Money Rehab with Nicole Lapin - Earnings Explained with John Zimmer, Lyft Co-Founder and President

Episode Date: August 19, 2022

What are earnings, and why should we care? Nicole explains with Lyft co-founder and President, John Zimmer. Plus, Lyft’s origin story (and original name!). 

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For CEOs, it's earnings call season. Definitely not as fun, but perhaps more important. But what does earnings season actually mean? And why should we care? To help explain, I'm talking to John Zimmer, co-founder and president of Lyft. Well, John, it's great to say welcome to Money Rehab. Thanks for having me. So you started this little company called Lyft. You're currently the president of the company. For those who don't know the origin story, can you just give us an idea of how Lyft started and what you were doing pre-Lyft? Sure. Well, it starts with my co-founder, Logan, who grew up in LA, hating traffic, as many people in LA, I'm sure, do. And when he went to UC Santa Barbara, he wanted to make an

experiment of himself, not bring a car, use all the transit systems. It was a bike system in Santa Barbara. And then he invented a car sharing program on campus using the university's fleet vehicles. So kind of like Zipcar, but he built it from scratch. And that got the transit board's attention. They elected him as the youngest member ever to Santa Barbara County Transit Board. And he was the only person that actually rode the bus who was making these multi-billion dollar decisions on how people get around. in that public transit is an amazing promise of providing affordable transportation for everyone, but the ability to scale it was very limited. And it was dependent on tax revenue. So he tried to increase tax revenue. That wasn't that popular. That didn't work. And so basically, because in the United States, the average bus ride only recovers about 30% of the cost. Meaning if you pay $3, the ride actually costs 10. So it's not scalable without tax money.

It doesn't really operate like a business. And so he said, how could we make a more scalable form of affordable transportation? He traveled to Africa and he had this really amazing time just learning from other cultures. And he saw in Zimbabwe, people sharing rides out of necessity. In many developing countries, they have these shared taxis that a private individual who owns

a van just picks people up along the way. Even in New York City, you have the dollar van, sometimes in the outer boroughs. And so that that was his inspiration and so our first company together he named before we knew each other called zimride named after zimbabwe stop super weird because my last name is zimmer um it was and i had been i had been working kind of my background i've been working in hospitality from the age of 16 was a phone operator in Hyatt Hotels, went to study hospitality at Cornell Hotel School, and wanted to create a... Or saw cities themselves as the most important hospitality experience, but that the cities that we're building today or that have been built over the last 100 years were built for cars and not people. And so that was my way in and my interest. I started writing a business plan for a ride sharing network. And Logan had already started one called Zimride and we paired up and then Zimride turned into Lyft.

You didn't want to keep the name? No. You just didn't want to be so egoistic? Yeah, no, I had when I would have to like explain the story like it's named after Zimbabwe, not me. And I thought you had a big ego. And and so no, but it just it wasn't the best name. Lyft is a much better name. Fast forward a few years later to 2022.

There's pandemic labor shortages, the Great Recession, the Great Resignation, I suppose another recession, all things that are hard on so many companies, including rideshare companies. But you guys just had an earnings call where you reported some killer record earnings. First of all, congrats, Mazel Tov. Thank you. Before we dig into Lyft's earnings, which I definitely want to do, I want to use Lyft, if you will, indulge me, as a case study of what earnings are. So as people are learning more about financial literacy and becoming investors, can you start by giving us a little background on what even earnings are? Who has to report earnings? How often and all of that?

Yeah. on what even earnings are, who has to report earnings, how often and all of that? Yeah. So as a public company, we report earnings every quarter. And it's a way for our investors to hold us accountable to growing long term shareholder value. And particularly right now, investors are really focused on how profitable is the business and can the business produce cash. In prior years, that was always... That's not a surprise. That's not new. That's always extremely important. Over prior years, there was a lot more energy and credit given to fast-growing tech startups and the promise that profits would come. In a recession after the pandemic, the tolerance for that type of growth without profit went away. And so that's the new market reality, one that we are fortunate to be in a good position to execute against.

