Good morning. Surge pricing, when prices fluctuate to adjust to demand, can boost a company's margins—but also has the potential to alienate customers. The tactic, heavily used by rideshare companies, is referred to as Primetime by Lyft. But the company's CEO David Risher plans to “open up a can of whoop ass on Primetime.”
Risher made that proclamation during the company’s Q2 earnings call on Wednesday. Not your standard quarterly call conversation. But he was making a point about surge pricing.
“Many of you have probably experienced it at one time or another, and I'm willing to bet you didn't care for it one bit,” he said on the call. “It's probably rideshare's most hated feature.”
The average Primetime amount included on each Lyft ride in Q2 declined by 25% versus the first quarter, Risher said. The markets with the sharpest declines in Primetime in Q2, like Baltimore, Orlando, and Phoenix are the markets where conversion rates—the percentage of ride intents that converted to actual rides taken—are improving the most, he said.
Lyft CFO Erin Brewer said the 25% dip in Primetime has significance. “It means we continue to perfect our ability to help drivers know when and where they can choose to drive,” Brewer said on the call. “That's great for drivers and for riders and also for the long-term health of our platform.”
The company is piloting a new feature called Price Lock, which lets a rider purchase a monthly subscription that caps the price per specific route at a specific time. However, Risher noted that Primetime “won't ever completely go away,” as it’s an important way to “match supply and demand when demand spikes quickly.” But Price Lock, priced at under $5 per month, can seemingly “chip away” at how often it occurs, he said. Lyft’s crusade against surge pricing comes on the heels of recent scrutiny of the practice by lawmakers.
For Q2, Lyft reported revenue of $1.4 billion, an increase of 41% year-over-year, which topped expectations. The company reached an all-time high for active riders—23.7 million, up 10% year-over-year. Gross bookings were $4.02 billion, up 17%, but missed expectations by about 1%. For Q3, Lyft issued guidance for gross bookings of $4 billion to $4.1 billion. Wedbush Securities analysts adjusted the 12-month price target on Lyft to $12 from $19, maintaining a neutral rating, noting that Lyft reported “disappointing Q3 guidance” and “mixed results relative to Uber.”
Lyft’s competitor Uber reported Q2 earnings on Tuesday. Gross bookings reached $40 billion for the quarter, an increase of 19% year over year, and about 1% above Wall Street estimates. Gross bookings and adjusted EBITDA guidance for Q3 was relatively in line with Street estimates, according to Wedbush, which gave Uber an outperform rating.
It will be interesting to see if Uber will address surge pricing, as Lyft currently seems to be taking the lead on making changes in that area.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna
