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In the U.S., and IPOs were eye-openers for the industry, showing that the appetite for rapid-growth, money-losing businesses is on the wane. Every startup is pushing for extra diversification with hefty bets on food and grocery delivery, scooter and bike rentals, and even a proto-bank like the one launched by Uber through its new fintech division, Uber Money. In Europe, contenders for ride-sharing supremacy include American companies and those born on the continent, operating in a myriad of countries, all with their own linguistic, behavioural and legal particularities.

This might sound challenging for companies in the business–and it is. They wage a multipolar war, with several battlefields, all of them with their own specificities, to secure sustainability for each. Diversified weaponry, calculated retreats and fresh new starts–concerning brand and image–have been the approaches taken to reach out to new customers, consolidate old ones and control any potential damage to the bottom line, which is believed to be negative for all of them.

Steering away from taxis

贰蝉迟辞苍颈补鈥檚 is an example of a company that ticks almost all the boxes in the list and is a case of the ride-hailing startups鈥� efforts to detach themselves from the taxi image. In fact, it changed its name in early 2019 from Taxify to the current brand, and is now diversifying to other business areas, some not so burdened with regulation.

Markus Willig, CEO and founder of Bolt, told SA国际传媒 News that 鈥渢he rebranding brought our name and visual identity in line with the company鈥檚 broader vision of transportation that had already expanded from ride-hailing, with cars and motorbikes, to scooter sharing, and now also includes food delivery.鈥�

took a different approach and seems to have folded to the market demands. The German app My Taxi was universally held as the ultimate weapon against the Uber invective in the taxi sector. However, under the new strategy taken by the Daimler-BMW joint-venture for transportation (a holding company which also includes French-born ride-hailing app , n茅e Chauffeur Priv茅), bypassing the straitjacket of taxi laws ended up paying off in terms of profitability.

While maintaining the service that allows customers to ask for taxis, the company has released a new service called Lite, which allows taxis to operate as other transportation apps, showing a final price upfront and adopting the same remuneration model for drivers.

鈥淭he strategic rationale behind the rebranding was the expansion of our business with new services alongside the classic taxi service,鈥� Mark Berg, Free Now Group CEO, told SA国际传媒 News, adding that 鈥淔rom a business perspective, it is also very important for us to be able to determine our own prices. Introducing Lite in Poland or Madrid, for example, made those markets grow extremely fast in the recent months,鈥� as people get used to the predictability of ride-hailing prices shown upfront.

Diversify or die

Without disclosing data on rides, revenue and earnings, ride-hailing companies, based on the postulates of the much-touted sharing economy, have been dealing with strong headwinds in recent years. This has been brought on by standoffs with governments concerning workers鈥� rights and their business models which repatriate proceeds from the markets where they operate to tax-friendly countries.

Concerning competition, the environment isn鈥檛 rosy either, with a myriad of apps vying for supremacy in the most appealing cities for business, such as London and Paris, already overcrowded with cars. Spain鈥檚 , for example, retreated from the Portuguese market in late 2019–a natural foray since it is headquartered in Madrid–amid rife competition in Lisbon and Porto, Portugal鈥檚 largest cities, but mid-sized in comparison with other European capitals.

, an Amsterdam-based specialist in sharing economy platforms and founder of the consultancy firm Forget the Box, told SA国际传媒 News that 鈥淭he idea of a European or global winner-take-all market is may be overrated,鈥� pointing out the deadly sins of the business.

鈥淚t鈥檚 very easy for competitors to start [similar businesses],” he said, “and the switching costs of demand and supply are really low, it鈥檚 very easy to switch if somebody else offers a better deal.鈥�

In most European markets, he said, there鈥檚 also a more ingrained culture of using public transportation, which does not happen as often in American markets.

鈥淚n Europe especially the public transport is really good,鈥� said Arets.

The analyst does not think there will be space for more than three apps operating in one single country, but points out that competition will be made through gaining preponderance in cities and not as much in whole countries, which makes it more complex.

鈥淭hat鈥檚 the question about the viability of the business model,” he added. “How much market do you need to get a model to be sustainable?鈥�

The only way out is consolidation, Arets said. 鈥淚 think they will merge, because I think that鈥檚 the only option. In the end there鈥檚 only place for a couple of players in the local market.鈥�

Meanwhile, diversification is key. While Free Now, Cabify and Bolt doubled down on their investments in Latin American countries such as Mexico, Brazil and Colombia, whose largest cities represent an immense potential for rides–other lines of business have been launched such as food delivery.

Less labor-intensive and thus more profitable areas have also been a strong bet. Scooter and bicycle sharing services are now omnipresent in Europe’s main cities. Uber has taken the final step toward profitability, launching its fintech services in late 2019, opening the possibility of making payments exclusively through the Uber brand. But there are still legal hurdles to overcome concerning these companies鈥� main activity: giving rides to passengers.