And yes, we had our highest of what is called adjusted EBITDA earnings this past quarter. So if you're talking to somebody who might use Lyft as a consumer, loves the company, loves the brand, wants to buy the stock, maybe missed out on this sort of 46% jump when it was on sale a few weeks ago, I suppose, and still wants to invest. What would you tell them to look at when they're looking at analyzing a company like Lyft? What other metrics beyond EBITDA should they take a look at? Yeah, I mean, first is kind of what you said is, if you're a consumer of a product and you like the product, you believe in the product, I think that's really helpful. Obviously, then you need to go into the numbers. But first is, are other people going to like this

product? Are other people going to buy this product? Is this a product that you see being important over the next decade? It's a great first step to thinking about a company. to create profit is critical. If we do go into a recession, preserving cash, if demand for services or products goes down, is quite important. So it's also helpful to understand how much cash does the company have. And then what is true in a recession? For some services, like I would argue transportation, transportation is quite durable in a recession. People still need to get around, whereas other things that are nice to have products might not fare as well. I think it's so spot on and smart of you to remind newbie investors, John, that they are investors just by being consumers and that it's, you know, not rocket science. If you like something as a consumer, consumers drive all these other metrics, too.

So when somebody is intimidated by the world of investing, I constantly say just what are you buying? Like, are you buying Lululemon? Are you taking a Lyft? Like, those are really important things to keep in mind beyond all of the other like alphabet soup stuff. Absolutely. So let's go into Lyft's earnings specifically. How do you explain these improved earnings? So over the last, you know, few quarters, we've taken to heart a lot of the changes in the market and the feedback we've gotten. And one of the main things we did in our second quarter is that we slowed the hiring that we were doing. And by slowing the hiring, and in some cases, stopping the hiring,

we reduced the fact that our operating costs were increasing. And so as we grow our demand, costs were increasing. And so as we grow our demand, so rides go up, which they have been going up, and we hit a post-COVID high this past quarter for rides and revenue, then if our operating costs go up less, then we become more profitable. And so we're trying to be much more careful around controlling our operating costs while driving more and more revenue. So slowing hiring, though, doesn't mean firing. No, we did. In one instance, there was a business unit we had that no longer made sense for our strategy. That was a first party car rental program we had in about five markets. We also had a third party car rental, which means with our partners like Hertz and Sixt, where you can get a rental through Lyft,

that was way more scalable. That was in 30 plus markets. And so we made a business decision that was to stop investing in that unit. There was some job loss. We tried as hard as possible for those team members to find other roles that were open within the company. But for the most part, no, we don't feel like there's a need to reduce the number of people at the company, more so just to make sure all of our resources and investments are focused on the highest ROI investments. You mentioned the car rental program that you had.

If people didn't know that, you have other programs like bikes and other things. What else beyond ride sharing is Lyft involved in? Yeah. Ultimately ultimately we want Lyft to be this one-stop place for you to go for all your transportation needs. And so we started, and what we're known for is the ride sharing. And even within ride sharing, you can get a shared ride that is now coming back to many markets

where you get matched with someone else and therefore have a lower cost. You can get a regular sedan or you can get a premium or luxury vehicle. And then outside of ride sharing, we have rental cars that you can book easily in the app. If you're not close to the rental location, oftentimes we'll provide Lyft credit to get a ride to the rental location. So we're tying together these different modes. And then we have a bike and scooter location. So we're tying together these different modes. And then we have a bike and scooter business. If you're in a market like New York City, City Bike is owned by Lyft. Chicago Divvy is owned by Lyft. And we're also experimenting

with different services for car owners. And so again, the idea is the average American household spends more money on the car or transportation than they do on anything else except the home. So it's the second highest household expense at $9,000 to $10,000 every year. And our goal is to provide a large number of options that allow people to bring down that cost and improve their experience. Hold on to your wallets, boys and girls. Money Rehab will be right back. but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high-quality local co-hosts with Airbnb experience that can take care of your home and your guests.

Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host, so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Now for some more money rehab.

A lot of options, a lot of solutions. So you can get a Lux ride every once in a while. You can get a John Zimmer ride. You can get the co-founder special. How does that happen? Sometimes you not only what was that commercial when we were growing up? It's like the hair club for men or something. Not only the owner, I'm a client or something. So not only are you co founder, but sometimes you're a driver.

