Lyft’s Financial Woes Thrust It Into the Spotlight

In 2018, Lyft’s co-founders, Logan Green and John Zimmer, assembled employees in the cafeteria of the San Francisco company’s headquarters for a staff meeting. There, they explained that they were spending $250 million to purchase Motivate, the owner of the CitiBike bicycle-sharing program in New York.

But employees had been hoping for more. For years, Lyft had been struggling against Uber, its far bigger ride-hailing competitor, which had expanded into food delivery and announced its entry into dozens of countries. Lyft’s workers were clamoring for it to make an ambitious move. Some had hoped executives would announce Lyft’s own worldwide expansion, two former senior employees said, speaking on the condition of anonymity.

It didn’t happen. The bike-sharing deal is an example of what analysts and three current and former employees say is an overly cautious business strategy that has dogged Lyft since its early days. The company’s decision not to deliver food or offer rides outside North America proved costly as it recovered from the pandemic, giving Uber a firm advantage that has prompted questions about Lyft’s future.

Last week, in financial results for the last three months of 2022, Lyft warned that it would be hindered by economic challenges, spooking Wall Street and sending its stock price tumbling nearly 40 percent, matching a low of $10 a share, before it rebounded slightly this week. The company is now valued at $4.2 billion, compared with $22 billion at its peak.

Lyft did report record revenue of $1.2 billion in its most recent quarter — as well as $588 million in losses. But it has yet to prove it can become a profitable business, and its recent financial woes have set off speculation over whether it could be an acquisition target.

“I just looked up ‘debacle’ in the dictionary, and there’s a Lyft sticker,” said Dan Ives, a senior equity analyst at Wedbush Securities. Mr. Ives said Lyft’s failing to invest in food delivery was a “massive strategic mistake,” as was remaining a domestic brand. He added that the financial incentives Lyft offered to lure drivers back to its platform as the pandemic eased in 2021 were “not nearly as aggressive” as Uber’s.

Lyft said that its Motivate acquisition was part of a so-called micro-mobility strategy, and that since 2018 more than two million people had taken a bike or scooter ride using the app. In a statement, the company said it remained confident in its overall business.

“There is a clear opportunity to take advantage of the market as driver supply and ride-share demand is the highest in nearly three years,” said Eric Smith, a Lyft spokesman.

Uber, which is valued at $71 billion, has said it expects to achieve operating income profitability at some point this year, signaling to investors that its business is strengthening. The company said it had more drivers on its ride-hailing platform worldwide in its most recent quarter than ever before. Uber declined to comment on Lyft’s performance.

Uber has made some shrewd — or lucky — bets. It started delivering food in 2014, and it faced skepticism over whether that service would ever take off. Then, when pandemic restrictions forced people to stay inside their homes, both companies’ ride-hailing businesses shut down practically overnight. Lyft had few alternatives, but Uber drivers found that they could continue to earn some money through the app’s delivery service as food orders skyrocketed.

When people began traveling again in 2021, demand for rides shot back up, but drivers were slow to return to ride-hailing apps. Initially, both companies struggled to meet rider demand. But Uber recovered faster, both because of its delivery business and because it quickly invested $250 million in incentives to coax drivers back. Lyft spent less money on incentives, and offered them later than Uber did. Its supply problems lingered.

Lyft said on Monday that it considered offering food delivery services during the early pandemic, but that it determined there was less of an overlap between drivers who ferried passengers and those who wanted to deliver food than it had expected. The company did introduce in April 2020 a pilot program, Lyft Delivery, which allowed drivers to pick up and deliver essential supplies and products to businesses, before canceling the program last month, according to an email viewed by The New York Times.

Drivers have finally returned to Lyft in large numbers. The company said on Tuesday that growth in the number of drivers on its platform from December to January was greater than in any other month-to-month period since 2019.

Still, over the past six months, Lyft paid drivers an average of 19 percent less in base pay per hour than Uber, and Lyft drivers drove about six hours fewer per month than Uber drivers, according to Gridwise, an app that helps drivers track their earnings.

Uber has also expanded aggressively into more than 70 countries. It has clashed with foreign transit services and made mistakes, but its greater scale has cushioned the financial blow of the pandemic. Lyft, which transports passengers only in the United States and Canada, said it had been hurt by a slow return to travel in cities on the West Coast.

Before the pandemic, Lyft spent years examining whether to enter other countries, sending executives to Australia, Europe and elsewhere, before deciding that it was too costly, two former employees said. Even its entrance to Canada has stalled, though Lyft said it was planning more expansions there.

Lyft said its caution was prudent, since the pandemic halted travel soon after the company could have entered international markets.

Mr. Green, Lyft’s chief executive, and Mr. Zimmer, the company’s president, bonded over how Lyft could be an alternative to inefficient public transit and reduce the need for car ownership. Both men continue to emphasize that vision in internal meetings, according to four current and former employees. But some have questioned whether their single-mindedness is hindering Lyft’s ability to expand into other businesses or markets.

Three of those employees say Lyft’s executives have also waffled over important decisions. When the challenges of earning a living as a gig driver became a hot-button issue in 2018, for instance, Lyft assembled dozens of employees to study the issue.

Mr. Green and Mr. Zimmer were presented with options to improve the driver experience and talking points to rebut exaggerated claims. But they dragged their feet on responding to the suggestions or putting in place changes, two former senior employees said.

In its financial results last week, Lyft’s projections for its current quarter were well below investors’ estimates. The company said it expected to earn $975 million in revenue and $5 million to $15 million in adjusted earnings, a figure that excludes costs like taxes and interest. Investors had projected Lyft would earn $1.09 billion in revenue and $82 million in adjusted earnings.

“This is obviously not the level of growth or profitability we are aiming for or capable of,” Mr. Green said on the earnings call.

Lyft said the lower figures were partly a result of cutting prices, which it did to stay competitive. High prices were pushing passengers to Uber or other modes of transportation, and the company said lower prices would benefit it down the road.

Employees have worried for months about Lyft’s poor stock performance, and some were even more alarmed by the recent plunge, two current employees said.

Some analysts have said Lyft should merge with another gig company, like DoorDash, or be purchased by a private equity firm. But broader economic challenges, combined with the volatility of Lyft’s stock and the fact that it is unprofitable, would make a deal difficult.

Some investors are waiting to see the changes that Lyft makes this year before hitting the panic button. Executives said on the earnings call that they were considering more cost-cutting measures, after laying off 13 percent of the company’s employees in the fall.

“We’re neutral right now — they have work to do,” said John Blackledge, an analyst at the investment bank Cowen.

Lauren Hirsch contributed reporting.