鈥淯ber and other apps were really smart: so we are not a street taxi and we are going to envision ourselves in this category,” Arets said. “In that category there was much easier regulation on prices. It was much easier to compete than in the traditional taxi industry. But in the end what you see happening is that both consist of cars that will take you from A to B. In fact there鈥檚 not so much difference.鈥�

This isn鈥檛 lost on the local authorities who have been cracking down on ride-hailing apps, denying the claim that they operate as simple intermediaries and calling them out as pure taxi services.

London is the most high-profile example of this after the British capital鈥檚 transport authority refused a renewal of 鲍产别谤鈥檚 license to operate on grounds of safety, citing unreliability of driver identification–mainly due to the possibility of fake accounts.

And therein lies just one headline in what seems to be ongoing conflict in this new economy.

Article written for SA国际传媒 News by Pedro Garcia, a journalist based in Lisbon, Portugal, covering mainly business and economic themes.聽Follow him on .

Blogroll Illustration: . Photo by Sorin Gheorghita on Unsplash

From ride-hailing apps to driverless car technology, transportation startups have attracted unprecedented sums of investment capital from auto manufacturers in recent years. In the past few quarters, that trend has been accelerating.

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An analysis of SA国际传媒 data shows that since the beginning of 2019, the world鈥檚 largest car and truck manufacturers have led financing rounds valued at more than $6 billion. Over that period, they鈥檝e participated in more than 50 deals for several million dollars and up, indicating an expanded willingness to pump significant sums into rounds.

鈥淚t has been a continuation of the trends for many of the automakers that have been particularly active over the past few years,鈥� said , a partner at Detroit-based transport venture firm . 鈥淚n 2019 and 2020, however, it has been interesting to see a few automakers鈥攑articularly those in Asia鈥攁ggressively ramping up their innovation efforts.”

Below, we take a more detailed look at where Big Auto is putting its capital, which companies are spending the most and where the current investment path is headed.

Hot Sectors, Big Rounds

First, let鈥檚 look at where the money鈥檚 going. The sectors driving away with the largest sums of automaker capital include autonomous driving technology, electric cars, batteries and ride-hailing.

We break out the largest funding recipients in Big Auto-led rounds in the chart below. (See full list of.)

For the most part, the same subsectors have been attracting automaker interest for years, but the funding dynamics have changed some in recent quarters.

In particular, we鈥檙e seeing more partnerships and joint investments involving multiple automakers. Examples include 鈥檚 participation in a $1.15 billion May round for 鈥檚 self-driving unit, , and Volkswagen鈥檚 $2.6 billion round for -backed .聽 Even longtime rivals and BMW are teaming up by launching a .

鈥淚鈥檓 not sure 5 to 10 years ago we would have imagined Ford and Volkswagen coming together to collaborate on electric and autonomous vehicles, or Daimler and BMW鈥檚 collaboration on mobility services,鈥� Stallman said.

However, as the true cost of launching electric and autonomous vehicles鈥攁nd competing against and on mobility services鈥攈as come into greater clarity, these partnerships make quite a bit of sense.

Another broad trend is a move toward components developers. The years 2016 to 2018 were active for acquiring full-stack autonomous vehicle technology companies, Stallman noted. But more recently, automakers are turning their attention to enabling and component technologies that align with in-house architectures. This isn鈥檛 broadly reflected in the largest deals chart above, but looking at a , it鈥檚 a more visible trend.

Most Active Investors

There鈥檚 wide variation among automakers in startup round counts. Several are, on average, participating in more than one sizable deal a month. Others are more sporadic.

Below, we take a look at the most active by deal count since the beginning of last year:

One key takeaway is that we鈥檙e seeing more startup capital coming from large auto manufacturers in Asia.

in particular has upped its game. The Korean auto giant wasn鈥檛 much involved in the startup space before 2017, according to SA国际传媒 data. In the last few years, however, the company has backed at least 35 rounds, including 18 since the beginning of 2019.

, meanwhile, tied with BMW as the second most active investor. The count for Toyota included several supergiant rounds of $100 million.

It鈥檚 also worth pointing out companies not in the rankings. , for instance, hasn鈥檛 been doing much startup investing, presumably preferring to innovate in-house. is also not active in venture-stage investing, nor are France鈥檚 or Japan鈥檚 and .

The Road Ahead

While automakers did a lot of startup investing in 2019, they didn鈥檛 do much acquiring.

There were a few deals: Honda bought Drivemode, a Silicon Valley developer of smartphone apps for drivers, in its first startup acquisition to date; Tesla snapped up , a computer vision startup; and PSA Group acquired , a platform for car rentals and parking it had previously backed.

