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Comment by linuxftw | Hacker News Reader

Even if they ever turn a profit (which is unlikely if they continue down the 'we're a self driving car company!' road), that doesn't make them a good investment.

There are plenty of actually profitable companies that return decent dividends. There's no proof that profitability will result in an increase in share price.

If they're not profitable today, I don't think they'll ever be profitable. It's a signal from the marketplace that 'on demand ride services' business segment is over saturated for market demand. They are not meeting an unfulfilled niche in the market, they are losing money to trying to become a dominant player.

Unless the landscape drastically changes and people no longer actually have their own cars (which is their near-term pipe dream), they're going to lose a bunch of other people's money.

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A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

Why not also just hand wave that Lyft is a mere messaging app company that provides communication between people who need rides and drivers willing to give them?

You can criticize the company many ways, but whatever they're doing is working because they're making $2.2B in revenue and growing rapidly. They're positioning themselves as a demand-provider to service the upcoming self driving markets, which is smarter than vertically integrating like some other hype machines out there.

It's not working. Anyone can spend $1 to make $0.50.

> Why not also just hand wave that Lyft is a mere messaging app company that provides communication between people who need rides and drivers willing to give them?

If this was their actual business model, they might actually be able to turn a buck. Drivers can pay a small monthly fee to be enrolled in the service, lyft takes a small cut + payment processing fee. Drivers paid weekly or after X amount of revenue, whichever comes second.

> Anyone can spend $1 to make $0.50.

And very few can scale it to spend $0.50 to make $1.00. We aren't talking about a company selling a product for half what they pay. They are investing overwhelming amounts of money into growth.

> If this was their actual business model, they might actually be able to turn a buck.

Yes, just oversaturate the market with drivers and not enough passengers and you'll for sure make tons of money, constantly dealing with overages and shortages since you aren't managing supply in any way.

They're subsidizing the cost of rides. Lyft and Uber are already an extremely expensive transportation option. If the costs start to approach traditional taxi-cabs, then the default hypothesis should be that the market opportunity shrinks down to whatever the size of the taxi market was pre-ridesharing. There's a reason nobody gave a shit about the taxi market pre-ridesharing.

I’m not sure that’s quite true. App-enabled ride hailing is a much better service in many cities than taxis were pre-Uber. That in itself probably increases the size of the market.

But I do expect you end up with pricing similar to taxis.

Fair caveat. I'll just re-iterate that taxis are really fucking expensive. So expensive, IMO, that cost becomes the most significant factor in utilization.

Definitionally, only a small chunk of the population can afford to hire other people to perform services for them. The miracle of industrialization was figuring out how to make physical goods with extreme efficiency. Part of that was by reducing the amount of materials used. But mostly it was about reducing the amount of labor that went into manufacturing an object. Henry Ford's autobiography is a revelation on this topic. But ride-sharing is fundamentally about utilizing 100% of another human being's time to take you from one place to another. That can work in several situations: 1) you're in the top several percent of earners, or 2) you only utilize it for occasional trips. But those situations don't come close to covering the vast majority of transportation that takes place.

Hence everyone pinning ride-sharing's hope on self driving cars. But, uh, then you're just an auto rental company. Last I checked, those were not great businesses. And they certainly don't enjoy network effects that can take hold when you control a two-sided market, which is what's driving the current ride-sharing marketshare death march. So it's this weird thing where the opportunity sucks until self driving cars are a reality, but then the opportunity transforms into a car rental company, where you're basically deploying and maintaining equipment in order to chase single digit margins.

Anyway, I'll end my rant there. As you can see, I'm not a fan of ride-sharing business models.

I don't disagree with a thing you say. I'd just add that super-short-term rentals that are mostly available when you want them aren't going to be super-cheap either. You're taking a minimum wage driver out of the equation. That's all.

You do have to ask expensive relative to what though. I was at an event in SF a few weeks back and ended up staying with friends rather than staying at a hotel. Which saved something like $2K and was pretty easy given Lyft--and still would have been a bargain at 2x. (Local Muni was under construction.)

> There's a reason nobody gave a shit about the taxi market pre-ridesharing.

Other than medallion Lords and the city governments taking auction proceeds?

>It's not working. Anyone can spend $1 to make $0.50.

That's not what they're doing. Their numbers for 2018 are spending $1 to earn $1.05. Of course, they also spent $0.80 to tell people about it and another $0.30 in R&D to develop new businesses which puts them firmly in the red. But there's at least a business there that is generating positive cash flow. It's an open question if they can cut R&D/Advertising and/or expand their revenue enough to become profitable.

> Their numbers for 2018 are spending $1 to earn $1.05. Of course, they also spent $0.80 to tell people about it and another $0.30 in R&D to develop new businesses which puts them firmly in the red.

So their numbers for 2018 aren't spending $1 to make $0.50, they're spending $1 + $0.30 + $.80 = $2.10 to make $1.05, which is, I believe: $1.00 to make $0.50.

If you treat their R&D and advertising as having zero residual value, sure. But that's obviously nonsense.

>It's not working. Anyone can spend $1 to make $0.50.

Citation needed on how this statement is applicable to lyft. At least go look at their financials to see how, again, their billion dollar revenue is growing much faster than their operating expenses.

And a subscription model charging the drivers is a terrible idea unless you're trying to squash growth. In two-sided markets you don't charge both.

>A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

No it's not because the market takes this into account.

> A company that is not profitable now that is going to make a profit down the road is a good investment, since you'll be buying it at a discount on the market now.

This line of thinking is the reason a lot of people lose money investing. If investors are confident a company will one day be profitable, the price will trade at a value that is very close to what it will be when it hits those numbers. The market takes into account future cash flows.

In order to beat the market, you have to either know, or guess correctly, something that the rest of the market doesn't know. So, usually, you need luck or insider trading.

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