In late 2018, , an subsidiary, started a commercial rollout of self-driving cars in Arizona. As at the time, however, the cars were “staffed by the company’s drivers.” But, the moment seemed important. Here, at last, we were seeing Waymo’s expensive efforts into autonomous driving start to pay back.

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Self-driving technology is incredibly expensive to develop, and hard to get right. Regarding cost, anyone can peruse the operating losses generated by Alphabet’s Other Bets efforts, which include Waymo. In terms of difficulty, a detailed a possible rise in total usage of the Waymo autonomous taxi service, along with some complaints regarding routing, and other mistakes.

No new technology reaches early-commercialization fully-baked. So, to see Waymo not rack up a perfect customer record in its first few quarters of public use is not surprising. (Waymo is also doing some intelligent, customer-friendly things to boost demand for the service, it was .)

All these Waymo reminders bring us to today’s news, namely that is planning on launching a self-driving tax service in Shanghai. According , Didi will have “30 different models of so-called level four autonomous vehicles in the Jiading district of Shanghai.” The cars will allow for drivers to assert control, similar to what we’ve seen in other self-driving vehicles.

Waymo and Didi are not the only companies getting their first self-driving��commercial services up and running, but they caught our eye for a few reasons. First, Waymo as part of the Alphabet universe has access to huge financial resources. And in the case of Didi, it’s the China-based Uber-equivalent and a company that Uber owns a piece of. So, we expect the two companies to wind up as leaders in the self-driving taxi market.

Crunchbase News has written about self-driving rounds extensively. It would be interesting, and honestly exciting, to instead cover how private companies (like Didi) are racing public companies to drive the first billion dollars in self-driving car revenue. Especially as the major players have all spent far more than that on the projects.

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shares were worth about $60 apiece before the company reported its yesterday. From an IPO price of $72 and a 52 week high of $88.60, Lyft was in the doldrums. Concerns about its ability to grow and cut losses were easy to understand.

But Lyft’s Q2 results showed two important things, each positive. Namely that the company could grow more quickly than expected, and that it could lose less money while doing so. In more colloquial terms, Lyft showed investors that it may have a path to profitability after all.

It’s a shot in the arm for companies like , , , and others (more on their fundraising here). The ride-hailing business was once the hottest game on the planet. Now, after Lyft and Uber each went public and quickly slipped from their IPO prices, market sentiment is more muted.

Lyft’s results, however, could help turn the tide.

Positive Results

Lyft beat on revenue and profit in the second quarter. The ride-hailing company generated revenue of $867.3 million (+72 percent year-over-year) against an $809 million. The firm’s adjusted profit of -$0.68 per share was also ahead of an expected loss of $1.74 per share in the quarter.

Beating on both top and bottom lines is good. Doing so while raising your forecast is even better. As part of its Q2 results, Lyft raised its forecast for its full-year 2019 results and more. Here are its new performance expectations:

• 2019 revenue: $3.47 billion to $3.5 billion, up from a range of $3.275 billion to $3.3 billion. (The company’s expected year-over-year growth rate is now in the low 60s, instead of the low 50s.)
• 2019 adjusted EBITDA: -$850 million to -$875 million, about $300 million lower than its previously expected -$1.15 billion to -$1.175 billion in adjusted losses. (Adjusted EBITDA is a profit-adjacent metric that many young companies prefer to more rigorous profit metrics, like GAAP net income.)

Faster growth? Check. Slimming losses? Check. Lyft even managed to grow its “active rider” count by 44 percent in Q2 2019 compared to the year-ago quarter, while driving “revenue per active rider” up 22 percent over the same timeframe.

What’s not to like? Well, a few things. Let’s talk about the other side of the coin.

Negative Results

We’ll start our discussion of negatives by looking at the company’s costs.

Three out of four of Lyft’s main expense categories saw their cost as a percent of revenue rise compared to the year-ago quarter. Indeed, Lyft spent more as a��percent of revenue on “Operations and Support” (17 percent of revenue in Q2 2019), “Research and Development” (14 percent of revenue in Q2 2019), and “General and Administrative” (22 percent of revenue in Q2 2019) than it did in Q2 2018.