Big Auto is, however, increasingly competing with Big Tech in the transport space. Just last week, for instance, bought , a developer of technology with applications in the automotive space, and over the summer picked up , a developer of autonomous driving software. also has made some transport acquisitions, as have Uber and other ride-hailing players.

Interest from Big Tech is a concern, as the most valuable technology companies are worth many multiples more than the biggest automakers, making M&A an unlevel playing field.

That said, automakers鈥� investment activity shows they鈥檙e serious about keeping abreast of innovation in spaces that impact them by putting more money than ever toward stakes in startups, even if they鈥檙e not buying them whole.

Main photo courtesy of Florian Steciuk via Unsplash.

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The joke is an homage to the oft-mocked truth that in the world of high-valuation startups, investors have historically favored growth above profits. Particularly in nascent sectors where early mover advantage matters, VCs have been all-too-willing to bankroll persistent losses in the pursuit of market dominance.

The expectation is that a least one of two things will happen. Ideally, the startup will get profitable as it grows up. If not that, then it will keep growing and public investors will eventually bankroll it at an even higher valuation.

In recent months, the WeWork fiasco, post-IPO performance, and a host of indicators of slowing growth in the unicorn set have upended these expectations. Public investors, it turns out, are not always willing to pay astronomical multiples for money-losing companies just because founders, VCs and investment bankers spin a great narrative about their world-changing potential.

That brings us to where we are now: VCs are talking about things like revenue quality, gross margins, and unit economics. Even SoftBank is a more cautious investment strategy should it manage to go forward with a second Vision Fund. The firm, the largest backer of Uber and , now wants to concentrate on companies with clearer pathways to profitability and public offerings.

It鈥檚 easy to see how we got here. Too many startups raised too much money to scale businesses with too many losses. While it鈥檚 easy to poke fun at imploded unicorns and their masterpieces of financial obfuscation, this is not a clearly helpful exercise.

Instead, we thought it might be useful to look for some signal amid the noise. That is: What level and type of losses are acceptable to public market investors these days? And how might those translate into good or at least non-catastrophic exits for the current pipeline of high valuation venture-backed startups?

Here are a few of the points public investors are making with wallets:

We Make The Valuations, Not You: At some points in the business cycle, startup IPOs are essentially a seller鈥檚 market. Public investors are eager for new offerings, and it鈥檚 relatively easy for IPO underwriters to sell shares their at desired price. First-day pops can be pretty common.

In a buyer鈥檚 market, investors are pickier about offers. There鈥檚 diminished urgency about getting in early, and a sense that wait-and-see could be the better strategy. It鈥檚 logical to feel this way when by simply waiting a few weeks, even an enthusiastic buyer of Uber, , and others could snap up shares at a steep discount to opening day prices.

Clean Up Your Numbers Before You Come Knocking: Continuing with the buyer鈥檚 market theme, let鈥檚 make an analogy to real estate. In a hot seller鈥檚 market, one can list a home with ugly pink bathroom tiles and still get multiple good offers in a few days. In a buyer鈥檚 market, it might sit for a while, and even interested buyers might demand a discount or some upgrades.

In recent months, public market investors have seen a lot of IPO filings with the financial equivalents of ugly pink bathroom tile. This includes things like meager growth coupled with massive losses, obfuscatory financial statements, a shrinking market, and even the ability to post negative gross margins while charging several dollars for a cup of coffee.

Now, we鈥檙e not in a full-on buyer鈥檚 market at the moment. U.S. indexes are still trading near multi-year highs, the IPO window is open, and public investors are looking for new growth stories. But while some balance sheet ugliness remains tolerable, do expect public investors to demand a discount.

Software Multiples Require Software Margins: This last point has been echoed by several in the venture business, and it makes sense. The unicorn boom has been replete with companies that pursued some of hybrid software-meets-real-world business model. There鈥檚 Uber – offering an app for the labor-intensive tasks of driving people and delivering their food. There鈥檚 – boosting returns on exercise equipment by adding connectivity and subscription classes. And so on.

Of course, there鈥檚 nothing wrong with hybrid models. Their revenue multiples, however, can鈥檛 be expected to compare to say, a SaaS company that incurs little-to-no cost for each additional customer. Markets are in the process of sorting out just what kinds of multiples these hybrid models should command. Early indications are they鈥檙e reasonable compared to non-software sectors, but not the lofty multiples venture investors originally targeted.

Losing Control Of The Narrative

Looking at the emerging standards of public market investors, a casual observer might say they seem pretty sensible.

For the unicorn private investor crowd, however, it鈥檚 a more ominous development than it seems. That鈥檚 because the entire unicorn phenomenon – the philosophy of scale fast and break things, the , scooters everywhere, massive losses, Adam Neumann – is predicated on being the opposite of sensible. The broad goal behind all of high-valuation startup dealmaking is to hopefully back that handful of entrepreneurs just crazy enough to be brilliant.

