TIVP061: Lyft Inc. (LYFT): The Key to Winning the AV Wars? w/ Shawn O’Malley & Daniel Mahncke

19:44Daniel Mahncke:It's true. I mean, I think there's a mixed bag here since the added profitability may be coming at the expense of user experience. That's how I think about ads generally, right? Most riders view ride sharing as being pretty fungible. As much as we'd like to think as Uber shareholders, they're not really loyal to a specific brand. And more so they're interested in simply just getting the best price or having the shortest wait time, similar to how many people think about airlines, right? So unwanted pop-up ads could turn users away if they're already a bit skeptical of Lyft. And so Uber actually so firmly believes in how damaging it is to their customer relationships to show ads in-app, that for the most part, they've been completely unwilling to do so, at least on the mobility side of things.

20:28Shawn O’Malley:I think the catch-22 for Lyft is that to gain market share, it would need to reduce pricing. but doing so then risks alienating supply as in making it less attractive for drivers to allocate their time to the Lyft app if they will be earning less per ride, basically. And that's where you would get this negative feedback loop where reduced supply correspondingly increases wait times, which then suppresses customer demand. But the point being, and why Lyft's positioning has seemed so precarious in my view, is that if Lyft engages in a pricing war with Uber to steal a market share, Uber just has the strength to outlast Lyft in any prolonged battle, you know, but do you think Lyft's international pivot might change this dynamic that we have seen in recent years now?

21:13Shawn O’Malley:As you know, my co-host Sean and I are obsessed with analyzing companies, but you probably have noticed from personal experience that talking stocks is not everyone's favorite hobby. And I'm reminded of that every time I bring up investing at dinner or when I'm out with friends, they tolerate it for about 10 minutes but then i get this look the one that says we get it you love stocks but this is not the place so sean and i thought why not build that place and we did it it's called the intrinsic value community our members range from pilots and firefighters to lawyers and engineers but also hedge fund managers actual rocket scientists and ceos and despite those different backgrounds what connects all of us is the passion for value investing and continuous learning and each week we host live calls, covering everything from vetting the group's best stock pitches to analyzing portfolios, investing case studies and conversations with expert guest speakers who are either prominent portfolio managers, CEOs or authors.

22:10Shawn O’Malley:And the best thing is that if you ever miss a call, we have a library of recordings for watching back every single call we've ever hosted. And if you prefer reading over watching, well, then we have dedicated spaces in the community to share write-ups, discuss investing ideas or just your thoughts on the general market. And multiple times a year, we bring the community from the virtual world into the real one, including private dinners in Omaha for Berkshire weekend and meetups in New York City to explore, hang out and most importantly, talk stocks. Our last cohort of members brought together 20 incredibly thoughtful people, some of the sharpest investors that Sean and I have ever met.

22:49Shawn O’Malley:And if you want the chance to learn alongside people like that, you should join our waitlist at theinvestorspodcast.com slash intrinsic value community. That's theinvestorspodcast.com slash intrinsic value community.

23:05Daniel Mahncke:The acquisition of FreeNow probably does move the needle, but Europe remains a difficult market where there are these two well-entrenched competitors already. So there's Uber and then there's Bolt. And then there's 50 % of those taxis there that remain offline too. So still, they paid nearly $200 million to acquire FreeNow from BMW and Mercedes-Benz, which effectively doubled Lyft's addressable market in just one transaction. And for context, FreeNow operates in nine European countries in over 150 cities with a particularly strong presence in regulated taxi markets like London, Berlin, Athens, and Dublin.

23:44Daniel Mahncke:And so Lyft's strategy here is to offer its 44 million annual riders the ability to have roaming capabilities, where they can access FreeNow services through the Lyft app when traveling in Europe. And FreeNow's 6 million annual riders are prompted to use Lyft when visiting North America too.

24:03Shawn O’Malley:It is pretty interesting. Although I do not yet know what scale they will reach, I personally don't know anyone who has actually tried out that service yet. Before we go further, though, and basically also sour too quickly on Lyft as a company, let's look at the company's backstory because, again, it's pretty interesting from what you told me before. And maybe then from there, we can get into the whole AV strategy going forward.

24:25Daniel Mahncke:So Lyft was launched in the summer of 2012 by computer programmers Logan Green and John Zimmer as a service called ZimRide because Green was inspired by the ride sharing dynamics he saw on a trip to Zimbabwe, actually a few years prior, where he noticed that there were these fleets of vans that were funneling people around the city that just, in his words, just seemed to work. And so Zimride is literally short for Zimbabwe ride. And ironically, it has nothing to do with the fact that the other co-founder's name is John Zimmer. But yeah, Zimride began as a long distance carpooling company focused on transporting folks from college campuses after Green himself was finding it very difficult to go back and forth between UC Santa Barbara and LA to visit his girlfriend.

25:08Daniel Mahncke:And basically, he persuaded his university to buy a small fleet of Prius cars and reverse engineered the access system and signed up thousands of students for the product. And it works, but he found out that it didn't solve the larger problem that he became obsessed with because a campus car share does not help you get back and forth between different cities. And so from there, Green tries Craigslist ride sharing and then discovers that getting into a stranger's car is very uncomfortable, to say the least, especially at this time. And then so he takes a detour into municipal governance by joining the Santa Barbara Public Transit Board, where he learns this kind of depressing reality that public transit is very, very expensive, heavily subsidized, and just painfully slow to change.

25:57Daniel Mahncke:And it's not that the problem isn't solvable. It's just that the system is not built for solving it. And so the connection between Zimmer and Green occurs when Zimmer takes a course on sustainable cities, of all things, and realizes transportation has the same occupancy problem as hotels, just with wheels. And so hotels win by keeping rooms filled. And cars, meanwhile, are these massive assets that are almost always underutilized. And most rides are one person in a vehicle that's built for maybe up to five. And so it's just stale inventory everywhere. plus you're emitting gasoline and it's bad for the environment and all that kind of stuff.

26:37Daniel Mahncke:So this insight is what proves to be very valuable for Green.

26:42Shawn O’Malley:It's kind of funny how Airbnb's success story also kind of revolves around Quaxilis in a way. I mean, for Zimride, Quaxilis doesn't necessarily scale because you can't verify who's picking you up. And this is the moment when Facebook's platform opens up to developers. So Logan Green then realizes, wait a minute, you can build ride sharing on top of Facebook's platform, which means you can then see real identities and mutual friends, basically, then suddenly the whole experience changes. You're no longer entirely stepping into a stranger's car, which, you know, just the general idea is pretty uncomfortable.

27:15Shawn O’Malley:You are stepping into a car driven by someone who shares friends with you. And that's just a lot less scary to think about.