Yeah, that's true. It started as a tradition in the early days. Obviously, Logan, my co founder, and I met every driver that came on the platform. We care deeply about the driver community and about building community and about the sense of hospitality between our drivers and riders. And it goes both ways. And one thing that's super important to me is that obviously, I use the rider experience as a customer. It's easy because I always want to get around. I use the rider experience as a customer. It's easy because I always want to get around. But I also want to make sure that I stay as close as possible to the driver experience and the driver community. And so this is a tradition that I started for myself in our

first year where I drove on New Year's Eve. The reason I pick New Year's Eve is because it's one of the most in demand nights for rides and for drivers. And if you're driving on that night, you're making sacrifices, not being with your family, and taking care of riders so that they can have a safe ride home if they've had a few drinks. And so and it's also, you know, in some ways, because it's so busy, a more complicated night. So I didn't want to give myself too easy of a task to drive when it's less busy. So anyway, I've driven on every New Year's Eve since our beginning. So it's about 10 years now that we've been in business.

And it's something I plan to continue to do every year. Talk about ultimate undercover boss style. I also recently read an insider piece published about Lyft this week that you guys are continuing to experiment with driver incentives. So kudos on that. Can you outline some of the driver incentives that you've introduced during the pandemic and what you're still considering? Absolutely. So we're our goal is to create one of, if not the best way for people to make supplemental income with ultimate flexibility. And so right now, driver earnings on average are about $37 an hour that you can make driving on the platform. That includes tips and these incentives

we talk about. And one of the things that we're really investing in right now is giving even more information and transparency to drivers so they can pick the trips that best match what they're looking to do. So for example, today, most rides come in as a ride request. And you accept, you know, because you want to get the next ride. and you accept because you want to get the next ride, the new products that we've pushed out in some markets and for the top drivers at this point, and we'll go to all drivers soon, is the ability to see how far is that trip

and how much will I earn on that specific trip. So we're excited to even better align incentives because sometimes drivers want to work within a certain geography or sometimes drivers have another appointment they need to get to in an hour or two and they don't want to be brought too far out of their way. And so we're working to make those incentives

even more aligned with what they're looking to do for work. So shareholders are happy these days. Drivers, it sounds like, are happy. Where does that leave passengers? Are the passengers the ones that are paying for these incentives? Or how will it work? Will they be seeing any new features in the coming months or years? Yeah, so riders are happy as measured by the fact that demand is increasing quarter over quarter.

More and more people are coming back to Lyft. And they'll notice that we've made a lot of improvements to the app. So within every mode, if you have less money you want to spend on the ride, you have way more options than prior to the pandemic. So again, we're bringing back shared rides, which is our lowest cost option. But even for the regular sedan ride or the regular lift ride, you can get a product we call wait and save, where if you're willing to wait a few extra minutes, we can actually pass some savings on to you. Because sometimes in that exact moment, we have so much demand that it's cheaper for us to manage the overall marketplace if you're willing to wait 5 to 10 minutes. manage the overall marketplace if you're willing to wait 5 to 10 minutes. And so again, demand is hitting post-pandemic records. We're adding these new features for riders to ideally match what's more important to you, price or time. And we're excited about the results we're seeing.

What has gas prices done to all of this? has gas prices done to all of this? So for drivers, we added a 55 cent gas surcharge. And that is passed through. So the rider does pay that. It's included in the price. And, you know, good news over the last couple months, we are seeing gas prices come down. We've still maintained that surcharge for the time being. And so with this increased demand, is this showing you that the strength of the consumer at large is stronger than it's been in the last few years? Absolutely. I mean, for us specifically, we're coming off of the impacts of a pandemic where a lot of people didn't want to be next to people if they didn't know them or they weren't comfortable worried about getting COVID. And so we're kind of building back and we have so much momentum

coming off of what was a really tough period that we are seeing strength in the return of demand. Could it be stronger if the looming recession or whatever is, you know, potentially out there wasn't there. I'm sure it could be even stronger. But again, we're happy with the momentum. And how do you deal with that as a co-founder, as president of a company when you have a bunch of these so-called black swan events or things that you can't possibly predict with all of your modeling and all of your modeling and all of your charts and all of the planning? Yeah, one is experience.

