According to a , publicly-traded ride-hailing company is working to invest in building an ads business inside of , its food-delivery service. The move, TechCrunch notes, comes after Uber Eats allowed restaurants to offer discounts in exchange for better placement inside of the application itself.

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While an advertising business inside of Eats makes good sense for Uber, in our view, it is better understood from a profit perspective than from a growth orientation one. What’s more, the move underscores the fact that while Uber has scaled Eats quickly, the service’s losses have grown as well (more from Uber’s Q3 earnings here). If the ads experiment goes well for Uber, expect to see yet-private, on-demand companies also pursue similar monetization methods.

From the consumer perspective, don’t expect on-demand services to become cheaper; expect them instead to look for new sources of topline to staunch losses. Let’s explore the Uber example.

Uber Eats

Uber Eats is a quickly-growing portion of the larger Uber business. In the last quarter, Uber Eats pulled in $3.7 billion in gross bookings, representing a 73 percent increase year-over-year. Its revenue grew 64 percent year-over-year to $645 million and its adjusted net revenue also grew 105 percent to $392 million. Across most metrics, Uber Eats was the second-fastest-growing segment of the company in percentage terms, coming in only behind Freight. That makes sense, as Freight is a less mature division at Uber and therefore one growing from a smaller revenue base.

In the quarter, Uber Eats accounted for 22 percent of Uber’s total gross bookings, compared to the year-ago quarter when it made up 16.6 percent. In the third quarter, Uber Eats made up 11 percent of the company’s adjusted net revenue, compared to last year when it made up 7.2 percent of the adjusted net revenue.

It’s clear that Uber Eats is important to Uber’s growth story, as it’s one of the fastest-growing segments in the company while competing in the hot market of food delivery. It makes sense that Uber would double-down on the service by helping make it more commercially viable.

That being said, Uber Eats is deeply unprofitable. It lost $316 million in adjusted EBITDA in the third quarter. For reference, Rides brought in $631 million in positive adjusted EBITDA during the same period.

Uber Eats is a key driver of growth for the company while also a source of more red ink than Uber can stomach. The good is therefore also bad for Uber, a firm that very much wants to be valued on growth and not, say, GAAP profits. It’s stuck, therefore, pursuing Eats for the sake of growth while also trying to reach for profitability.

Enter ads, a business that can layer revenue into the Eats mix, lessening pressure on Uber to raise fees or dig deeper into the coffers of restaurants to help its must-work food delivery service become a viable long-term business.

Uber has a lot of cash, yes, but it also needs to start generating more of the stuff in time. If it doesn’t, it was never a real company to begin with.

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and represent enormous bets by venture capitalists and other private investors, wagers that the companies hit on a new sort of service that could not only generate tens of billions of dollars in global use but also, in time, profits.

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However, in the period after the two companies went public this year their share prices have struggled under the weight of slower-than-expected growth, and sharp, unrelenting unprofitably. Lyft and Uber’s reported results changed the narrative surrounding the unicorns, shifting the public’s perception of the companies from impressive upstarts to expensive question marks. 

The struggles of Lyft and Uber as public companies made related, yet-private companies like , , and even seem like less-than-likely IPO candidates. The market reception that first Lyft, and, later, Uber received also has the potential to chill private market investment into on-demand companies more broadly.

But things have improved in the last few weeks for the two ride-hailing giants, at least in terms of operating results. Each company put a stake in the ground regarding future profitability, and their recent results came in ahead of expectations. 

Let’s examine the market reaction to all the news, and tie it back to the private companies who won’t be able to accept Uber and Lyft being their comps if and when they try to go public themselves.

Lyft

In late October, Lyft promised investors and the technology community at large that it would generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the final quarter of 2021. Its shares rose.

A week later the company , including quick revenue growth ($955.6 million, up 63 percent from $585.0 million), expanding losses ($463.5 million, up 86 percent from $249.2 million), and improving adjusted losses ($121.6 million, down 50 percent from $245.3 million).

The results , with adjusted losses per share coming in 9 cents per share better than expected ($1.57 per share instead of $1.66). Revenue also beat the $915 million street expectation.

Lyft also raised its Q4 revenue and 2018 revenue guidance, saying that it expects Q4 revenue to be between $975 million and $985 million, and revenue growth to be between 46 percent and 47 percent year-over-year. For its 2019 revenue guidance, Lyft said it expects to be between $3.57 billion and $3.58 billion, up from between $3.47 billion and $3.5 billion. Its annual revenue growth rate is also expected to be 66 percent, up from between 61 percent and 62 percent.

After rising some in the wake of the its adjusted profitability promise, the company’s shares have fallen since its earnings report. A good question is why. But before we try to answer that, let’s look at Uber.

Uber

This week Uber . As Uber is a more global company, and as it has more business lines than Lyft, it’s results are harder to parse out. So, let’s get ourselves a summary and then devote ourselves to the details. 