27:23Daniel Mahncke:It's funny because Facebook has involved a pretty good bit in the story here. And the first institutional money for Zimride or Lyft comes from Facebook as well. And so that leads Zimmer to really go all in on this company that they're building, leaving Lehman Brothers in mid-2008, just months before it implodes. And so at the moment, I'm sure all of his friends and coworkers saw this as being a really reckless leap from what felt like a sure thing, which actually wasn't, into this weird carpool startup that he was working on. And anyways, by 2012, Lyft was facing the uncomfortable truth that the market they built was not the market they ultimately wanted to be in.

28:05Daniel Mahncke:They needed something more high frequency, something urban, something that turns getting around into a process as simple as just clicking a button. And so from then, this is where kind of the mythology around Lyft begins. they had this intern hack day where the winning idea was laid out as Zimride Instant, which would be an on-demand version of ride sharing. So an intern suggested the name Lyft, swapping the I for a Y, I guess, to get a more visually appealing and maybe more unique name. And then from there, the company's name was changed from Zimride to Lyft. And they actually sold off the original Zimride service to the rental car company Enterprise.

28:44Daniel Mahncke:And so they almost start from scratch again. And so basically, the business pre-lift was to go explicitly to universities and offer them a subscription to Zimride that could be made available to their students. And then they'd actually go to college campuses. And kind of famously, they would wear these absurd costumes around to try and get people's attention just so they could explain to them why they should start using Zimrides.

29:06Shawn O’Malley:I mean, it sounds kind of goofy, but these were guys that actually had legitimate business backgrounds, at least for Zimmer, who you mentioned was at Lehman Brothers. And whenever I think about that, I kind of have to think about one of our members in our intrinsic value community who is now running a successful hedge fund in Hong Kong. So his life is working out pretty well, but he started at Lehman Brothers in 2008. So I always have to think about that fact when we mentioned the company, but you know, for Zimmer, giving up on Wall Street to basically run the ride-sharing business and running around college campuses in animal costumes just sounds absurd.

29:39Shawn O’Malley:So that is the kind of out-of-the-box thinking and also boldness. I think that defines really a handful of tech unicorns that came up during these 2010s. And it honestly sounds like something that Brian Chesky, who's the CEO of Airbnb, one of our biggest holdings, would also do if you ask me.

29:57Daniel Mahncke:No, it really does. And obviously enterprise sales packages are not the direction this industry ultimately moved in. And so instead, obviously they realized that they needed to charge the user directly on a per ride basis. which was just so funny to say because that idea came from an intern. And another thing that seems goofy now is that they used to explicitly encourage riders to sit in the front seat, not the back, and they would push drivers to fist bump their riders as basically a ritual. And I mean, it just sounds so corny. But when you're getting into somebody else's car, some random stranger's car for the first time to do this ride sharing experiment, I guess it actually maybe did break the ice and maybe some of the discomfort.

30:40Daniel Mahncke:So you just have to remember what a foreign concept this was back then. And getting people to try ride sharing in the first place was such a big obstacle, even though we kind of take it for granted now as being so common.

30:53Shawn O’Malley:Yeah, that's very true. And I mean, you had Uber, on the other hand, which has been operating basically with professional drivers and felt threatened by Lyft as a cheaper peer-to-peer alternative. So they actually tried to get it shut down, which failed. And then Uber decided to compete directly by basically pivoting UberX with professional drivers into the same kind of peer-to-peer model. And that's what really makes the beginning of the ride-sharing wars that would get fairly ugly from poaching talent, which is something that we nowadays see in AI, to intentionally ordering and then canceling orders to disrupt their competitors' operations.

31:30Daniel Mahncke:Well, beyond the fist bumps, what originally drove Lyft's popularity were these fuzzy pink mustaches attached to the front of their cars. And gosh, I still remember these, actually. And it was really clever. You'd see these cartoonish cars driving around. You couldn't help but wonder what the heck is that all about until someone would finally tell you about Lyft and capitalize really on that curiosity. And so anyway, that was a brilliant move early on. But there is a limit, of course, to the effectiveness of pink mustaches. And the gimmick gets old after a while. And also, for certain types of customers, it's just going to be a non-starter from the beginning.

32:05Daniel Mahncke:Nobody wants to order a ride to a serious business meeting and pull up in a car with a big pink mustache on the front. So Lyft did start moving away from this. But you can really appreciate the creativity that Lyft's co-founders had. And to your question earlier, no, there was never really a period where Lyft was a favorite over Uber. but man, Lyft has always been scrappy. And I was just surprised to learn that. Ever since the beginning, Lyft raised a fraction of the fundraising that Uber did, but they made every dollar go so much further. And it's the little things like this that honestly made the business work at the time.

32:42Shawn O’Malley:You know, at first you might think, you know, spending money on too many animal costumes and pink mustaches is not the best way to do it. But then again, as you mentioned, if you see that on the street, it just caught your attention back there. But jokes aside, on all the mustaches, while that's highly creative and probably also efficient in the beginning, I do think, and you mentioned that, it kind of limits your target customer in the long run. And you have to think about how do we actually go to the masses with the idea that we currently have. And when you say they burn through money quickly, is that why the IPO followed even before Uber's?

33:15Daniel Mahncke:The only time Lyft took the initiative in raising capital was, as you kind of mentioned, was when they IPO'd in 2019 before Uber did. I really think it was necessary for them to do so. Up to that point, there was all this pent-up demand and excitement to invest in ride-sharing in public markets. There's really no way to do so. And as such, even with Lyft having to admit that they were firmly in second place behind Uber, they could still profit from being really the first mover to public markets. And if Uber had IPO'd first, especially if it hadn't gone well, you could imagine that Lyft might have just canceled the IPO altogether because if Uber couldn't attract as many investors this hope, then for the sake, Lyft was going to have an even tougher time doing so-and-so.

33:57Daniel Mahncke:By the time the IPO arrived, Lyft was no longer being framed as a company destined to be acquired or suffocated. It was framed as the first public representative of a new era with billions in bookings, billions in revenue, massive growth, and massive losses. The bullish story was premised on potential scale, rider frequency, and the dream of being able to easily book multimodal transportation with bikes, scooters, and maybe even autonomous vehicles someday, as we've now started to see. And the bearish story was that, especially at that time, Lyft wasn't even remotely near profitability. I mean, we're talking like negative 80 % operating margins.

34:42Daniel Mahncke:And so it was truly unclear whether this type of business could ever make money at all.

34:49Shawn O’Malley:It's just crazy. I mean, it feels like a lifetime ago, actually now. But before COVID, I remember the IPO happened still. And it's safe to say that Lyft didn't flop at all. The market gave both Lyft and Uber a very warm reception, basically. Lyft IPO'd at a$25 billion valuation considering minus 80 % operating margins. It's just incredible. And you know, there is, I think about$2 billion in free cash. And yet now Lyft is valued at less than one third of that amount so many years later. So they destroyed a lot of value in the last years for public shareholders, especially. And I think it's fair to say that Lyft, it just didn't live up to expectations.