Lyft did cut its “Sales and Marketing” line item sharply, from 35 percent of revenue in Q2 2018 to 19 percent in Q2 2019. However, it seems that Lyft wasn’t able to curtail cost expansion in revenue-percentage terms in other areas, casting doubt on its ability to lower losses in ratio terms in the near future.

And the impact of that is Lyft’s deficits, while falling, are still wide and persistent. The firm’s adjusted losses should reach $200 million in Q3 2019 according to the company’s own projections, for example. The unadjusted number will be worse.�� In Q2 2019 the company also generated an adjusted profit of around -$200 million, a figure tucked inside of a sharper $644.2 million net loss.

So, we can expect Lyft’s fully-loaded Q3 loss to be far higher than the $200 million adjusted mark.

The same principle applies to the firm’s full-year results. Yes, Lyft’s expected adjusted losses are now under $1 billion for the year. Its GAAP losses (results calculated using regular accounting rules) will be larger.

Finally, Lyft’s gross margins appear to be getting worse over time. In the first half of 2019, Lyft’s cost of revenue clocked in at 66.5 percent of top line. That gave the firm a gross margin of 33.5 percent. In the first half of 2018, the firm’s cost of revenue was just 61.3 percent. The firm’s 2018 and 2019 Q2 gross margin of about 42 percent and 27 percent tell a similar story.

There’s nuance to the figures, however. The company’s share-based compensation costs and “[c]hanges to the
liabilities for insurance required” make the resulting figures hard to fully grok. So I suspect that you can read Lyft’s gross margin results several different ways.

The figure that came up most on , notably, was “contribution margin,” not “gross margin.” You can check page 17 of Lyft’s for more on how the firm lowers its effective cost of revenue to show a higher contribution margin. Investors are more focused on the adjusted metric than the GAAP-based gross margin percentage.

So, you can read Lyft’s numbers any way you please. You can find lots to like, and you can also find a bucket of red ink and some key performance metrics that don’t look very good.

So What?

Lyft’s shares are up. That’s good for other companies in the space. To that point, when Lyft’s shares first took off after reporting its figures, Uber’s shares rose as well. Something similar, if invisible, happened to Lyft’s private-market comps.

Let’s close by talking about Lyft’s future, and the related futures of its rivals.

Tucked into Lyft’s earnings call were notes about price that are worth understanding. Lyft and Uber probably need to charge more for rides, and capture a larger share of total ride revenue, to reach real profitability. Happily at Lyft, at least, progress on that front is being made.

From the earnings call, quotes from Lyft folks:

We exited the quarter with tremendous momentum and we’re making a substantial increase in our guidance as a result. Our guidance incorporates modest price adjustments that went live toward the end of June. More specifically, we began to adjust prices on select routes and in select cities based on costs and demand elasticities. We expect that these changes will accelerate Lyft’s path to profitability, and further, we believe these price adjustments reflect an industry trend. […]

The price adjustments are modest, but we anticipate that these changes will increase revenue per active rider on both a quarter-over-quarter and year-over-year basis, and we expect that these changes will accelerate our path to profitability and further as I mentioned, we believe these price adjustments are an industry trend. In terms of active riders, we’ve enjoyed a huge benefit in the first half of 2019 related to the publicity from our IPO.

The price changes could provide Lyft with revenue and profit lift in the coming quarters. That’s good, and it means that Uber may also enjoy the ability to raise prices. If they can��each drive up per-ride rates, perhaps they can lose less money more quickly.

And grow more quickly to boot. That would help their valuations and the values attached to the tens of billions of dollars in equity currently tied to the fate of their yet-private competitors.

Lyft’s IPO was a downer for similar companies. Now, the company is pushing its market cohort in the opposite direction. That’s welcome chance, we’re sure.

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For Didi, this is hardly its first corporate-sourced check. Didi has previously raised from , , , , , and others. To see Toyota invest $600 million is not overly surprising.

There’s a bit more to the deal than simply capital, however; the transaction should allow Toyota to bolster its ties to China, a key market for cars. Here’s :

“[T]he two companies will also set up a joint venture with GAC Toyota Motor to provide vehicle-related services to drivers on Didi’s ride-sharing platform.”

GAC (part of , , which explains the acronym) has a partnership with Toyota called, you’ve already guessed it, GAC Toyota. The collaborative effort , to give you a scale of their co-work.

Now Toyota will have a fresh deal with a China-based car company and the key Chinese ride-hailing player. Not bad for the price of a check.

Funds

Didi is a good reminder of the high costs of ride-hailing. Indeed, as we reviewed its this morning, we were surprised by how easy it is to forget how much money individual ride-hailing players have raised. Didi itself has raised tens of billions of dollars in debt and equity during its life.

Here’s a chart of��just its known equity rounds (you can read the full list ):

There is never enough capital for ride-hailing companies trapped between pricing struggles against rivals and consumer’s wallets and the chronic costs of self-driving car wagers. Though, many ride-hailing companies are looking to outside investors to fund their autonomous efforts. Didi’s reputation has also struggled after , and . Now with more cash aboard it has further time to get its ship straight and get public.

Recall the rumors that Didi could list in 2018? It’s looking more like a 2020 affair now at the soonest.

Illustration: .

These aren’t the startups of the week, they’re features rolled out by ride-hailing companies as they barrel toward becoming the “super app” of their respective regions. To combat persistent losses from their core business, ride-hailing companies are expanding to other verticals in hopes of grabbing some extra revenue. And news this week reminds us that expansion requires a ton of capital across the world,

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Back to back, Singapore’s and Indonesia’s kept adding cash to their seemingly never-ending funding rounds. That apparent snowball effect is good for China’s , which yesterday reportedly made plans to raise $2 billion from investors, .

The Startups

Both in terms of timing their press releases and targeting customers, Go-Jek and Grab overlap often. Grab, the larger of the two ride-hailing companies, recently got money from credit-rating company Experian to add onto its .

Grab’s Series H has been racking up investors since June 12, 2018. In addition to , it has investors as diverse as , , , , and .

Go-Jek, , just added to its list of investors for its Series F this week. And about a week prior, a trio of Mitsubishi corporations added capital into that same round, too.

All this news, mind you, was on the heels of that earlier Grab announcement.

And amidst those two news items, the that Didi is eyeing a $2 billion round, which would bring its valuation up to $62 billion.

A Super App Future

In some ways, these companies are all aiming to become the “super app” of the region they dominate. Go-Jek and Grab’s investor pool includes credit lenders and other software companies, and partnerships derived from those investments are commonplace.

Plus, Didi is expanding to help its customers not just get from point A to point B, but to aid in vehicle maintenance and leasing as well.

While we can’t predict the outcome of what it means to spend money to expand into different verticals, we can point to anecdotal evidence.

To pick on we can see that even for a global market leader, ride-hailing is an expensive path.

Uber started , and now works with more than 80,000 restaurants. Uber Eats had revenue growth of 149 percent compared to the year prior. That still only accounted for 13 percent of the overall company’s total 2018 revenue. It shows that in some cases branching out will help, but may not be a saving grace. Beyond that it’s jumping into , and autonomous vehicles. As for the wealth of that latter point, that Uber’s self-driving car unit burned $20 million a month.

According to the company’s�� S-1, Uber’s 2018 operating loss came to $3.03 billion. That’s down from the year before, but remains a staggering deficit.

So it makes sense that in a crowd with significant losses, all racing towards diversification, private ride-hailing companies are looking to raise as much as they can.

Illustration: .

At least in theory, so too would be the payoff to the companies, and their capital backers, that take over the industry. That’s part of the reason why these closely-related sectors are compelling to investors, but it’s not like there have been many notable exits onto public markets for the sector, at least not yet. But that’s likely to change in the near future.

Earlier today, news broke that Indonesian ride hailing and on-demand delivery company is contemplating an initial public offering, likely on an Indonesian exchange. Crunchbase News was on top of the story. Go-Jek, to date, has raised around $1.75 billion in known venture funding over the course of .

