Lyft – Founder flounder

New CEO looks wrong for the job.

• Lyft’s founders have stepped back from running their company and have appointed a new CEO who, on the surface, appears to be wholly unequipped to deal with the difficult situation in which the company finds itself as well as its large and brutal competitor.
• Founders John Zimmer and Logan Green are stepping back from CEO and president and board member David Risher is taking over full-time as CEO.
• Normally, this heralds better times for the company in question as founders often stay much too long at the companies they create and their emotional attachment to their creation often clouds their judgement.
• However, in this case, I am not so sure because the situation that currently faces Lyft is severe and I am not sure that Mr Risher’s background is suitable for this position.
• I don’t think it is going to go out of business as that would cause Uber more problems than it would solve, but it is not likely to recover either.
• This is in strong contrast to Uber which earlier this year reported record results and talked up its outlook in a results announcement that could not have been more different to Lyft’s.
• Uber’s ride-hailing business is 4x-5x larger than Lyft’s which I have long argued will end up being a death sentence for Lyft.
• This is because both Uber and Lyft are essentially marketplaces which facilitate transactions between buyers (riders) and sellers (drivers).
• This means that these companies rely on the economy of the network to derive their value and make a profit.
• Metcalf’s Law of networking states that the value of a network is the square of the number of devices that are attached to it which is why these companies have for years been focused on acquiring users at all costs.
• The essential problem here is that barriers to entry are very low meaning that competition will be brutal unless one player is significantly larger than all of its rivals.
• A company in this hallowed position then becomes the “go-to” place for the service in question and it is then that real monetisation can begin.
• The rule of thumb that I have applied for the last 6 years is:
• A company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making a profit.
• This combined with Uber’s excellent execution during the pandemic in creating and now maintaining a logistics business is why Uber is making money and Lyft is not.
• This state of affairs is not going to change and it will take a radical thinker and risk taker to create and execute a strategy by which Lyft massively grows its market share or moves into an adjacency in order to make some money.
• Unfortunately, David Risher’s CV does not point to him being this kind of leader and so I think that Lyft will manage to eke out a meagre existence with whatever scraps Uber decides to let fall.
• Mr Risher has been running his own company since 2009 which is called Worldreader which gets children reading so they can reach their potential.
• He was SVP of US Retail at Amazon between 1997 and 2002 but between 2002 and 2009, there is no indication of what he was doing.
• He has been a board member of Lyft since 2021 and it is from there that he has been elevated to CEO.
• It is clear that for the last 14 years at least (and could be 21 years), Mr Risher’s work has been philanthropic in nature.
• How this equips him to deal with the ghastly situation that Lyft faces as well as the brutally cutthroat competitive market that is ride-hailing is a complete mystery.
• Hence, I am not convinced that Lyft’s founders have made the right choice here and that the result will be a lower share price in the short and long term.
• The shares can go much lower.