35:32Shawn O’Malley:But that probably says more about the outlandish mistakes that Mr. Market can make in hindsight, and perhaps also how much the market has soured on Lyft today than it does about the actual progress the business has made in between. Because we can say there definitely has been progress.

35:48Daniel Mahncke:It's a mix of both between excess optimism initially and now more dour outlook. But at the same time, I don't think that even the biggest Lyft bears at the time would have thought that the company would only grow revenues by 10 % a year between 2019 and 2026. when the expected growth rates of the company were supposed to be, honestly, several times that annually. It's also fair to say that Lyft would have fared much better if COVID just hadn't happened, right? From 2019 to 2020, revenues fell by more than 30 % year over year. So making up for that while also getting hit harder than Uber for not having a food delivery service that they could pivot toward, that was just, it's been exceptionally challenging.

36:30Shawn O’Malley:Sometimes you just have bad luck as well. And it's so easy to mock Lyft's IPO in hindsight, but after we already know how things work out, but you were telling me too that before the call, as you went back to read the S1 for the IPO, which was this huge filing that companies make available to the public investors to kind of help them better understand how the business has been doing while operating privately, you did see some yellow flags that could have at least hinted to the fact that Lyft might get into problems later on.

36:58Daniel Mahncke:And I couldn't help but notice that, for example, they spend a huge part of the S1 just describing the issues that ride sharing is generally meant to address, but not specifically why they're better positioned to succeed at addressing those problems long term than Uber. And so it really reads like a pep talk you might get from like a coach is a ton of fluff selling the vision and just a lot less detail on how that's going to be manifested. And one thing they talk about in the S1 is that the U.S. has enough parking lots to cover the size of Connecticut, which sounds pretty egregious. And nobody wants to think about all that asphalt.

37:35Daniel Mahncke:And in theory, if car ownership declines because of the convenience of ride-sharing apps, then maybe that's a great thing for the environment. But again, it doesn't tell you why Lyft is uniquely able to capture the value created from ride-sharing and why it won't be competed away as a commodity-like service, which is what we've seen Lyft largely become just based on their profitability margins.

37:55Shawn O’Malley:I feel like there's one thing I learned, Dan. That's never a good sign when a CEO points out a problem that basically everyone would agree, but hides the fact that their own company and the competitive position they're in are just not enough to solve the problem, at least in the best way. And even if we have some gripes with Lyft and how they manage the business and their failure to create value for shareholders since IPO, I do really like that word scrappy that you used before to describe Lyft, I think from Logan Green's trip to Zimbabwe, which is what really helped spark the entire right-telling movement in the US, to then roaming college campuses, pink mustaches on cars, and just compelling sales pitches to investors delivered at IPO.

38:36Shawn O’Malley:This is ultimately what enabled Lyft to defy all odds to even just exist, which ironically is probably the best thing that could have happened for Uber. That sounds kind of crazy to say, But without Lyft, Uber would be a monopoly. And if Uber couldn't point to any real competition, then I can say pretty confidently that I think regulators would have cracked down much harder on them in the past, especially in Europe. And we both know that the regulatory environment in Europe for Uber has already been pretty tough. And maybe Uber feels less grateful to have Lyft around since Lyft has stolen some market share on the margins, especially in the US and in the last few years.

39:15Shawn O’Malley:But in the grand scheme of things, I think Lyft has allowed Uber to just create huge amounts of market value under the cover of having serious competition. Not to say there hasn't been intense competition at all, but you know what I mean. Lyft has been structurally the number two for a very long time. And so they've kind of pressured Uber, but have hardly been an existential threat at any point in their existence. All the while helping keeping the regulatory scrutiny off of Uber, at least in North America.

39:44Daniel Mahncke:I have to agree with you on that. It's a really weird thing to say, but Lyft has been a blessing on net for Uber shareholders.

39:52Shawn O’Malley:It's something you cannot often say about the biggest competitor of your business. But moving on then from the story of basically Lyft's rise to the strategy looking forward, how is Lyft thinking about the future of ride sharing as AVs become more mainstream? And is it any different from Uber's perspective at all?

40:09Daniel Mahncke:there's a lot of overlap lyft believes the future of transportation will be a hybrid network that combines human drivers with autonomous vehicles so human drivers aren't going away anytime soon but we will continue to see more avs on the roads which will actually probably underpin increases in per capita ride sharing usage i mean uber published their q4 results a few weeks ago and we saw some really interesting data about how in Austin and Atlanta, just bringing Waymos and other self-driving vehicles into those markets that you can order on the Uber app or other ride-sharing apps has increased the frequency with which people use ride-sharing.

40:49Daniel Mahncke:So maybe people just don't like the idea of having to sit uncomfortably with a stranger in a car, and that just convinces more people to use Uber and Lyft more often if they can bypass that. But really, the idea of the hybrid network is that basically human drivers are still essential to have in your network as a ride sharing company because of the dramatic, dramatic variability spikes around customer demand at certain times of the day, like after work or before and after major sporting events and concerts. And so a fixed fleet of AVs roaming the city just cannot handle those sudden surges. So you need to have human drivers who can be notified when there's a jump in rider demand and then go online to complete requests.

41:31Daniel Mahncke:That's just essential to have. And even just recently, we saw there was a snowstorm that went across Texas and a lot of the South. And you saw AV companies saying, hey, we don't want to risk our technology, pull our Waymos off the road. And then all of a sudden, without the human drivers, you get a totally AV-reliant network, you would lose the ability to maybe even in an emergency situation, pick people up who are stranded on the side of the road or who need groceries delivered to them, a lot of that gets lost. And so that's why I think we're not moving to a future where it'll always be entirely AV.

42:05Daniel Mahncke:I think there will always be a mix of human and AVs that complement each other.

42:10Shawn O’Malley:The great thing for this and the business model that Uber has is that you have variable costs. You only pay them when they're also driving. So, you know, having them basically stand aside until you need them is something that Uber can do, which is not hurting them financially, which is just a great thing for the business model itself. obviously also for Lyft, but Uber is significantly further ahead in that journey. And I think a hybrid network also ensures that riders have a reliable ride regardless of whether there's an AV available, while human drivers provide the, as you just said, necessary basically redundancy as the technology scales.

42:43Shawn O’Malley:And I think that all makes a whole lot of sense. And if you want to hear more about that, you can also listen back to the Uber case, where we talked about that plenty. And maybe you could also talk about, can that really persist forever though? I mean, at some point, AVs probably become so cheap and superior, honestly, to human drivers and so efficiently managed. We talked about the management systems that both Uber and especially Lyft have that you just don't need human drivers at all anymore. Although we just said, you know, you need them for redundancy, but maybe that's 20 years away. But that's still this big terminal value concern that the market definitely has with both Uber and Lyft.