$1.75 billion is a heck of a lot of money for a single startup to raise, but not so much in Go-Jek’s sector. At best, Go-Jek lands squarely at the bottom of the second tier of ride hailing and on-demand delivery startups—at least as far as pre-IPO funding is concerned.

The chart below shows the top-ranking companies in these sectors, with the amount of total funding each company has raised delineated by type.

Funding into the ride-sharing and delivery sector is particularly skewed, with an overwhelming majority of the capital being shipped to just two big players: Uber and China-headquartered Didi Chuxing. And although Didi is based in China, its influence—by way of direct corporate venture investment and strategic M&A—spreads far and wide. As Crunchbase News showed in August 2017, Didi’s investment network spans the globe. include Uber’s principal U.S. competitor, , as well as many of the companies in the chart above such as , , , and .

Didi’s corporate relationships also extends to its main global competitor. Uber China was originally a subsidiary of the American ride hailing supergiant. Uber China received $2 billion in venture funding from in two recorded rounds, was closed in January 2016. in August 2016 for $7 billion in stock.

Go-Jek’s IPO would be something of a milestone for the increasingly consolidated on-demand delivery and ride hailing sector.��As an early exit onto public markets, the company more transparent source of revenue multiples and other metrics for sizing up its global competition. By those benchmarks, we hope to get a better idea of how much tens of billions of dollars in investment into the sector will yield in returns.

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With for the end of the year, and a rumored billion dollar deal in the works, ofo, Mobike and their competitors leaped into quarter four with high hopes.

But the numbers and events of the last three months show that dockless bike-sharing industry players and their backers might be in need of a reality check.

The Numbers

According to Crunchbase data, the beginning of 2017 brought a huge jump in the number of known funding rounds in the dockless bike-sharing space.

The number of known funds raised increased significantly from 2016 to the early months of 2017, jumping from around $174 million to $735 million. The second quarter included a notable $600 million led by for Mobike. Quarter three saw a huge 700 million dollar for Mobike’s main -backed competitor, ofo. (Mobike did not provide comment by the time of publication.)

This fundraising momentum did not carry into the fourth quarter for ofo and Mobike. The space did not see the $1 billion dollar fundraising round led by Japan’s Softbank Group, nor did join in this effort.

The fourth quarter saw a slight decrease in total known funding amounts from the previous year. It consisted of a funding round in December for the U.S.-based dockless company, Limebike, and a private equity round of an undisclosed amount for Mobike. The majority of the known almost $553 million raised in the quarter, however, came from two funding events for .

Ant Financial-backed acquired Hellobike . Youon Bike is a Jiangsu-based bike sharing platform, but unlike its newly acquired subsidiary its users picked up and parked their bikes at docking stations. In early December Alibaba-subsidiary, , led a funding round that brought in $350 million for Hellobike. Later in the month, Shanghai-based led a round that raised nearly $153 million to round out the year for the company.

These massive funding rounds point to the willingness for Chinese investors, like Alibaba and Tencent, to direct money into this space to increase market control. Tencent-backed Mobike and Alibaba-backed ofo already constitute a 95 percent of the Chinese dockless bike-sharing market. As recent events point out, surviving in the competition against Mobike and ofo without a deep-pocketed group as support has proven to be a big challenge for smaller dockless startups entering the space in China.

What Happened To Bluegogo?

In July, we discussed Bluegogo’s struggle to attract big investors. Following our report, the company continued to face problems with fundraising in the third quarter and ended up ceasing operations in November while other small dockless bike-sharing startups, like , .

Because of the nature of both the dockless sharing platform and competition, companies in the space require extensive capital to function and, especially, keep up with industry heavyweights. Unlike traditional ridesharing platforms, like or , for example, riders do not make use of their own or other individuals’ machines. Instead, the company must bear the costs of manufacturing and servicing bikes themselves. In an industry where expansion combined with low costs for participation is the primary means of gaining users, and dominating the market the only goal, endless monetary support is key.

