Photographer: Andrew Harrer/Bloomberg

Lyft Tells Investors to Expect No Growth in Rides for June

  • College student summer exodus from campuses dents ride demand
  • Lyft says Uber has increased ‘competitive intensity’: memo

Lyft Inc. may be hitting a wall in its war with its richer competitor.

This year, armed with a fresh $1 billion from investors, Lyft charged into battle with Uber Technologies Inc. in the U.S., vastly increasing spending to subsidize driver and rider growth. Lyft promised investors it would cap spending at $50 million a month, or $600 million for 2016, people familiar with the matter said in April. Uber matched many of Lyft’s subsidies, pumping out driver promotions and keeping fares down.

Lyft told investors in a recent memo obtained by Bloomberg that it expects the number of rides it handles to be flat or down in June, compared with May. That follows a record month for rides in May. 

Lyft expects to beat its target for second-quarter ride volume by 35 percent, Lyft told its investors. "This implies June will be flat to slightly down from the record May level given we face traditional seasonality headwinds in June as most college students leave their campuses for the summer," the note said. "Additionally, June represents the first full month without Austin, after pausing operations in the city in May." (Uber and Lyft pulled out of Austin, Texas, after the city passed legislation that would require them to conduct fingerprinted background checks on their drivers.)

Lyft has hired investment bank Qatalyst Partners LP, known for selling technology companies, Bloomberg reported Monday. Potential acquirers, which could include automakers or tech giants, will have to weigh Lyft’s growth rate and its heavy spending. Buyers typically look for high-growth companies or ones that provide strategic value. Lyft’s ride-hailing network may appeal to a company looking to create a network of self-driving cars, for instance.

One Lyft investor told Bloomberg that, given the company’s heavy losses, if Lyft could sell itself for $5.5 billion -- the value of the company at its latest valuation -- that would be an acceptable price. Qatalyst could also help the startup sell a stake, rather than the whole business.

Lyft told investors in the note that in May the company hit a record number of rides: 12.7 million. Not all of those rides were full priced. While rides increased about 11 percent from April to May, fully paid rides, without the use of a coupon or a credit, grew by only 5 percent in that period.

The company also said in the memo that it reached a nearly $1.9 billion annual revenue run rate based on its performance in May. In November, it touted a $1 billion run rate. Revenue run rates apply monthly figures to a 12-month period. Investors use them to gauge the potential for growing businesses.

Lyft carried more than 2.8 million passengers in May, the memo told investors. About 212,000 drivers worked for Lyft in May, the largest in the short history of the company, the note said. The company told investors that it "remains bullish." "While our chief rival increased its relative level of competitive intensity, we continue to exceed plan." Lyft has previously shared projections with investors. The company said that May this year had four times as many rides as May 2015.

Lyft reached 3 million rides per week in June, according to a person familiar with the matter.

The note also assured investors that Lyft expects its losses to "remain at or below" its budget for the rest of the year "excluding extraordinary legal settlements." Lyft recently won court approval for a $27 million settlement with some drivers.

While Lyft expects to lose hundreds of millions this year, Uber has lost money on a much larger scale. In three quarters last year Uber lost $1.7 billion. The company has committed to spending billions in China and India, and Uber has continued to subsidize rides against its global competitors like Didi Chuxing and Ola. Like Lyft, as a private company, Uber’s financials are private.

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