43:19Shawn O’Malley:What do you think happens then? How do you see that risk 20 years out?

43:23Daniel Mahncke:Oh, it's a good question, Daniel. And one I feel like I'm always asking myself, and I have to say, if I were a driver, I'm not sure I would find Lyft's CEO's response very comforting at all. I've actually listened to a few of his interviews and I do like him. He's an impressive guy who had this really incredible career at Amazon and he took over Lyft in 2023. But even so, Lyft has just proven to be a difficult turnaround. And essentially, one of the points he made was that the lifespan for a driver on Lyft's app is only a few years on average or even less. So rather than trying to reassure current drivers that they'll have jobs in the distant future, his message was really, as I interpreted it, that by the time this all comes to fruition, drivers today will have very much moved on to other jobs anyways.

44:07Daniel Mahncke:So don't worry about it now. And, you know, hey, more or less just enjoy the ability to make money from giving rides today. And maybe to put it charitably, it's honest, but it's not comforting. And where he loses me though is because he will then sometimes start talking about this idea that we'll still have humans in AVs as part of ride sharing, but rather than being drivers, they'll serve these other purposes, almost like flight attendants for an airline. They'll make you drinks, they'll serve you snacks, and maybe even tell you about the history of the area you're driving through. At least if you listen to Lyft CEO David Risher on what might happen.

44:44Shawn O’Malley:gosh, maybe I should listen to that. I'm not sure what to think of that idea. You know, I'm the type of guy, as you kind of alluded to before, that books an Uber and then chooses the option where they don't speak to you throughout the entire ride. I hope that doesn't make me feel like I'm a bad person, but just I drive much more comfortably in silence. And I think the worst case for me would be to have an entertainer sitting there whose entire job is talking to me. So yeah, I don't think that's a great idea, both for the people who write, but also I'm thinking about the pay for that job. And I can imagine it would be great, probably even worse than you're currently being paid as a driver.

45:20Shawn O’Malley:I don't know. I don't feel it's worth even going deeper into this idea, I guess. Or would you say otherwise? I don't think so.

45:27Daniel Mahncke:I don't see it happening either. But hey, maybe we'll be wrong. But getting back to how the company has discussed AVs over the long term. Lyft believes AVs can reduce the cost per ride by more than 60 % by removing the cost of paying human drivers, which is the biggest cost item for ride sharing companies, as we know. So perhaps the most disruptive element of Lyft's roadmap for the future is actually its partnership with a company called Tensor. And so this collaboration aims to create the world's first consumer-owned, Lyft-ready, as they call it, autonomous vehicles. And so Tensor's Robocars are powered by NVIDIA's EGX platform.

46:11Daniel Mahncke:And I don't know really what that means, but anytime you mention NVIDIA, it sounds great. They're designed for private ownership effectively and are also equipped with software that allows them to then be deployed on the Lyft network when the owner is not using them. Very similar to what Tesla has envisioned with its cars and this idea of robo taxis. So this would flip upside down the traditional economics of car ownership. Instead of a vehicle being this depreciating asset that sits idle maybe 95 % of the time, a tensor robocar can generate revenue for its owner around the clock while not being used.

46:44Daniel Mahncke:And Lyft envisions providing these robocar owners with fleet management services, cleaning, charging, and maintenance through flux drive, thereby creating a new revenue stream for Lyft.

46:55Shawn O’Malley:Gosh, there were so many questions coming to my head when you could have mentioned this. And I mean, firstly, how am I just hearing about this, especially when it's a partnership with NVIDIA, you usually immediately see it on X or somewhere else. And I haven't heard about this before, but I got to say, I look at a picture here right now and these things, they look pretty cool. They kind of look like a spaceship. And I would say that by the looks of it, they probably are positioned in the luxury segment too, I would say. And they also claim to be the only level four autonomous vehicles that you can own, which would actually place them ahead of Tesla, which is not at level four yet because you can't actually buy Waymo at the moment.

47:33Daniel Mahncke:I have no idea about Tensor's viability as a business. I'm going to guess the odds of survival are stacked against them. I think it's a cool concept, but they need to be able to produce these at scale. And well, for Lyft to be betting on them, I think that shows the challenges of being the second place player in the market. While Uber enjoys a close relationship with Waymo, Lyft is looking to cozy up to players on the margins that are more like long shot bets because that's who's most excited to work with them. And if Tensor can actually produce these at scale and add their vehicles onto Lyft's supply network for rides, then that would be a huge boost to Lyft's prospects.

48:08Daniel Mahncke:But also, I'll believe it when I see it. It's exciting, but man, there's such a big difference between prototypes and scale production. It's much easier to make something really, really cool once. Now try building systems and supply chain to do it a million times. So much harder. And so nevertheless, apparently, Tensor is planning for US IPO. So you can't say that they're not ambitious. It might occur as soon as the end of this year or early in 2027. And for context, the company first began testing vehicles on public roads in California in 2017 and obtained a driverless permit for passenger vehicles in the state in 2020.

48:46Daniel Mahncke:And then by later this year, they're planning to make the first deliveries of their robocars to consumers. I don't know, Daniel, maybe we should get on the wait list.

48:56Shawn O’Malley:Well, count me in. I'm definitely on board with that. We just need to know about the pressing before we go out and reach out for a car like that. On that note, though, I do still want to talk about something that is probably a bit more tangible to the business for now, at least, which is FlexDrive. And I think as I understand it, the company basically is an independently managed subsidiary that does the kind of unsexy, but essential operations in vehicle fleet management that you've alluded to a few times, including vehicle maintenance, cleaning, charging, storage, 24-7 monitoring, all of that stuff.

49:32Daniel Mahncke:The most impressive stat I've seen about FlexDrive is that the company maintains a nearly 90 % operational utilization rate, which, if that scales, is going to be critical for the economics of expensive AV fleets. And what a 90 % utilization rate refers to is flex drive's ability to minimize downed vehicles, as in cars taken out of service for damage or cleaning or maintenance purposes, thereby ensuring the maximum numbers of vehicles are available to be deployed at all times. And 90 % is pretty solid. And Lyft attributes that rate to having eight years of experience in building proprietary fleet management technology designed specifically for ride sharing in mind.

50:15Daniel Mahncke:But actually, FluxDrive was originally a joint venture between Cox Automotive and Holman Enterprises, which was acquired by Lyft on February 7th, 2020. One of the unique things that Lyft offers, in contrast to Uber, is a car rental program for drivers who want to work for Lyft but don't otherwise have access to their own vehicle through the express drive program. So FluxDrive manages the rental cars in this fleet, entering into rental agreements with drivers and then collecting fees by basically just deducting them directly from the driver earnings. And again, that to me epitomizes Lyft's scrappiness.