So what happened when companies like Bluegogo and Mingbike came into the fold and adopted the same strategy (minus a bag full of money)? They crashed.

As it turns out, as the company’s leaders realized that they had set out with a, frankly, poorly thought out business plan, they scrambled to bring in more funds to cover costs, in the process. When customers started asking for their deposits back, that’s when people started disappearing. According to the , the founder of Bluegogo, Li Gang, fled to an “unspecified country” after facing liquidity problems and complaints from users.

Despite this failure, there are rumors of hope for Bluegogo. The rideshare company, Didi Chuxing, is looking to acquire Bluegogo this year, which would effectively bring it back into the fold and possibly give ofo and Mobike a run for their money. (Bluegogo and Didi did not provide comment by the time of publication.)

Even so, mounting regulatory concerns in China could hinder this competitive effort and the growth of the dockless bike-sharing market altogether.

Regulation To Halt Growth?

When Uber and Didi started offering their ride-sharing platforms in China, they immediately faced legal . Their platforms disrupted the local taxi service industries which prompted taxi drivers to .

During their establishment in China, however, dockless bike sharing platforms did not face a similar backlash. Instead, the platforms offered the potential to assist in providing more environmentally friendly and convenient services to civilians who required only short distance rides home or to public transportation stations. However, of bicycle graveyards have since appeared in urban areas, giving rise to complaints of congestion and misuse. The annoyances of the dockless bike-sharing platform have started to outweigh its benefits for the Chinese government.

According to , the national-level Ministry of Transportation issued general guidelines and suggestions for bicycle sharing companies to curb problems for congestion, misuse of deposit funds, and unsafe use of bicycles. These suggestions include an , electric parking fences, and restrictions on deposit collection. Later in August, the People’s Daily, the Chinese Communist Party-sponsored media, released an berating the bike sharing industry and instructing companies to heed the demands and needs of its users.

Local Chinese governments have already begun instituting tighter regulations. The Shanghai transportation bureau has bike sharing companies to halt the addition of new bikes into the city, as well as the relocation and collection of bikes that were misused or improperly parked. have emerged in Nanjing and Guangzhou and in other cities, where governments have also called for real-name user registration as well as further integration with the local transportation authorities.

Ofo has begun to by increasing the number of bicycle relocation service trucks in circulation, as well as instituting a blacklist for customers who misuse or carelessly park bicycles. A spokesperson for the company stated that it “supports smart regulations that protect public safety and promote innovation and consumer choice, while not being overly onerous for this new and quickly growing industry.” However, the caps on bicycles by local governments and other regulations point to a potential for a shift in focus away from unending expansion. As ofo and Mobike expand globally, the lessons learned could inform their strategy for entering the U.S. market.

Looking At China, U.S. Governments Are Wary Of Consequences

U.S.-based bikeshare companies Spin and Limebike are taking on the China-based ofo and Mobike domestically, but regulations will likely not allow the uninhibited explosion of bicycles on city streets like in China.

Spin canceled their opening in Queens after receiving a cease and desist letter prior to the event. Similarly, Limebike is in Dallas, after citizens have started to complain about bikes strewn carelessly on sidewalks and in other public areas. Ofo already at the University of California at San Diego in April, after the university kicked the company off campus following an unapproved trial run that resulted in haphazardly parked bikes and campus confusion. Spin replied to a Crunchbase News inquiry confirming that after the ofo situation at UCSD “Spin is now operating an stationless bikeshare program on the campus.” (Limebike did not provide comment by the time of publication.)

If expansion is not the name of the market grabbing game in the U.S., we may see companies increasingly partnering with local governments and influencers to take over this part of the western sphere. Huge investments and uninhibited spending might not be the winning ticket for ofo and Mobike. We may begin to see other factors like play more of a factor in the sphere. Furthermore, players like Limebike and Spin might have a competitive home-field advantage that smaller players in China did not.

Update: After publication, ofo got back to us saying that the company is “always working to enhance the customer experience and offer the best possible service,” and that it intends to collaborate with local governments and focus on rapid expansion in the U.S. this year and expects profitability to grow.

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