For now, expect the startup crowd to talk about how a successful bar investment now includes selling some drinks, preferably at more than it costs to pour them. To anyone not in Silicon Valley, this would sound perfectly normal. But for the venture crowd, it鈥檚 a far cry from big crowds and empty glasses.

Photo credit: iStock

According to a , publicly-traded ride-hailing company is working to invest in building an ads business inside of , its food-delivery service. The move, TechCrunch notes, comes after Uber Eats allowed restaurants to offer discounts in exchange for better placement inside of the application itself.

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While an advertising business inside of Eats makes good sense for Uber, in our view, it is better understood from a profit perspective than from a growth orientation one. What’s more, the move underscores the fact that while Uber has scaled Eats quickly, the service’s losses have grown as well (more from Uber’s Q3 earnings here). If the ads experiment goes well for Uber, expect to see yet-private, on-demand companies also pursue similar monetization methods.

From the consumer perspective, don’t expect on-demand services to become cheaper; expect them instead to look for new sources of topline to staunch losses. Let’s explore the Uber example.

Uber Eats

Uber Eats is a quickly-growing portion of the larger Uber business. In the last quarter, Uber Eats pulled in $3.7 billion in gross bookings, representing a 73 percent increase year-over-year. Its revenue grew 64 percent year-over-year to $645 million and its adjusted net revenue also grew 105 percent to $392 million. Across most metrics, Uber Eats was the second-fastest-growing segment of the company in percentage terms, coming in only behind Freight. That makes sense, as Freight is a less mature division at Uber and therefore one growing from a smaller revenue base.

In the quarter, Uber Eats accounted for 22 percent of Uber’s total gross bookings, compared to the year-ago quarter when it made up 16.6 percent. In the third quarter, Uber Eats made up 11 percent of the company’s adjusted net revenue, compared to last year when it made up 7.2 percent of the adjusted net revenue.

It’s clear that Uber Eats is important to Uber’s growth story, as it’s one of the fastest-growing segments in the company while competing in the hot market of food delivery. It makes sense that Uber would double-down on the service by helping make it more commercially viable.

That being said, Uber Eats is deeply unprofitable. It lost $316 million in adjusted EBITDA in the third quarter. For reference, Rides brought in $631 million in positive adjusted EBITDA during the same period.

Uber Eats is a key driver of growth for the company while also a source of more red ink than Uber can stomach. The good is therefore also bad for Uber, a firm that very much wants to be valued on growth and not, say, GAAP profits. It’s stuck, therefore, pursuing Eats for the sake of growth while also trying to reach for profitability.

Enter ads, a business that can layer revenue into the Eats mix, lessening pressure on Uber to raise fees or dig deeper into the coffers of restaurants to help its must-work food delivery service become a viable long-term business.

Uber has a lot of cash, yes, but it also needs to start generating more of the stuff in time. If it doesn’t, it was never a real company to begin with.

滨濒濒耻蝉迟谤补迟颈辞苍:听

and represent enormous bets by venture capitalists and other private investors, wagers that the companies hit on a new sort of service that could not only generate tens of billions of dollars in global use but also, in time, profits.

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However, in the period after the two companies went public this year their share prices have struggled under the weight of slower-than-expected growth, and sharp, unrelenting unprofitably. Lyft and 鲍产别谤鈥檚 reported results changed the narrative surrounding the unicorns, shifting the public鈥檚 perception of the companies from impressive upstarts to expensive question marks.聽

The struggles of Lyft and Uber as public companies made related, yet-private companies like , , and even seem like less-than-likely IPO candidates. The market reception that first Lyft, and, later, Uber received also has the potential to chill private market investment into on-demand companies more broadly.

But things have improved in the last few weeks for the two ride-hailing giants, at least in terms of operating results. Each company put a stake in the ground regarding future profitability, and their recent results came in ahead of expectations.聽

Let鈥檚 examine the market reaction to all the news, and tie it back to the private companies who won鈥檛 be able to accept Uber and Lyft being their comps if and when they try to go public themselves.

Lyft

In late October, Lyft promised investors and the technology community at large that it would generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the final quarter of 2021. Its shares rose.

A week later the company , including quick revenue growth ($955.6 million, up 63 percent from $585.0 million), expanding losses ($463.5 million, up 86 percent from $249.2 million), and improving adjusted losses ($121.6 million, down 50 percent from $245.3 million).

The results , with adjusted losses per share coming in 9 cents per share better than expected ($1.57 per share instead of $1.66). Revenue also beat the $915 million street expectation.

Lyft also raised its Q4 revenue and 2018 revenue guidance, saying that it expects Q4 revenue to be between $975 million and $985 million, and revenue growth to be between 46 percent and 47 percent year-over-year. For its 2019 revenue guidance, Lyft said it expects to be between $3.57 billion and $3.58 billion, up from between $3.47 billion and $3.5 billion. Its annual revenue growth rate is also expected to be 66 percent, up from between 61 percent and 62 percent.