50:52Daniel Mahncke:It just strikes me as a kind of innovative thing. you only do from a place of desperation. But now it offers this potential for creating much more value for them when extrapolated to AV fleets. And as we'll see later this year, Blackstribe will manage a shared fleet of Waymo vehicles in Nashville that allows for vehicles to be dispatched on both the Waymo and Lyft apps to maximize utilization, regardless of which platform the rider uses.

51:14Shawn O’Malley:You would know better than I do, but I do think that Uber offers something at least somewhat similar. I think there's something called Uber Vehicle Marketplace, where drivers can basically be connected to vehicle rental companies to then get cars to also become a driver on Uber. But anyway, that kind of brings me to one of the other more interesting things that Lyft does that I also think comes from, let's say, a place of desperation. And it's not a move you would otherwise voluntarily undergo, which is basically to eliminate surge pricing. Pretty infamously, people get frustrated with Uber because if you order a ride at a popular time, prices can suddenly spike on you.

51:54Shawn O’Malley:And from a purely free market sense, I would say it's pretty logical because you need those higher prices to balance supply and demand so that people not willing to pay that price defer their order to a less busy time. So it almost seems to defy business logic for Lyft to be actively working to reduce and ultimately even eliminate surge pricing. But that is what they want to do.

52:16Daniel Mahncke:I was just thinking myself that we need to talk about surge pricing. So yeah, while most would assume a company would want to maximize revenue from surges in demand, Lyft is betting that customers will so greatly appreciate efforts to limit surge pricing. They'll hopefully be more loyal to Lyft at other times. And so as you said, I think that's clearly only something you do when you're trailing a market leader by a fairly wide margin and you're looking for something dramatic to try to change that up. But so far, the results have been clear. surge pricing has fallen more than 40 % year-over-year on Lyft per management team.

52:50Daniel Mahncke:And so by sacrificing short-term high-margin revenue that surge pricing can generate, Lyft is aiming to solve a major pain point for riders. The company believes that predictable, reliable pricing will increase rider conversion, grow market share, and build lasting loyalty. And so it's a calculated gamble that a better ride experience, fueled by a stable and satisfied driver base is a more durable competitive advantage in capitalizing on temporary spikes in demand. And I actually don't hate it. And as an Uber shareholder, it does make me a little nervous. This is a huge pain point. And even if it turns out to be economic suicide, the fact that Lyft is doing it could maybe push Uber to do it too, which would then set what I worry is a costly precedent.

53:34Daniel Mahncke:And I can't blame Lyft for doing it. If you're planning to win long-term, even when everyone is counting you out, this is probably one of the moves that you'd make.

53:41Shawn O’Malley:We've recently sold our PayPal stake and I went into a lot of detail on why we did so in our intrinsic value community and also in our free newsletter. But I bring this up because I think that the last thing that could save PayPal going forward is probably some sort of activist investor taking over who doesn't care about what's logical in the short term. You need someone who is okay with hurting the business in the short term to then fully turn it around to basically have a better future. And this Lyft situation reminds me of that. Taking down surge pricing hurts the company's fundamentals right now, but it also vastly improves the customer experience.

54:17Shawn O’Malley:And finding ways to compete on price with Uber is pretty much essential to Lyft's survival. But ultimately, Lyft wants to convince people to not think about ride sharing as purely commodity as a service, which means not simply comparing rides on costs and wait times, but also considering other factors like, for example, whether you have a credit card that gives you extra points when booking a Lyft. I mean, airlines have famously tried to do this for years, right? Every airline has some kind of loyalty program and special credit card. And it works to an extent. But at the end of the day, the median passenger, me included, is always going to choose the most direct route or the most affordable flight, depending on what the person is optimizing for.

55:03Shawn O’Malley:and basically it's the same as in ride sharing.

55:06Daniel Mahncke:I agree with you there. And if Lyft shares were priced ambitiously at all, this would be the first thing I'd be pointing my finger at as it concerns. It's very difficult to turn an inherently fungible service into one that's not being judged purely on commodity-like merits. But when you think of Lyft as a company that has had the majority of its IPO valuation destroyed with the shares just looking like they've been absolutely left for dead, they may actually just have enough success with this and caps on surge pricing to materially support the business. And so from a big picture perspective, I'm not sure how much these promotions or caps on surge pricing change anything, but still at a$7 billion market cap and sub 1 % operating profit margins, anything that pushes them toward unexpected positive growth or margin expansion could lead to big jumps in the stock since sentiment is just terrible.

55:59Daniel Mahncke:I'm not sure that's the most compelling argument we've ever made on this show, but the point remains really bad sentiment can create this asymmetry where if something good does happen, the stock can pop.

56:11Shawn O’Malley:I do want to come back to kind of the innovative things that Lyft is doing. For some, you mentioned that Lyft will be operating in Europe and also Germany soon through acquiring FreeNow basically, which is a service you already mentioned. They bought it from BMW and Mercedes-Benz. And they also announced to bring AVs to Germany streets in 2026. And I think also some other cities in Europe too, like London and the big ones. So I'm excited to see that. If it actually will happen, if so, count me in. I will definitely try one out. But how do you think about these leaps into Europe and also these other innovative features?

56:45Shawn O’Malley:Do you think that will change anything for Lyft in the bigger picture compared to Uber basically?

56:50Daniel Mahncke:I think it's interesting because these partnerships with major brands like Delta and DoorDash already account for around 20 % of all rides on Lyft. So this is not entirely marginal. The Delta Airlines partnership, for example, began with Rider Rewards, has since expanded to provide transportation for flight crews using Lyft Pass, which is Lyft's paid subscription service for businesses that allows them to offer discounted or free rides to their employees through Lyft. And again, it would feel like grasping for straws a bit if we were talking about Uber and then bragging about getting Delta Airlines crew members to start using their service regularly.

57:28Daniel Mahncke:But at Lyft size, it might not be entirely trivial, especially if they can have similar luck across all of their promotional partners and getting them to start paying for Lyft Pass for their employees. So, I mean, I don't know, but that's speculative. But what isn't speculative, and again, really stands out to me as an Uber shareholder, is the data around driver preferences that Lyft reports. Because they're so good? What exactly is about them? So Lyft has reported a widening lead in the preferences among drivers who use both Lyft and Uber, with the gap apparently reaching 29 percentage points in 2025.

58:04Daniel Mahncke:five. And assuming that's true, and Lyft obviously has its biases, that is really, really shocking because honestly, I would have thought the opposite. While Uber can offer drivers a much bigger network of demand to tap into, again, we see that scrappiness out of Lyft because they're out of desperation willing to do something that Uber is not, which is to provide earnings guarantees to drivers. Lyft is actually far more transparent, I've learned, about what drivers can expect to make than Uber, Lyft is the only rideshare platform that guarantees drivers will earn at least 70 % of rider payments each week net of external fees.

