefully that gives you some additional color.

Yes, thank you very much, both of you.

Sure.

We're ready for the next question.

Operator, we're ready for the next question.

John Blackledge, your line is open.

Oh, great. Thanks. Two questions. Any further color on how the Canada business performed in the third quarter and then discuss the continued expansion in Canada? And then secondly, on Lyft Media, if you can give maybe some color on the revenue run rate trend in 3Q, and I think Aaron mentioned investing in ad tech, any color there would be helpful. Thank you.

Sure. Hey, John. We'll touch on both briefly. So Canada, and I think we've probably said all these things publicly before, but I'll reiterate that we're very much on track. In Canada, our goal is to double ride volume year on year, and we're on track. And it's great. It's great. We literally, our Tanner's team is just killing it. Super good to see how strong the product market fit is, and something we're paying a lot of attention to. I mentioned that Toronto is now our sixth biggest market. That's the greater Toronto area, which is wonderful. I forget what it was a year ago, but I can tell you it wasn't in the top 10, that's for sure. So Liking what we're seeing there, good momentum, good product market fit, more to come for sure. And then on Lyft Media, we were, again, on track. You know, we've put out some goals. I think we've talked about a run rate that we're very much on the path for for this year. Really, I would say the focus now, just to sort of maybe, you know, one click deeper on that is, you know, people are, and some of this, again, a little bit big picture for a marketers, brands are always looking for new ways to get to their customers. They just always are. And, you know, sometimes, again, I look sort of very big picture at this and think of, you know, billboards, back in the late 1800s, you know, billboards on the highways as interstates, you know, came up. And then radio, again, very car-focused, also home-focused, and TV and so forth. The thing that's different now, of course, is not just the onlineness of everyone, which is kind of obvious, but that the people with first-party data really tend to do well. And we have first-party data, right? Every time you get in a car as a rider, you're telling us a lot about yourself, right? You're saying, where are you coming from? Where are you going to? What's your intention? Are you going to a coffee shop? Are you going to a bookstore? Are you going to a drugstore? Are you going to a pharmacy? Any number of things. And that's first-party data. And to the extent we can create tailored experiences for our riders, who, by the way, tend to spend about 17 minutes in the car or a little bit more. They tend to check their app out several times, up to seven times, to see whether they're there yet. Like, all this provides a real platform for great media opportunities. So we continue to be, again, as we always say, it's still quite early days. I mentioned earlier that we're really in kind of a foundational mode now where we're in particular really focusing on measurability because of how important marketing efficiency is to every marketer out there. But we're very enthusiastic about what we see. And we like, you know, the video ad unit is still relatively new. You can see maybe yourself, maybe you'll see an ad trailer or a movie trailer if you open up the list app. Anyway, long way of saying we like what we see on track to the, for statements we made about the exit run rate for this year, and stay tuned for more.

Thank you. Sure.

Your next question comes from the line of Mark Mahoney with Evercore ISI. Please go ahead.

Hi, this is David on for Mark. I wanted to follow up with an AV question. You talked about AVs as a TAM expander. And just wondering, are there any specific use cases where you think riders might prefer an AV ride over a regular ride? And any early signals from what you're seeing competitively in San Francisco that might inform that?

Yeah. Hey, David. I honestly would say it's probably too early for us to have real insight there. I mean, certainly, remember, we've given about 130,000 rides primarily in Las Vegas over the years. So we have... sense from that. But of course, Las Vegas is a very particular use case, and that's kind of its own world. And then we're looking very closely and monitoring what's happening here on the ground. And we see it in San Francisco. We see it, obviously, in Phoenix as well, some things in Texas. So kind of looking at it, I wouldn't say there's anything dramatic that we've seen, or maybe nothing worth really talking about just yet. It's also a little bit of a funny thing right now, because now it's a couple of things that's happening, right? So partially, there's this novelty thing. And tourism is a big driver, actually. If you see in San Francisco, in fact, literally someone on our team just said that they gave their parents a ride when they were here in an AB. So the sort of tourism effect and the novelty effect probably swamps other things. And then again, I'll just say it again, it's also a very, very curated experience right now. I mean, on the ground here in San Francisco, these are literally, you know, jaguars. They're driving people around. So that's a nice experience. Tomorrow's AB experience will be quite different as they show up on all sorts of different models and makes and so forth. So anyway, maybe gives you a sense that, like, I think we're very much in monitoring and we're super excited about our partnerships we just announced. I think in particular, main mobility will be very interesting. That'll be at Atlanta, that's next year, that's Toyota Sienna's. That'll give us more insight. So we're all kind of in learning mode, but I don't think we can draw any strong conclusions right now, in part because it's just so novel. Thank you, David.

