Articles

How Does Lyft Work — Does it Make Money?


Ride-sharing services allow users to hail
a car on command simply by tapping a few buttons on an app. Americans have fallen in love with
these apps. Tens of millions of people use a ride-sharing service every year, creating
an estimated $36 billion market. In the U.S., there are only two major players in the ride-hailing
market: Uber and Lyft. And while Uber dominates, Lyft has carved out a very significant 39%
of the U.S. market. In this video, we’re going to break down exactly how Lyft makes its money
by turning tens of millions of riders into billions of dollars in revenue.
Lyft’s business is built on independent contractors that drive for the company, and it has to
pay them, along with other expenses, to operate its business across the U.S. and Canada.
That’s where Lyft’s rider fees come into play. The company charges riders a fee for using its
services based on the length of the ride, the time of day, and other factors.
Lyft’s bookings, which is the amount the company collects from riders before it has to pay its drivers
and other fees, totaled $8.1 billion in 2018. From those bookings, Lyft generated
$2.2 billion in sales in 2018, more than double of what it was the year before. But despite
its impressive bookings and fast-growing sales, Lyft actually lost $911 million in
2018. Where did all that money go? Lyft’s biggest expense is a company’s broad
Cost of Revenue category, which includes everything from insurance costs to payment processing
fees to web hosting and other technology expenses. In 2018, the company’s Cost of Revenue was
$1.2 billion. Additionally, Lyft has other expenses for sales and marketing, research
and development, and administrative costs. When all of its expenses are
cuddled up, Lyft spent $3.1 billion in 2018. But while Lyft isn’t profitable right now,
there are significant signs of growth. For starters, Lyft has 30 million monthly active
riders, which is up to 126% from 2016. And those riders are worth a lot more to the company
than they used to be. At the end of 2017, Lyft’s average revenue per active rider was
$27.34, but that figure jumped to $36.04 at the end of 2018. Lyft is still
in growth mode right now, and it’s fighting hard against its largest ride-sharing
rival, Uber. This ride-sharing battle likely means that Lyft will continue to spend lots
of money on its business, at the expense of growing its bottom line. But the company has
long-term plans to cut costs, such as using driverless cars to drive passengers around.
The company is partnering with some self-driving tech companies, such as Aptiv, to test autonomous
vehicles. Lyft and Aptiv are using self-driving cars in Las Vegas, and have already
completed 30,000 self-driving rides to users. Using self-driving technology could reduce some
of Lyft’s driver expenses, though the company says human drivers will always be a part of
its business. For now, Lyft is focused on generating more revenue from its riders through
new services like scooter rentals and by boosting the amount of rides a user takes each month.
So, rider fees — it’s how Lyft actually makes money. Thanks for watching!
If you have a company you’d like to see us break down, mention it
in the comments section below, and be sure to like the video and subscribe to get more
videos like this from The Motley Fool.

Leave a Reply

Your email address will not be published. Required fields are marked *