The first thing to know is that Uber made a similar profit promise during its earnings call. Namely that Uber will generate full-year adjusted EBITDA in 2021. That’s better than Lyft’s claim of reaching positive adjusted EBITDA by Q4 of the same year.

Let’s look at Q3. Here are :

Revenues of $3.8 billion were better than the $3.7 billion expected, up 30 percent year over year. And looking at the bottom line, the net loss of $1.1 billion included $400 million in stock-based compensation. The total net loss came in at 68 cents a share, better, in fact, than the 81 cents a share loss expected by the Street. 

Along with beating expectations, the company also drew a better picture of its full-year results. Uber’s full-year profitability has improved, and it’s promising to see that its losses aren’t as bad as expected.

Very simple, and very clean to understand, right? Kinda. Uber’s business is a mix of growth-y unprofitable revenue and slower-growth, more lucrative top line. Let’s quickly examine each of Uber’s newly demarcated revenue segments:

• Rides: $12.6 billion in gross bookings (+20 percent, YoY), $2.9 billion in resulting adjusted net revenue (+23 percent YoY), and $631 million of adjusted EBITDA (+52 percent YoY).
• Eats: $3.7 billion in gross bookings (+73 percent, YoY), $392 million in adjusted net revenue (+105 percent, YoY), and negative $316 million of adjusted EBITDA (-67 percent YoY).
• Freight: $223 million in gross bookings (+81 percent YoY), $218 million in adjusted net revenue (+78 percent YoY), and negative $81 million of adjusted EBITDA (-161 percent YoY).
• Other Bets: $30 million in gross bookings, $38 million in adjusted net revenue, and negative $72 million of EBITDA.
• ATG and Other Technology Programs: $17 million in adjusted net revenue and negative $124 million of EBITDA (+6 percent YoY).

From this perspective we can see that Uber’s core business (Rides being 76 percent of its revenue) generates quite a lot of adjusted profit. Enough, indeed, for Uber to claim that the sum “fully cover[s] Corporate G&A and Platform R&D” costs. That’s quite good!

What is less good is that as we’ve seen, Eats turns growing gross bookings into sharply negative (and worsening) adjusted EBITDA. Why does Uber invest in Eats, if the business is so unprofitable? Growth.

Uber has long been valued on growth. Sans Eats, Uber’s growth rate is slow and its GAAP losses sticky. You can’t grow 20 percent year-over-year, give or take, and lose $1.16 billion in a quarter (30 percent of GAAP revenue). It’s too much. So, Uber needs a growth business, and thus Eats is a priority. And, therefore, the company’s adjusted EBITDA will remain negative for years to come as Uber endures longer losses to allow for greater revenue growth.

Dilution

It’s easy to forget how rich the two companies are in the shadow of their losses. Uber reported “[u]nrestricted cash and cash equivalents were $12.7 billion” at the end of Q3. Lyft’s tally is over the $3 billion mark at the same point in time.

The firms can therefore self-fund for ages; there’s little risk of either company running out of cash. To make that clearer, let’s examine the companies’ Q3 operating cash flow. Uber had $878 million in negative Q3 operating cash flow, giving it years of room to run, for example.

The question then becomes why Lyft and Uber are trading down now, just as the two companies are promising future profits and pushing their forecasts up. Two reasons, I think. First, it’s clear that the companies’ GAAP losses ($463.5 million in Q3 from Lyft, $1.16 billion in Q3 for Uber) are going to continue for the foreseeable future; neither company has made a commitment to staunching its GAAP red ink. 

Continuing, a big piece of each GAAP net loss figure is share-based compensation, telling public market investors that every quarter when Lyft and Uber report adjusted profit, they are looking past a lot of dilution to get to the better-seeming figure. 

Secondly, because it’s a little clearer than before that Uber and Lyft’s long-term estimates of 20 to 25 percent adjusted EBITDA margins are probably just about right. That means that the company’s future multiples will only be so high.

Today, according to , data, Lyft’s trailing revenue multiple before trading began was 2.9, while Uber’s came in at 3.7. Those ratios probably don’t have much space to climb over time; investors looking for a bet with a higher chance at multiples expansion would therefore covet companies with higher gross, and profit-margins.

Throw in slowing revenue growth as the two firms continue to scale and you find a mix that isn’t as exciting as the firms were when they were fast-growing upstarts. 

One last thought. We’re seeing Lyft tout its product focus and slimmer losses as advantages. And Uber is putting its money into other businesses and a global presence. We don’t know which method will prove more long-term lucrative, but we’re seeing two divergent bets on the ride-hailing market harden around their differences. It’s going to be a very exciting few years.

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We’ve covered the dizzying rise of from food delivery unicorn to Vision Fund-backed, niche-defining decacorn.