After rising some in the wake of the its adjusted profitability promise, the company鈥檚 shares have fallen since its earnings report. A good question is why. But before we try to answer that, let鈥檚 look at Uber.

Uber

This week Uber . As Uber is a more global company, and as it has more business lines than Lyft, it鈥檚 results are harder to parse out. So, let鈥檚 get ourselves a summary and then devote ourselves to the details.聽

The first thing to know is that Uber made a similar profit promise during its earnings call. Namely that Uber will generate full-year adjusted EBITDA in 2021. That鈥檚 better than Lyft鈥檚 claim of reaching positive adjusted EBITDA by Q4 of the same year.

Let鈥檚 look at Q3. Here are :

Revenues of $3.8 billion were better than the $3.7 billion expected, up 30 percent year over year. And looking at the bottom line, the net loss of $1.1 billion included $400 million in stock-based compensation. The total net loss came in at 68 cents a share, better, in fact, than the 81 cents a share loss expected by the Street.聽

Along with beating expectations, the company also drew a better picture of its full-year results. 鲍产别谤鈥檚 full-year profitability has improved, and it鈥檚 promising to see that its losses aren鈥檛 as bad as expected.

Very simple, and very clean to understand, right? Kinda. 鲍产别谤鈥檚 business is a mix of growth-y unprofitable revenue and slower-growth, more lucrative top line. Let鈥檚 quickly examine each of 鲍产别谤鈥檚 newly demarcated revenue segments:

• Rides: $12.6 billion in gross bookings (+20 percent, YoY), $2.9 billion in resulting adjusted net revenue (+23 percent YoY), and $631 million of adjusted EBITDA (+52 percent YoY).
• Eats: $3.7 billion in gross bookings (+73 percent, YoY), $392 million in adjusted net revenue (+105 percent, YoY), and negative $316 million of adjusted EBITDA (-67 percent YoY).
• Freight: $223 million in gross bookings (+81 percent YoY), $218 million in adjusted net revenue (+78 percent YoY), and negative $81 million of adjusted EBITDA (-161 percent YoY).
• Other Bets: $30 million in gross bookings, $38 million in adjusted net revenue, and negative $72 million of EBITDA.
• ATG and Other Technology Programs: $17 million in adjusted net revenue and negative $124 million of EBITDA (+6 percent YoY).

From this perspective we can see that 鲍产别谤鈥檚 core business (Rides being 76 percent of its revenue) generates quite a lot of adjusted profit. Enough, indeed, for Uber to claim that the sum 鈥渇ully cover[s] Corporate G&A and Platform R&D鈥� costs. That鈥檚 quite good!

What is less good is that as we鈥檝e seen, Eats turns growing gross bookings into sharply negative (and worsening) adjusted EBITDA. Why does Uber invest in Eats, if the business is so unprofitable? Growth.

Uber has long been valued on growth. Sans Eats, 鲍产别谤鈥檚 growth rate is slow and its GAAP losses sticky. You can鈥檛 grow 20 percent year-over-year, give or take, and lose $1.16 billion in a quarter (30 percent of GAAP revenue). It鈥檚 too much. So, Uber needs a growth business, and thus Eats is a priority. And, therefore, the company鈥檚 adjusted EBITDA will remain negative for years to come as Uber endures longer losses to allow for greater revenue growth.

Dilution

It鈥檚 easy to forget how rich the two companies are in the shadow of their losses. Uber reported 鈥淸u]nrestricted cash and cash equivalents were $12.7 billion鈥� at the end of Q3. Lyft鈥檚 tally is over the $3 billion mark at the same point in time.

The firms can therefore self-fund for ages; there鈥檚 little risk of either company running out of cash. To make that clearer, let鈥檚 examine the companies鈥� Q3 operating cash flow. Uber had $878 million in negative Q3 operating cash flow, giving it years of room to run, for example.

The question then becomes why Lyft and Uber are trading down now, just as the two companies are promising future profits and pushing their forecasts up. Two reasons, I think. First, it鈥檚 clear that the companies鈥� GAAP losses ($463.5 million in Q3 from Lyft, $1.16 billion in Q3 for Uber) are going to continue for the foreseeable future; neither company has made a commitment to staunching its GAAP red ink.聽

Continuing, a big piece of each GAAP net loss figure is share-based compensation, telling public market investors that every quarter when Lyft and Uber report adjusted profit, they are looking past a lot of dilution to get to the better-seeming figure.聽

Secondly, because it鈥檚 a little clearer than before that Uber and Lyft鈥檚 long-term estimates of 20 to 25 percent adjusted EBITDA margins are probably just about right. That means that the company鈥檚 future multiples will only be so high.