Your next question comes from the line of Steven Ju with UBS. Please go ahead.

Okay, great. Thank you so much. So, David, I think the default thought process right now is that Lyft will be an asset-light partner for the fleet owners of AVs. But should we be thinking about you potentially taking a more direct role, you know, either, you know, in fleet maintenance or management? Does that come up in discussions with potential new partners at all? And second, as the active rider base gets larger, I mean, I would imagine that growth will decelerate given the law of large numbers. So in order to get to the longer term booking targets, you need to drive frequency higher as an offset. So can you talk about what your latest data is telling you about cohort behavior? Maybe how is your rider's age? The activity picks up meaningfully so that the average usage right now is about three per month, but the gap between the newer cohorts versus older cohorts, you know, any sort of, sort of color you can provide there in terms of the overall level of activity as your customers become more used to using you. Thank you.

Yeah. I'll give a couple of thoughts there. And Aaron, of course, if you have things to add in as well, let's, let's go back and forth on this. I think, so I think you're, so on the AV side, I think your premise is right. You know, asset light is that's how we run our business for sure. And it's really worth just remarking on that. I mean, again, you know, 1.4 million drivers on the platform, but, you know, they own their own cars, which is quite a good thing. It certainly helps us a lot. That'd be a lot of capital to have to deploy. So anyway, we certainly consider that to be very core to the model for sure. You know, I think when we talk about things like maintenance and service and so forth, that's not an area where we need to do that ourselves. And I'll maybe give you a tiny bit, again, more insight into that. Our FlexDrive subsidiary, which does own a relatively small number of cars, but that's through the subsidiary, it's kind of done today to allow people who maybe don't want to use their primary car for rideshare or maybe don't have a primary car. It's also good for us because it's kind of good R&D. We can kind of get direct exposure to what's going on for drivers through the subsidiary. But even when they do things like service and maintenance and so forth and so on, It's much more around service level agreements with other partners, with people who are expert at repairs and maintenance and what have you. And to go just peel back the onion one layer more, a lot of the software we have built allows us to make sure, for example, that those SLAs are being met. So if you know you've got to change out a, I don't know, catalytic converter or whatever it might be, then You know, you know that that costs a certain amount and you know that that takes a certain amount of time. And we have a lot of data on that, which we've developed over the years. And so as a result, we can track very carefully and make sure that that's being done to spec and being done within SLA and so on and so forth. So a lot of the work that we do is kind of on the management side. That's what we call fleet management rather than the operation side. So we're not going to be building or buying, you know, lifts. And I don't mean lifts that way. I mean, like lifts as you would find in a garage. like that. So, no. So, asset life, for sure. But the network and the fleet management capacity that we've built is extraordinarily important. And then you asked another question, and unfortunately, I got so excited about that. Oh. User growth versus frequency growth. Yeah, for sure. Yeah. So, when we said this at Investor Day, we really look at it as kind of a 50-50 thing, right? New riders versus, you know, and also increasing frequency. I'll remind you that As proud as we are and with, I think, legitimacy about our 800 million rides a year, roughly 2 million rides a day, obviously growing at a nice clip, just as a reminder, that compares to 160 billion rides that people take in their private vehicles, personal vehicles every year just in the United States. I would say in terms of our penetration of use cases and riders, we're still, you know, it's almost negligible, really, when you think of all the different times that people are driving around today versus the number of times they're taking rideshare. Even if you add in our competitor, it's still, I mean, now, okay, now it's two times zero. So I think there's a lot more. So I wouldn't say that we're anywhere close to penetrating on that side. I will absolutely say that we're certainly focused on increasing frequency among existing riders, But we want to do it first and foremost by providing great service. That's the single best way, single best way. And I think if you, we're not confused about that. So our customer obsession strategy is very focused on providing a level of service that will encourage people to come back. There's a great Walt Disney quote that I can tell you about another time. But anyway, we're very focused on increasing that way. Thank you. Sure.

And that's all the time we have for questions today. And now I would like to turn the call back to David Risher, CEO, for closing remarks.

Thank you very much, everyone. Look, I know everyone's busy, particularly today. There's a lot going on in the world, but we're super excited about what we've achieved, but also really what lies ahead and are looking forward to connecting with our investor community. I have a little bit of news here. We'll be out in L.A., New York, London, San Francisco over the next few weeks. And we actually plan to further ramp up our outreach in 2025. So please do reach out if you'd like to connect with any of us. We look forward to talking to you. Thanks for your interest and your curiosity, everything you do to help us be as good as we possibly can. And we will connect with you another time. Thank you.

This concludes today's conference call. Thank you for your participation. And you may now disconnect.