58:41Daniel Mahncke:And since the rollout of this initiative, driver perception of pay fairness has improved significantly with 75 % of surveyed drivers stating they have a better understanding of their earnings. And well, if drivers feel like they're being treated more fairly and better understand the payout model, that alone could drive them on the margins to choose Lyft over Uber.

59:01Shawn O’Malley:It definitely sounds like it could become a problem for Uber in the long run. That said, though, it is not enough to make drivers happy, right? Whenever you take an Uber, it seems like the driver is signed in both for Lyft and also for Uber, which means they will ultimately decide to drive for the provider that delivers more customers or more drivers to them. And as long as that's Uber, even better pay on Lyft won't be able to change the fact that most will drive for Uber. However, if you then combine cheaper prices, especially when we talk about surge hours, you could see how this does initiate a shift in the long run, at least.

59:36Daniel Mahncke:Lyft also does things like offering payments to drivers for delays, respecting driver's time in a way that honestly is very uncommon in this industry. Drivers now receive automatic earnings increases with Lyft if a ride takes five minutes longer than estimated due to unexpected traffic, which really ensures that their time on the road remains worthwhile when working for Lyft over competitors. And then another thing they do, which is probably even more niche, but really matters to a cohort of riders and drivers, is that they offer a Women Plus Connect feature, which prioritizes ride matches between women and non-binary drivers and other female riders.

1:00:13Daniel Mahncke:And so it goes without saying that this would appeal to many women or members of the LGBTQ community. And actually, drivers use the feature report that they feel significantly safer too. So the program's nationwide expansion has apparently contributed to a 24 % increase in women and non-binary drivers being activated onto Lyft's supply network.

1:00:38Shawn O’Malley:It really does seem like Lyft is winning on the margin with almost everything they do. But as we zoom back out again, I think we should emphasize that we were pleasantly surprised by some of the things we came across with Lyft. But it's by no means a strong company or a compound. I think Warren Buffett wouldn't touch this thing even from 10 yards away. And all the bad things you hear about Lyft, they have been pretty well documented before. from low founder ownership to aggressive adjusted accounting, overpaying executives as if SBC is basically free to kicking the can on profitability by cutting prices.

1:01:14Shawn O’Malley:And just a simple fact that Uber is clearly winning this market.

1:01:19Daniel Mahncke:And I mean, they begin to defend their stock-based comp. As recently as 2023, stock-based comp was 18 % of revenues, which is huge, though to be fair, in the time since that has fallen to 5%. But just as some context on the relatively new CEO, David, he built Microsoft Access, which is Microsoft's first database product from scratch. And Bill Gates was naturally pretty upset when he left to join what was in a startup called Amazon. And he ended up becoming the senior vice president of sales and retail at Amazon, which is a pretty important job there. and grew the company or helped grow the company from$15 million to$4 billion in sales alongside Jeff Bezos.

1:02:01Daniel Mahncke:And so they actually had a page on the Amazon website in the past that memorialized his contribution to what it's become. And so Reesher then launched a nonprofit called World Reader that has reached 21 million people all over the world using Kindles, cell phones, and tablets. And so either he is really that good or the Lyft folks want to use his credentials to pump up the stock. And my inclination, honestly, is the former, but there are always multiple ways to see things. And in the letter announcing that he'd be taking over as CEO, Risha wrote this. From Microsoft, I learned how to compete. At the time, competition was the energy drink that drove Microsoft.

1:02:39Daniel Mahncke:I drank all the Gatorade. From Amazon, I learned how to obsess over customers. Everything starts there. At WorldReader, I learned how to do more with less. nonprofits tackle some of the world's largest problems. Successful ones figure out how to make limited resources go a very long way. And so the first point there obviously refers to Uber indirectly. But the third one is I think the important one. He has cut a lot of costs and it's probably emotionally easier for him to do so than for the co-founders to clean house. And since Reesher took over, R &D costs as a percentage of revenue have been cut in half.

1:03:15Daniel Mahncke:And overhead costs as a share of revenue are down about 5 % points. And reshare is 57 % and has been on less board since July 2021. So it's very reasonable to say he knew what he was getting himself into when he sat to this job. And so far, I've been fairly impressed, not blown away. He has done a decent job. And I just cannot imagine for someone who's been so successful for as long as him, taking a low probability bet like this at his age, unless he felt there was, in fact, a decent chance of success with a huge payoff. And that's actually exactly how they structured his compensation. He'll make a billion dollars effectively if the stock just really takes off.

1:03:55Daniel Mahncke:And so obviously, fundamentals will drive the stock price over the long run. And therefore, I'd like to think that Risher knows his odds of success here in building Lyft's business ultimately in a way that he can capture that reward.

1:04:09Shawn O’Malley:Honestly, this might be the most bullish point of today's pitch. Thinking about having probably one of the best managers you could get signing up for this task, despite knowing that you are at the number two company in this pretty competitive and just tough space to be in. So to me, that sounds like a commitment that he made and probably the most bullish point I heard. But let us get back to basically what we started with in this pitch. Could Lyft actually be acquired? What do you think that looks like? Who are the companies that could acquire it? Who is the best fit? What do you think about it?

1:04:45Daniel Mahncke:Just practically speaking, the governance barriers to a sale actually fell meaningfully when the company's co-founders stepped off the board. And Lyft correspondingly eliminated the dual class structure, providing shareholders with what is really effectively more equal voting rights within the company. So then the question is, who are the most likely bidders now that they've almost teed the company up to be acquired by changing the shareholder governance structure.

1:05:12Shawn O’Malley:A company that we have never mentioned when we talked about it is DoorDash. But you could imagine a combination of Lyft and DoorDash would create a perfect rival for Uber. Dash dominates food delivery and would gain a secondary position in ride sharing, while Uber dominates ride sharing, but has a secondary position in food delivery.

1:05:32Daniel Mahncke:DoorDash and Lyft actually already do have an official partnership. tying DashPass to lift benefits, which is exactly the kind of bundling logic you might expect to see before a deeper integration occurs. But this could also just be as far as the relationship goes too. So it's speculation. But DoorDash has shown though, it's willing to do meaningful M &A after buying up companies like Deliveroo. And we covered DoorDash a while ago on the show. And we've also mentioned Amazon before, and this is going to be more speculative too. But through their AV subsidiary, Zooks, they could quickly level up their presence relative to Waymo.

1:06:05Daniel Mahncke:by partnering with Lyft's existing demand network and really their operational know-how around fleet management. So FluxDrive could very well be the missing link for many autonomous technology companies like Sooks or Waymo. And for automotive manufacturers, maybe like Ford or General Motors that possess the technology for autonomous driving but lack the operational backbone to run a consumer-facing service. So I could even imagine some more traditional automobile brands actually being interested in Lyft too.