Today, according to , data, Lyft鈥檚 trailing revenue multiple before trading began was 2.9, while 鲍产别谤鈥檚 came in at 3.7. Those ratios probably don鈥檛 have much space to climb over time; investors looking for a bet with a higher chance at multiples expansion would therefore covet companies with higher gross, and profit-margins.

Throw in slowing revenue growth as the two firms continue to scale and you find a mix that isn鈥檛 as exciting as the firms were when they were fast-growing upstarts.聽

One last thought. We鈥檙e seeing Lyft tout its product focus and slimmer losses as advantages. And Uber is putting its money into other businesses and a global presence. We don鈥檛 know which method will prove more long-term lucrative, but we鈥檙e seeing two divergent bets on the ride-hailing market harden around their differences. It鈥檚 going to be a very exciting few years.

滨濒濒耻蝉迟谤补迟颈辞苍:听

In a bid to shake up the narrative surrounding itself and its various comps, announced yesterday that it expects to generate adjusted profit in two years’ time. The news, coming on the heels of sagging share prices from Lyft and its domestic ride-hailing rival , pumped life into their public valuations.

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Made during a Wall Street Journal conference, however, the company’s promise was modest. After noting that Lyft had “never laid out [its] path to profitability,” the company’s CEO said that he was “excited to now go on the record” by announcing that Lyft will be “profitable on an adjusted EBITDA basis a year before analysts expect us to.”

Green went on to clarify that comment, saying that Lyft would reach positive adjusted EBITDA, a profit-related metric that disregards a number of costs, in “Q4 2021.”

Shares of Lyft rose 6.5 percent on the day. Uber climbed 3.6 percent on the same news. In effect, Lyft affirmed part of what it promised during its roadshow. Rewinding to April, here’s how SA国际传媒 News described each company’s self-described future profitability:

Both Lyft and Uber reported expected future profit ratios. Adjusted profit, that is. Uber reported an expected adjusted EBITDA margin of 25 percent, and Lyft a similar metric [of] 20 percent[.]

Yesterday, Lyft didn’t promise a level of expected adjusted EBITDA. Instead, it simply said that it would post some of the stuff in the final quarter of 2021. From its promise of some adjusted EBITDA in Q1 2021, we can expect the firm to begin to grow the result on a percent-of-revenue basis until it reaches the 20 percent threshold it promised months ago, provided that everything goes to plan.

So What

The Lyft announcement is both good and bad news for ride-hailing and other on-demand companies.

The good news is obvious. Lyft expects, and has now publicly promised its investors, that it can get to something akin to break-even in two years’ time. The bad news is equally obvious: It’s going to take Lyft another eight quarters to stop losing money even after stripping out huge costs like share-based compensation.

Lyft, founded in 2012, while a private company. It during its IPO. That means it’s going to take $7.2 billion in capital (presuming that Lyft doesn’t hire more along the way) and nine years to still post GAAP net losses.

The company should be huge by then, provided that it can continue even a moderate growth pace. Lyft posted $867.3 million in revenue during Q2 2019, for example, up 72 percent from its year-ago period. Keep up even half that growth for two years and Lyft is huge. (Lyft’s Q2 results were well-received by the market, with the domestic ride-hailing unicorn beating on both growth and loss reduction.)

The company posted an adjusted EBITDA loss of $204.1 million in its most recent quarter.

But perhaps Lyft’s promise can help its yet-private comps. The and the of the world, companies worth billions and in need of eventual exits. Lyft put a flag in the ground, saying that on-demand companies can, at some point, break even post adjusted profit.

Next, let’s see if Uber follows suit and if the Lyft news can break the Postmates IPO filing free. We’d love to read it.

Illustration: .

I think it’s fair to say that the pubic market struggles from , , , , and the pulled WeWork IPO are showing late-stage private tech companies that losses are less in vogue than they once were. Or more precisely, that losing as much money as was once considered acceptable may no longer be.

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This may present a problem for some tech, tech-adjacent, or merely venture-backed companies — especially those who have enjoyed huge checks from private investors that they deployed to power growth.

Powering growth is, to some degree, startup speak for taking up one’s burn rate, and losing more money. This brings us to 2018 recent financial results. Let’s examine.

Costly Growth

Deliveroo is a popular European delivery company, which has raised a staggering $1.5 billion data. That makes it one of the best-funded startups out there today. Here’s what it got done in 2018, as :

London-based Deliveroo reported today that sales rose to $584 million in 2018, up 72% from $340 million in 2017. But losses also jumped to $284 million, up from $244 million.

Clearly, the company lost less in 2018 than the preceding year on a percent-of-revenue basis. At the same time, its losses rose as the company scaled. So that’s one positive-ish sign, and one negative-ish sign.

