Lyft—Uber's spunky, mustachioed competitor—has always had the odds stacked against it. Uber is the 800-pound-gorilla in the ride-hailing industry, with breakneck global expansion plans and billions of dollars in venture capital to help it bust up the taxi industry and put its competitors out of business.
Some of Uber's competitors have already succumbed to the pressures of competing with the notoriously cutthroat start-up. Lyft, though, is emerging as perhaps the only viable competitor to Uber in the U.S. A new document shows just how far Lyft is willing—and required—to go, in order to avoid getting steamrolled by Uber.
TechCrunch obtained "a forecast shared with potential investors" in Lyft. The document claims that Lyft expects to make $1.2 billion in gross revenue this year, which amounts to about $300 million left in the company's hands after it pays its drivers their cut. Lyft also expects to book nearly 90 million rides in 2015, producing an expected net profit of around $170 million once it factors in expenses like insurance and taxes.
The most incredible number in the document, though, isn't Lyft's lofty projections for its revenue growth—it's the revelation of how much it's costing Lyft just to remain in the arena with Uber.
Lyft is planning to spend $150 million in 2015 to acquire new customers, according to TechCrunch's document, and another $50 million to acquire new drivers. Much of that spending will likely take the form of sign-up bonuses for new users, like the incredible (and contentious) $1,000 bonus offered to brand-new Lyft drivers in recent weeks. But it will also mean subsidizing Lyft rides while keeping drivers happy by stabilizing their pay—so that, for example, a Lyft Line ride that costs the rider $10 might result in a driver being paid as if it were a $20 ride. In all, Lyft expects its rider and driver acquisition costs in 2015 to swallow its entire gross profit, and create a $30 million loss. (A Lyft spokeswoman declined to comment to us about TechCrunch's report.)
Lyft has no real choice but to keep raising millions of dollars in venture capital, and keep spending those millions on customer acquisition—if it doesn't, Uber will simply keep flooding the market with subsidies and promotions, and Lyft will either be left to compete in second-tier cities or forced out of business altogether. It's one of the reasons that anyone hoping to compete with Uber in the U.S. has such an impossible-seeming task ahead of them, and it's perhaps one of the reasons that Lyft CEO Logan Green seemed a little testy about Uber at today's SXSW panel.
According to the document, Lyft optimistically forecasts that in 2016, customer acquisition costs will eat up only (only!) about 60 percent of its gross profits. The good news, for customers, is that Lyft's expensive market-share grab is forcing Uber to keep its prices low for the time being. So the next time you hop in a cheap ride through either company, say a little prayer of thanks to Lyft's patient, deep-pocketed investors for continuing to fight the battle.