1:06:35Shawn O’Malley:It certainly seems like the pressure to do a sale is mounting internally, right? I mean, I've read about the proxy battle going on here. You've basically got an activist investor in Engine Capital LP, which owns about 0.8 % of Lyft, formally requesting that the board would immediately initiate a review of strategic alternatives, specifically including a sale or merger of the company.

1:06:58Daniel Mahncke:Rightfully so. Engine Capital has argued that Lyft's standalone prospects are limited because it lacks the scale and diversification of its main competitors, which we've been talking about the whole episode. Yet, as we've been alluding to today, Lyft would be, in Engine Capital's words, an incredibly valuable asset to a handful of companies in this space, minus Uber, which of course would never be approved to buy Lyft over monopolistic concerns, but there's plenty of other buyers out there potentially.

1:07:23Shawn O’Malley:I think I'll go ahead and ask a simple question that's pretty tough to answer. So why has nobody acquired it yet? Because these acquisition rumors, they have been around for years now. You've heard about it every year after year and still there has been no buyer yet.

1:07:39Daniel Mahncke:I think the problem comes from the stuff you buy with Lyft. Since it isn't just an app, it is a regulated, low margin, operations heavy marketplace. That would be one way to think of it. And so the other argument would be that the most likely buyers out there can get the distribution benefits of Lyft via partnerships instead of owning the whole mess. And so I should mention And two, that regardless of financial performance or activist pressure, a hostile acquisition was previously nearly impossible due to Lyft's governance structure. And so, as I was saying before, when the co-founders of Lynn Green and John Zimmer held Class B shares that granted them 30 % of the total voting power, you just couldn't have an acquisition unless they wanted to sell, despite the fact that they only actually had an economic interest in 2.5 % of the business.

1:08:28Daniel Mahncke:But again, that changed last summer, which is why the idea of Amazon acquiring Lyft, since David Reischer is an Amazon alum, after all, is starting to look so compelling now. And effectively, the founders announced that they were stepping down and converting their super voting shares to common stock. And that is what opened the door for a takeover to actually happen. And so the founders voting control has dropped to just 2.3 percent, more in line with the amount of stock they actually own. In that news, ScentLift shares soaring 8 % the following day, since Wall Street has long seen Lyft as a somewhat obvious takeover play.

1:09:04Daniel Mahncke:And with this migration and share class structure, the odds for that possibility occurring, I would say, have increased significantly.

1:09:11Shawn O’Malley:I still remember sitting us, I don't know what company we discussed that day, but we thought about if this would be the change that finally finalizes basically a takeover of Lyft, because This is completely changing the structure and makes it significantly more likely. But again, by now, this has been some time ago. And since then, correct me if I'm wrong, there haven't been any serious offers coming in. Well, I think that's right.

1:09:37Daniel Mahncke:And the other reality is that for AV companies in particular, the thing is Lyft just doesn't fix any of their most urgent issues at the moment. Zooks and Waymo are trying to figure out how to safely and legally roll out their vehicles across the US. So for the time being, they're not really worried about a ride sharing marketplace that can compete with Uber. And so taking over Lyft would be a more distraction than anything, probably in the short term. But in another year or two down the road or maybe a little bit further, once those fleets are increasingly in place, Lyft's data on rider behaviors, its distribution, their regulatory relationships and all that stuff, and then in particular, their flex drive service, well, that might become much more attractive for an acquisition as these AV companies.

1:10:19Daniel Mahncke:companies go from scaling as quickly as possible to trying to manage these rollouts and then trying to maximize the monetization of these rollouts. And so, FluxDrive is only going to become increasingly important as more and more AVs are rolled out onto roads. And I think that's complementary of their core offering, which is this distribution among folks who use ride sharing apps.

1:10:42Shawn O’Malley:So then it almost sounds like we would be a little too early to the Lyft acquisition thesis, at least now. I'm guessing it will be longer than a year or two before AV companies go from scaling at all costs to actually prioritizing monetization more meaningfully, which is what Lyft can actually help them with, at least that's how it sounds to me. Maybe only FlexDrive would get acquired. I mean, that might create some value for shareholders too, but not nearly as much as if the whole company was sold.

1:11:11Daniel Mahncke:They're really good points. And if I had to put together maybe a five-year bull thesis on Lyft, it would be something along the lines that over the next year or two, this business will continue to improve and show off its profitability, even if it's modest compared to Uber, which would boost its attractiveness to an acquirer further down the road, which is when the stock could easily double depending on the offer. And it sounds silly, but for a company like Lyft with a 1 % operating profit margin, going from 1 % to 2 % is a double in their nominal profits created. And so we've seen that with Uber in the last three years, they went from 2 % to 6 % to 10.5 % operating profits.

1:11:51Daniel Mahncke:And that's how you get basically 100 % year-over-year growth in operating profit generation. And anyways, the point being, Lyft is at a similar inflection point. I don't think they'll reach the same scale of profitability as Uber's. But still, once you start seeing operating profits double and triple just from going from 1 % margins to 2 % or 3 % margins, And it doesn't sound like much, but it actually is a big deal for how the stock is valued. And so with Lyft's valuation being so beat down, I don't think it would take that big of an offer to drive really a dramatic upward swing in the stock or just some slightly better results.

1:12:30Daniel Mahncke:And as you said, unlocking some value in FluxDrive would be nice, but FluxDrive was only acquired for$20 million back in 2020. so even if they sold it for five times the price the impact for lyft would be limited so i don't want to overstate the importance of flex drive to the thesis here it is ultimately about lyft's distribution and flex drive is just kind of something that is interesting on the margins you know for emanated to have any consequence for lyft shareholders you need a bigger part of the company included in the sale just spinning off flex drive is is not going to be enough to move the needle.

1:13:07Shawn O’Malley:And this is why we usually stay away from special situations, because in this case, at least, it feels so speculative compared with the investments we usually like to make. I mean, do I know whether Lyft will be acquired at all? And if so, at an attractive price relative to today? Or is it FlexDrive, the only part of the business, you know, that is interesting enough for external buyers? Otherwise, will Alphabet continuing to plow ahead, benefiting from AI and, the digitalization of advertising, why not just keep putting more money into the blue chip that we know works perfectly fine? I think it's fair to say we both find the latter more attractive generally.

1:13:49Daniel Mahncke:It feels like we're about to move on to the valuation part of the episode. And before that, I should say that, yes, I agree. And I'm pitching this more, I think, as a watchlist name for us, because we've done the work on the business. And now we can better track along with their progress. And as it seems likelier for an acquisition to be possible, assuming the stock is still beaten down, maybe it is something we could kind of make a leveraged bet on at some point. You know, we could test out using long term options, also known as leaps, for the first time for something like Lyft.

