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Lyft Gets New CEO; What's the Game Plan for Ride Sharing Services?

Thursday, March 30, 2023 12:30 PM | Neal Farmer

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Lyft Gets New CEO; What's the Game Plan for Ride Sharing Services?

Lyft Inc (LYFT) announced earlier this week that its co-founders Logan Green and John Zimmer will be stepping down from their roles as CEO and President. The two founders will remain on the board of directors while David Risher, a former executive at Amazon and Microsoft, will take over as CEO next month.

Lyft shares experienced some volatility following the announcement with shares initially falling Monday morning before experiencing a strong rally until mid morning Tuesday when Risher said the company is not for sale. Investors seemingly want Lyft to be bought out and it makes sense why: Lyft is in an unprofitable industry at the moment that is increasingly being valued based on its actual business performance instead of growth potential.

Why Investors are Down on Ride Sharing

Lyft and Uber Technologies (UBER) stock are both down massively over the past two years. Uber has fallen from around $60 a share in April 2021 to just over $31 while Lyft has tanked from $60 to under $10 a share. One of the biggest criticisms of Lyft has been its unwillingness to branch out into other ventures such as a food delivery service that Uber has prioritized in recent years.

There is optimism now that Risher has plans to expand Lyft’s business ventures to compete with Uber in delivery services as Risher was an early employee at Amazon when it transitioned from an online bookstore to an online retailer of pretty much any good or service around. The margins are nonexistent in ride sharing with paying for vehicles, drivers, and repairs while trying to have competitive prices with Uber and taxi services. Thus, moving into the delivery service industry should help Lyft improve its balance sheet but the reality is that food delivery services face the same problem.

Lyft Eats is not the Answer

Lyft coming out with its own food and non-consumable delivery service for customers is not going to magically turn it into a profitable company. Uber still has to pay its drivers and deal with the cost of vehicle maintenance and high gas prices that cut into fees for delivering goods. Fees that consumers are very sensitive to as people do not want to pay $10 in delivery charges when including tips for just a $10 burrito from Chipotle.

Grubhub, Doordash (DASH), Uber Eats, and a potential Lyft Eats can’t just keep raising their fees as consumers will stop using those services over even small price hikes. Customers will instead just pick up the items themselves or choose a different restaurant that offers delivery. The competition is too strong in terms of alternative modes of transportation and competitive food producers. Lyft would be adding one competitive field with poor margins to another. Instead the answer has always been about reducing costs and that comes with one major advancement.

Automated Profitability

Self-driving cars are the future in one way or another and it's going to be a saving grace for these ride sharing and food delivery companies. Lyft, Uber, Doordash, and Grubhub are all working with partners to get self-driving vehicles for their fleet so that they can cut one major cost for all of them, the drivers. Being electric powered is an additional plus with hopefully less maintenance and fuel costs but that is still an uncertainty into how it will compare with traditional vehicles. However, not having to pay drivers is a huge plus and not needing to have a vehicle that requires space for drivers will improve efficiency as well.

If self-driving technology advances enough and is allowed in major cities, then Lyft and its competitors will have a huge win on their margins. Entering the delivery service industry would then seem more sound even with their remaining major competition. The cost of drivers being eradicated may not be enough to give it perfume like margins but would help significantly.

The new CEO undoubtedly sees automated cars as the future of ride sharing services and best avenue to success. The food delivery market isn’t the answer right now but depending on the timeline of self-driving technology, it may still make sense to enter into the industry if a majority of deliveries are made by machines in the very near future.

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