MobilityMonday: Lyft's Price Lock and its lofty goals
Volume 2
Each Monday, I’ll be breaking down a recent development affecting the economy of the movement of people and goods. To follow along for the journey, enter your email below to subscribe.
Lyft introduces Price Lock product after strong quarter in bid to jumpstart tumbling market performance
Last Wednesday during its Q2 2024 earnings call, Lyft announced that it would introduce a new subscription feature called Price Lock that enables riders to cap the platform’s “primetime” (surge pricing) charges. This comes almost a year to the day since the company had initially announced its intention to potentially get rid of surge pricing altogether.
While the company is currently testing pricing for Price Lock at $2.99/month, the subscription is expected to cost no more than $5/month.
Companies (and investors) love recurring revenue, which is why digital marketplaces are increasingly introducing subscription revenue lines in addition to their standard take rate (i.e. Walmart+, Uber One, Amazon Prime, etc.). In 2022, Lyft re-introduced its first subscription product, Lyft Pink, which, for $9.99/month or $99/year enables free priority pickup upgrades, 5% off standard rides, a free year of Grubhub+ (hey! another marketplace subscription product), and more. The Lyft Pink All Access product, for $199/year, includes additional perks, primarily vis-a-vis Lyft’s micromobility offerings in bikes, e-bikes, and e-scooters.
Lyft is coming off of its best quarter yet, having reached its first-ever quarter of GAAP profitability, meaning that its net income (Total Revenue−Total Expenses) reached greater than zero, indicating that the company had finally reached positive unit economics. That, combined with the fact that ridership figures were also up >10% YoY, seemingly suggests that Lyft may have reached an inflection point, similar to when Uber reported earlier this year its first annual profit since going public.
But Lyft still has a lot of catching up to do in the US mobility service market. Uber still dominates Lyft in the rideshare market by a factor of 3:1, and the former benefits from significantly more product lines (food and grocery delivery, car rental, freight, etc.). Uber has also consistently maintained an edge in average monthly observed sales per customer when compared to Lyft.
When it comes to rideshare pricing alone, Uber is still the cheaper option in two out of every three states as well as two out of every three of the US’s 50 most populated cities. And although Lyft has tried in recent years to price competitively to Uber to acquire some of the latter’s market share, the price war has yielded less than favorable results.
But back to Price Lock — the feature seems unlikely to move the needle significantly for Lyft as it mainly targets daily commuters using the platform given that it only promises a capped fare on specific routes at specific times. Of the company’s 22M active riders, it seems unlikely that more than 1M could be expected to even be a serviceable market given the product’s limited scope.
Even if all 1M enrolled at a price point of $5/month, the theoretical annual revenue of $60M is a drop in the bucket of the company’s $4.4B revenue in 2023. That, combined with the fact that the company would be losing out on revenue from surge pricing means that the realized gains would likely be even less than $60M.
Lyft’s share price rose 10% following last week’s earnings call, but is still down by 30% YTD — even after a 70% surge after its Q4 2023 earnings call thanks to a costly “clerical error” when reporting its projected EBITDA performance.
All this to say that Price Lock seems like a ploy to restore investor confidence through the promise of another recurring revenue product, albeit one with a limited targeted audience. The potential of Price Lock from a ridership is especially hard to estimate given the fact that the company has not even disclosed how many riders currently pay for its existing Lyft Pink offering.
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