1:14:19Shawn O’Malley:Well, now we kind of digress from the value out here. But jokes aside, though, there are situations in which this can make sense. I would be worried about our ability to act though. I like concentrated portfolios also because you can keep track of all your positions all the times. And we are already at a point where I think being 100 % involved in everything that happens in our companies can get a bit difficult. And beyond that, if there are two people making the decisions, it also takes time to act up on anything actually when it comes out. So I'm not sure that's a perfect setup for going into options, but who knows, you know, at some point we might even try that.

1:14:55Shawn O’Malley:And all that said, How about we finally do it? How about we go into the valuation? I don't think we need to spend a ton of time on it, but not looking at it would be considered a crime on this show.

1:15:08Daniel Mahncke:Besides the founders forsaking the voting rights and their shares by converting share classes, it really doesn't look like Lyft is a company that is otherwise preparing to sell itself from an operational perspective. And that's a bit of a challenge to my thesis. Normally, these kinds of companies would be simplifying their operations, maybe spinning off or winding down parts of the business. But Lyft is making big acquisitions and partnerships and even returning hundreds of millions of dollars to shareholders via buybacks, which are sorely needed after years of dilution. And so from 2020 through 2024, Lyft's share count compounded at more than 6.5 % a year, which is a massive rate of dilution.

1:15:45Daniel Mahncke:And so that's just very painful as a shareholder, especially when growth has been disappointing too. And if a company is growing sales at 100 % a year, sure, maybe the dilution is worth it. But for Lyft here, I think we could have lived without it. And so as part of their turnaround, you've seen them flip that dynamic around and actually begin to shrink their share count by 6 % a year. And so anyways, share count reductions are just one component of the valuation. And looking at things through more of a DCF lens, as long as revenues keep growing between 7 % to 10 % a year or more, I think it would be reasonable to suspect that Lyft's operating margins could rise by a couple percentage points over the next five years, maybe even to as high as 10 % with Uber reaching 20%, let's say by 2030, up from really what is effectively 0 % today, which would, as we saw with Uber about two years ago, lead to this massive inflection in profitability.

1:16:40Daniel Mahncke:And some part of me thinks genuinely, we are starting to hit that with Lyft.

1:16:45Shawn O’Malley:I mean, considering how negative their margins have been for a long time, that might sound ambitious to some, but as you said, when Uber hit profitability, their business inflected to profitability very dramatically. You see these huge jumps in margins.

1:17:00Daniel Mahncke:From advertising to AV partnerships and just the simple benefits of scale, I probably don't have any issue imagining that operating margins could eventually hit the range of 8 % to 10%, maybe in five years from now. And then if you assume that in this new era of profitability, they continue the momentum with share buybacks, I could easily see the share count decline by a few percentage points a year, especially if the valuation remains suppressed, because each dollar of buybacks would go further toward reducing the number of shares outstanding. And with that said, in a base case, using what I'd call a pretty modest exit multiple of maybe 14.5 times operating profits projected for 2030, I get a fair value for lift of about$26 per share, which is actually a meaningful premium to where the stock is currently trading.

1:17:43Daniel Mahncke:And so the range of outcomes is very, very wide here. And we've seen this with a handful of companies in the past. And so I could just as easily imagine a bear case where revenue decelerates further, the share count starts to grow again as they invest in share-based comp to attract talent to help with the turnaround. And operating margins only expand a few percentage points from their current level, if really at all. And in that situation, I would argue that LISF's fair value is maybe as low as$6.50 today at best, which would be really grim. And again, that's the bear case. And yet, I also feel like the scenario I'm painting is relying revenue growth and some margin expansion still.

1:18:20Daniel Mahncke:So you could actually be much more bearish on the outlook of the business, which makes you feel like there's an asymmetry to the downside. And so if you look at a bull case, you could probably see them continue to take some market share in the US and in Europe, continue to grow their ads business and then effectively leverage AV partners into their network. And in that scenario, I could probably see the company being worth as much as$50 today. So that's the tough part about investing. So you don't know which of those outcomes or something in between it'll be. And in this case, the underlying business is just so mediocre with some serious downside risk that I can't imagine us investing in the company on the premise that as a standalone business, it could be undervalued.

1:19:00Daniel Mahncke:Though, and I know this is contradictory, I wouldn't be shocked if things do work out for Lyft in the coming years. They've leaned into some niche but effective ways to challenge Uber from Women Plus Connect to blocking surge pricing and guaranteeing driver earnings. And we see a couple more quarters of strong results. I could actually get much more excited about List Outlook. But for the time being, I think we agree. It's an interesting watchless company at best with maybe a blended fair value that kind of approximately matches today's prices while also making a fairly compelling acquisition target potentially.

1:19:35Daniel Mahncke:But the problem is guessing on when or if that would happen is just unknowable. And those are not exactly the types of situations that either of us like to bet on.

1:19:46Shawn O’Malley:I mean, we recently talked about learnings of the past year and a call given to our community. And one more thing that I could add to those is that, you know, more of a general learning probably is that the best companies, they tend to surprise you with more good news, whereas not so great companies, they tend to surprise you with the opposite. And Uber is an example of a company that tends to surprise you the upside. And the Lyft historically has been the opposite. So that doesn't mean it has to continue, but more often than not, that is what it means. Well, with that, let's look ahead to next week.

1:20:23Shawn O’Malley:Want to give us some hints for your pitch? Well, next week, we look at a company that both Sean and I know from being a user of the app. And it's certainly one that is, I would say, dividing the investment opportunities. Some see it as the leader of its space and a potential hundred bagger. Others see it as more of a hype mobile game. So I just thought I have to look at it because, you know, I couldn't forgive myself missing this if it turns out to be the next big thing. And maybe one last hint, the company has an animal as a mascot, and I'm quite confident that you will have seen memes of that mascot all over social media before.

1:21:00Daniel Mahncke:All right. I'm looking forward to it, as always. To close things out, let's go with a quote today from Jeff Bezos. Since Lyft's CEO, after all, is a Bezos disciple. He says, quote, I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. So I've actually been pretty impressed by Lyft's ability to remain relevant and survive far fewer resources and advantages. And on that note, we will see you again next time.

1:21:37Shawn O’Malley:app and visit theinvestorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax, or legal advice. The content is impersonal and does not consider your objectives, financial situation, or needs. Investing involves risk, including possible loss of principle, and past performance is not a guarantee of future results. Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product.

1:22:09Shawn O’Malley:Hosts, guests, and the Investors Podcast Network may hold positions in securities discussed and may change those positions at any time without notice. References to any third-party products, services, or advertisers do not constitute endorsements, and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network. All rights reserved.

1:22:35Thank you.