Over the last 10 years, we've been through quite the ringer. I mean, when we started, our main competitor, who I won't name... Do you have a competitor? Yeah. I didn't know. They had 30 times as much cash as us in the early days.

And we had to out-execute it. And that was very, very difficult. And we rose up from single-digit percent market share to having a couple markets over majority market share and national average between 30% and 40%. And then obviously, we dealt with a pandemic that overnight, basically, within a month, took away 70 plus percent of the business. And we had to be incredibly flexible and kind of turn on a dime and get to this adjusted profit number with a lot less revenue.

And now we're seeing this potential of a recession. And now we're seeing, you know, this potential of a recession. I'd say that this is still challenging, but of the challenges we've faced historically, a lot less challenging than the lack of capital compared to our competitor and a pandemic that wiped out 70% of rides. So I think you build a tougher skin and you also build internally different operating mechanisms to handle change. So it sounds like the pandemic wasn't your first apocalypse. It was not. It was also not the hardest thing we've faced, although it was very hard.

And does it suck more now being a public company? I mean, it always sucks. And there's always chaos. And that's the only thing that's ultimately constant. But for a while, you weren't a public company. So you dealt with that between you and Logan, I suppose, and the rest of the team. But how did that change in the pressure being public? external barometer that goes up and down, sometimes with extreme volatility related to external events, as well as events specific to us, that can be difficult. But if you have a long-term view, and you don't let those things get to you too much, and you just heads down operate. I think overall, it is a positive. It is, again, if you kind of blur your eyes on the short-term volatility and think about what the market is telling not only our company, but all of these companies, while it might not always be a straight line trend of sharing this

feedback, I think overall it is helpful. And by going public, we were able to raise enough capital that allowed us to not need to raise any more capital ever again. So overall, I'd say it's a positive, although yes, there are shitty or sucky periods. Is it possible to blur your eyes or put your blinders on or whatever? How often do you check your stock price? Honestly. It is honestly more frequently than I should. And so I'm probably looking at it every day.

Part of it is I need to know what's happening because we're managing a team that looks at it. Hopefully, they don't look at it that frequently. But it is part of many of our team members' compensation. And I care very deeply about them having a good experience. And I care deeply about our ability to retain them. And so it's an important data point for me to understand. I think it's good to know and important to know and something we need to manage. But the blurry eyes comment is more about, okay, there's only... The things we control

on it, I want to know about and I want to control. The things that are less in our control, I need to make sure I put more of my energy and the team's energy into things that will drive long term value for shareholders and for the overall mission. And how would you suggest or maybe even take this advice yourself to kind of wean yourself away from the compulsion of constantly refreshing and refreshing if you're, let's say, an employee at a public company and a lot of your comp is involved in it. Or if you're a new investor, you know, it's very cool to say you're a longtime customer of Lyft. Now you can buy the stock and now you're an investor, but how do you have boundaries? Yeah, I mean, I think just setting a goal for your investment,

just jumping into an investment without a goal, I think is not ideal. So if your goal is over three years to see that stock go up X or Y percent because you believe it's undervalued or believe they can do A, B, or C. That is helpful to have that, okay, in three years, I'd like to see this type of return. And therefore, I really only need to check it

literally every year. Now, I doubt people will, because their money's on the line. It is a normal thing to want to check it. We had one investor who I won't name during our IPO when they said, hey, just so you know, we're extremely long-term investors.

We're probably not going to check your stock for the first few years. Whatever. No, this was like a certain type of capital that actually I do believe they do do that. So for me, it's helpful as like most investors will not do that and most people will not do that. But it's a helpful reminder that this institution has done extremely well, because they are not paying attention to the volatility in the near term, and that they are focused on their goal, which is long term value creation. person will have to find their balance. But I'm more personally aligned with making investments

with a longer term mindset and then less of a need to be checking the stock every day. For today's tip, you can take straight to the bank. If John Zimmer thinks he should check his stock price less than once a day, you should definitely check your investments less than once a day. As I've said before, the most successful investors do not get off the ride in the middle of the roller coaster. So if you need to close your eyes to enjoy the ride, do it. Put your blinders on. Your time horizon should be long, so there's no need to check your portfolio more than once a month. Money Rehab is a production of iHeartRadio.

I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic and Brandon Dicker for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.