We’ll know a lot more when we get an IPO filing from the company, but Deliveroo’s business, last year at least, costs about 50 percent more to run than it brings in in revenue. That’s not a great place to be for a company that is worth according to its May 2019 Series G. You might expect a company worth that many billions (and born seven years ago) would have learned how to lessen unprofitability (startup speak for expanding profitability) at scale. It hadn’t as of last year.

No none of this is to say that Deliveroo isn’t a great company (I don’t know), or that it’s overvalued (it may not be). But it does show that there are companies out there with lots of money that have a history of the sort of losses that, it appears, are falling out of favor.

Growth, in fact, can cost too much in 2019.

滨濒濒耻蝉迟谤补迟颈辞苍:听

Today, both Uber and Lyft鈥檚 stocks reached their lowest prices since they began trading earlier this year. 鲍产别谤鈥檚 stock hit a low of $28.65 before closing at $29.15, while Lyft hit $38.68 and closed at $39.57.

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The companies are down 39 percent and 56 percent, respectively, from their all-time highs. Lyft went public in March and priced at $72 per share and saw its stock surge when it began trading on the public market. Its stock closed 9 percent higher than its IPO price. It went on to reach a high of $88.60 before retreating.

Uber, on the other hand, made its public debut on the New York Stock Exchange in May, and closed its first day of trading lower than its already disappointing IPO price. The company had priced at $45 per share, but started trading at $42 apiece.

鲍产别谤鈥檚 market cap is now at $49.6 billion and Lyft is at $11.6 billion, according to Yahoo Finance. The two companies were worth a maximum of $72 billion and $15.1 billion respectively according to private investors, before they went public.

Context

In other buzzy startup IPO news, high-end fitness company 鈥檚 stock is down about 10 percent after its public debut last week. The company priced its shares at $29 each, at the top of its range, but opened nearly 7 percent lower than its IPO price on its first day of trading. It ended its first day of trading about 11 percent lower than its IPO price.

Today Peloton closed at $22.51 per share.

Today is merely a snapshot for any trading company. But the picture developed by some companies expected to be the hottest debuts of 2019, the day鈥檚 results underline how not everything you snap comes out looking like you expected.

Illustration Credit:

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Of course, that鈥檚 wishful thinking. Like it or not, San Francisco is the de facto tech startup and unicorn capitol of the Western Hemisphere. And yes, it鈥檚 really expensive.

Venture funding data indicates things are likely to stay that way. While there are a few startups that ditch the high rents for hip and comparatively affordable places like Austin, the notion of a mass exodus of tech talent isn鈥檛 borne out by the numbers.

The numerical reality is that tech startup financing continues to flood into San Francisco, and the city鈥檚 share of total investment is in fact, rising.

I Left My Term Sheet In San Francisco

So far this year, San Francisco-based companies have raised roughly 45 percent of all seed through pre-IPO funding for California companies tracked in the SA国际传媒 database. That鈥檚 up from just under 40 percent in 2018. In the chart below we look at how the percentages have altered over time:

It鈥檚 a pattern that鈥檚 been accelerating for a while. In the chart below, we look at funding in dollar terms for San Francisco-based companies and those based in any other city or town in California.

The general trendline is pretty clear. San Francisco has become a venture capital vacuum cleaner, sucking up cash even faster than its growing stable of unicorns can spend it.

It鈥檚 not just a late-stage thing either. Of course the city has plenty of high-valuation startups raising supergiant funding rounds. Even a list of got rather long, topped by gargantuan rounds for logistics platform and delivery unicorn .

But early stage and seed are active as well. For 2019, San Francisco鈥檚 stage-by-stage breakdown is as follows:1

• Late stage: 115 deals, collectively valued at $10.1 billion
• Early stage: 268 deals collectively valued at $5.14 billion
• Seed: 423 deals valued at $403 million

Average round size for San Francisco鈥檚 seed deals and early stage deals are also roughly in line with the rest of the state. It鈥檚 at the unicorn stage where we see the city鈥檚 share of supergiant financings tick up. There are at least 57 private, venture-backed companies with reported valuations of $1 billion or more that are based in San Francisco. And that tally doesn鈥檛 include the sizable list of local unicorns – Uber, Lyft, Slack, Pinterest, Cloudflare, etc. – that went public this year.

The chart below looks at round counts for San Francisco as a percentage of statewide totals.

And here, we look at how total round counts compare:

Is San Francisco鈥檚 Dominance A Good Or Bad Thing?

So, is it a good thing that a city of 47 square miles surrounded on three sides by water continues to slurp up so much of California鈥檚 venture capital commitment?

We reached out to Jeff Bellisario, interim executive director for the , which studies economic issues affecting the region鈥檚 livability and business competitiveness. His view is it鈥檚 not the rise of startups and unicorns that鈥檚 the problem — it鈥檚 the region鈥檚 failure to keep pace with this growth through investments in housing, transportation, and other infrastructure.