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All it took was a bathtub of capital. The company’s market share has risen among key groups thanks to its epic fundraising activity. Its consumer market share in the United States has risen to a leading position, . And its recent acquisition of Caviar from will as well.

But it seems that even the company’s sights are a bit higher than merely using humans to deliver an ever-larger amount of food. Instead, DoorDash is snapping up self-driving talent. To what end, and at what cost, is a good question.

Robots, Not Cars

It doesn’t seem that DoorDash is in any danger of building self-driving car tech. What the firm is working on are self-driving robots that can scoot about cities, delivering food at a far lower cost (in theory) than what it costs to pay humans to do the same.

It’s not new work at DoorDash. You can find company notes August 2017 entry, extolling a new robot delivery vehicle that it was excited to announce. The post also noted that the firm had already started “testing robot deliveries on the DoorDash platform.”

Fast forward to this week, and the company appears to be very much still at it. Here’s :

DoorDash has been on an acquisition tear of late, with Scotty Labs as its latest target. […] [The company] is working on technology to enable people to remotely control self-driving cars, raised a $6 million seed round.”

TechCrunch also notes that DoorDash scooped up “the two co-founders from Lvl5,” a firm that works in mapping for self-driving tech. (Data on , and .)

Add the two deals to DoorDash’s history of work in robotics and it’s pretty simple to see that the company is still investing in building delivery robots. Of course, competitors like are working on the same thing.

Indeed, there appears to be a sort of two-prong battle in the world of autonomous wheels. The first deals with self-driving vehicles that can carry several things; cars, trucks, and other wheeled machines that can bring multiple people, or multiple tons of product to where they need to go. And the smaller end of the race, where box-sized robots want to bring small amounts of product to consumers’ places of work and rest.

It’s hard to fault delivery companies for working on their own tech. My read is that every single on-demand company wants to get rid of paying delivery humans as quickly, and completely as possible. This was evident even back when ride-hailing companies first decided to not pay their driving staff like staff. Since then, self-driving machines have been worked on by nearly everyone you can name in the ride-hailing market. Postmates and DoorDash, in the on-demand niche, are similar.

Postmates has filed privately to go public�����Ի� could reveal a public S-1 this year. If it does, we’ll be curious to see what sort of impact its robot delivery machines make on its R&D spend. Because we know that self-driving tech is expensive.

Ride-Hailing, Self-Driving

Ride-hailing generates no cash, let alone net income. I cannot name a single ride-hailing company of scale that makes money anywhere in the world. The model requires lots of capital until a later date when prices can rise to help companies cover costs. Or until self-driving tech can reduce costs in other ways, allowing delivery platforms to collect more money per delivery for themselves.

Now, read that paragraph again but swap in on-demand deliveries for ride-hailing, and you get a nearly-true set of statements. GrubHub makes money, so the edits don’t hold up, but you can see the point.

On-demand companies feel like they are suffering from a similar problem as ride-hailing companies. To generate lots of demand (revenue, and revenue growth), they need to charge a price point that doesn’t allow them to fully cover their costs. Self-driving tech could help either category, so everyone is investing in the stuff. (More on the issue here.)

But at what cost? We’ve noted that ride-hailing is a bit like fracking in the past, with lots of capital going in but very little coming out in the way of cash or profit. Autonomous work is similar. Indeed, the cost of self-driving tech is staggering. Billions and billions of dollars are being poured into the space, with little so far to show for it in the way of commercial performance.

So can DoorDash get robot deliveries right before Postmates does, or someone else? Or can it get the work done and scaled before its model runs out of fresh cash? We’ll see, but the company certainly is still hard at it.

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The company announced that $2 billion of ’s previous financial commitments will be targeted towards its well-established Indonesian operations. Indonesia is Grab’s largest market and also the home of its biggest regional competitor, .

SoftBank CEO said there’s plans for a second Grab HQ in Indonesia, . While the $2 billion capital commitment to the country — made possible by SoftBank — isn’t new, Son reportedly said that “on top of that, we will invest more.”

For SoftBank, which recently announced a second Vision Fund, making bets on ride-hailing companies isn’t a recent trend. Back in 2018, the Japanese conglomerate invested roughly $7 billion in Uber. SoftBank also invested in China’s and . One analyst put SoftBank’s stakes in these three companies as worth anywhere between $22.1 billion and $26.5 billion, .

As we’ve covered time, time, and time again, Singapore’s Go-Jek and Indonesia’s Grab keep adding cash to their seemingly never-ending funding rounds (Grab’s Series H and Go Jek’s Series F.) It’s because ride-hailing, you guessed it, costs a lot of money. But, as our EIC Alex Wilhelm tell us, the industry can wrack up billions in bets and hopes without even proving profit. It shows that some investors are okay with a future of potential profit, as they stay distracted by booming growth in the present.