鈥淲e see the tech industry as our advantage. It is one of the reasons why our growth has been stronger than almost everywhere else in GDP and employment,鈥� he said. Trouble is, municipalities and developers move slower than the scale-fast-and-break-things crowd, and the region has underinvested in infrastructure for decades.

It鈥檚 a sunnier view than some others take. A popular Washington Post feature story titled declares: 鈥淵ou no longer leave your heart in San Francisco. The city breaks it.鈥� Its litany of locals鈥� woes includes pricey real estate, income inequality, $20 salads, the homeless, adult children unable to move out, non-tech workers unable to move in, and the relentless onslaught of 鈥渉yper-gentrification.鈥�

Wherever you stand on the pros and cons of the techification of San Francisco, data indicates it鈥檚 not stopping. The current wave of startup investment, scaling and exiting continues to build. If dollars do leave the city, Bellisario predicts it鈥檚 likely they won鈥檛 go far. He sees potential for other regional cities, Oakland in particular, to absorb some of the overflow of startup-saturated San Francisco.

We鈥檒l have more on that trend next week. But first, it鈥檚 time for a $20 salad break.

Illustration: .

The company on the private markets, and supposedly worth $120 billion as a public entity, has struggled since its IPO. Indeed, after pricing at a disappointing $45 per share, Uber opened at $42 before falling further.

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Uber recovered temporarily from initial lows, but successive earnings reports that showed slowing growth and large losses seem to have put a pall of sorts over the company. The popular ridesharing concern closed today worth $30.70, 34.8 percent off its all-time highs, and off 5.7 percent on the day. lost an even larger 7.3 percent today to $45.42, off 48.7 percent from its all-time high.

We care more about Uber as it is the more valuable of the two, and is a global company, making it a better comp for other ride-hailing companies around the world.

Let’s take a peek at Uber’s performance since going public ( ):

Uber is no longer a private company, so why do we care here at SA国际传媒 News? It’s a fair question. As always, we’re interested in a public company because of how its performance could impact yet-private startups.

To understand why Uber’s share price matters for all sorts of startups we have to look at history, and at prices. Let’s begin.

History

Uber’s meteoric growth was so inspiring, market-bending, and seemingly lucrative that a host of startups took it upon themselves to mimic its model. Uber, it famously went, doesn’t even own the cars that power its market place. What a brilliant market for Uber to win, it being able to drive huge revenue for itself while externalizing some costs that taxi companies had previously undertaken.

Copying Uber for a new product, or service took off. The “Uber for X” model became so popular that the method of explaining new services in the context of Uber’s model became a Twitter joke.

Few at the time understood how unprofitable Uber was, and even fewer folks understood how unprofitable Uber would wind up; how Uber could manage such steep losses while seeing single-digit growth in its ride-hailing business, as in the first half of 2019.

As Uber loses ground on the public market, it presents a challenge to the companies who followed in Uber’s wake. Namely how they are going to avoid the same growth trap and cost structure that is causing Uber to lose value on the public markets. (As an Uber rider since it was only black cars in a few cities, I’d love the service to survive, thrive, and empower lots of drivers to generate material profit, in case you were worried I have fallen prey to a case of Uber Hate.)

But while myriad Uber for X have gone out of business (, , and so forth), there are still a number of companies in the market that are Uber cognates, or Uber comps, that are looking to go public. Which brings us to price.

Price

Uber and Lyft, the first public ride-hailing companies, have been repriced by the public markets. Each is now worth less than it was while private, a key indicator of mismatch between investors on either side of the IPO divide; companies continue to grow after they go public, meaning that they tend to grow in value, all other things held equal. (To see a company quickly lose value after an IPO is a universally-accepted bad sign, even if there are some examples of firms pulling out from such declines and later doing well.)

I am curious what this result will have on two groups of companies: The still-private ride-hailing unicorns (, , , among others), and the upper echelons of on-demand delivery companies (, , , etc). 鲍产别谤鈥檚 declines likely impact the first group more than the latter. But the second group of companies could take hits as well. We’ve seen, for example, companies like DoorDash quickly accrete value. DoorDash not only has business-model overlaps with the repriced Uber, but competes directly with Uber’s growth business, Uber Eats.

As Uber and Lyft continue to deflate, their performance must weigh on the shoulders of startups who emulated parts of the model that they popularized.

This entire post is predicated on an emotional response I had today after checking Uber and Lyft’s share prices. It sounded something like this:

yeeeeeeeeessssshhhhhhh………..

A lot of private companies, startups even, would be in far better shape today in terms of their market positioning as cash-hungry companies that need to raise if Uber or Lyft were trading above their IPO price. A low bar in any market.

Illustration: .