Plus, as TechCrunch’s , this capital commitment could help Grab be in better cahoots with the local Indonesian government and the tech scene there, since the announcement was made after a meeting between the company, SoftBank, Indonesia’s president and other high-ranking officials.

To wrap up with some context, Grab and Go-Jek are both barreling toward become ‘super-apps’  in Southeast Asia and beyond. I’m betting it won’t be too long until we’re back here reporting on the new cash, or promises, the companies make to do so.

Illustration: .

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The new round will help the company’s launch and expansion into New York City. They’re also going to be using high definition screens in both NYC and SF.

Firefly advertises companies like , , and Zumper. They sell by impressions. So if you’re a company and want to advertise during rush hour in San Francisco’s Financial District, Firefly can do that for you.  In return, full-time drivers who place a Firefly advertisement on top of their car make $300 a month. They only work with full-time drivers at this time, the company said. 

“That’s how we started, our goal is to increase that income,” , the CEO and co-founder of Firefly, told Crunchbase News. He explained that drivers’ main source of income will always be driving, but that extra cash through Firefly could be the difference between hours with family, or a trip.

Part of its competitive appeal, said Kaan, is that Firefly is company-agnostic when working with drivers. You can be a driver for , , , and , and FireFly will let you host their advertisement (it’s happened).

“You rarely meet drivers that just drive for one company,” Gunay said.

“It’s a value proposition and a strong pain point for drivers,” he said. The company has thousands of drivers across San Francisco right now that use its product.

As for why Uber and Lyft wouldn’t just do this business themselves? He guessed that it’s because those companies are so focused on their core business that an auxiliary component like this probably isn’t top of mind.

Firefly said it delivers 200 million impressions per month with a total of 650,000 hours of content. It has 40,000 square miles of coverage area.

Gunay said his is a difficult business because it combines hardware, software, ad network and operational complexity. With that, the company wants to scale – but scale wisely. At least one population is ready to jump on the opportunity: over 1,000 drivers, in San Francisco alone, are on the wait list for Firefly.

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Including startups from a range of places—from Redwood City to Lagos to Boston to Gurgaon—the ride-sharing market is a global, entrepreneurial phenomenon.

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We looked at some of these startups because a.) they are finding a market in a seemingly monopolized industry, and b.) it’s fun to write about more than just Uber and Lyft.

Alive And Raising

, a motorbike-hailing transportation startup based in Lagos, Nigeria (note: in Nigeria, “okada” means ) recently raised its . Using Gokada, people can request a driver to pick them up on a motorcycle bike,or hail one down on the street, and the driver will come with a helmet for passengers to wear.

The company has been around since, and claims it can get users to their destinations faster since, unlike regular ‘okadas’ they are able to travel on major roads, over bridges and on highways.

The company’s Series A was led by San Francisco’s .

������������DzԲ�’s raised $3.1 million for , targeted toward companies, event organizers and schools. Redwood City’s , which we reported raised $40 million last month for kids-to-school transportation, has $71 million fastened underneath its belt, according to Crunchbase data. , a Gurgaon, India-based company, raised $520,000 to help users get to their office and back through ride-hailing.

Other startups we’ve seen emerge focus on certain populations of people. For example, we spoke to Boston’s and Melbourne’s , two startups focused on making those who identify as female feel safer in ride-sharing cars. Shebah , and Safr claims it was close to announcing a funding round, but the company has not responded to our inquiries regarding the status of that funding.

Some That Shut Down

Obviously some startups struggled and closed. Eco-friendly startup, , appears to have closed.  which promises to plant a tree with every ride taken through its app, has a website that isn’t loading, and its Twitter account hasn’t been active since August 2018. 

On a larger scale, who could forget Ford-backed Chariot shutting down in January. As our Jason D. Rowley then reported, the van sharing startup for $65 million, and shut down three years later.

The Bought

And finally, there are the startups that began small, and got swallowed up by the big ones. The most recent example is , which Uber acquired for over $3 billion. There’s hundreds of small startups that are stepping out of Uber and Lyft shadow, and making their own path in the ride-hailing industry.

For now, none compare to the recently-public companies, but the fact that they’re getting interest shows us there might be a day that we see a trio, instead of a duo.

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The ride-hailing giant saw its share price fall around 9 percent in early trading, bringing its market cap to around $64 billion.

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The drubbing follows a trend of downward movement that began on Friday, when Uber closed its first day of trading as a public company worth $41.57 per share, down from its IPO price of $45. The company continued to decline in after-hours trading.

It’s been a tumultuous path for Uber to get to this point. The ride-hailing company struggled to hit the top of its IPO price range of $44-to-50 per share both during its formal pricing and after it began to trade.

It’s also unusual to see such a large tech offering stumble on its first day. Even , which was the first ride-hailing startup to go public in the United States, had a first-day pop in its share price following its debut. Unfortunately for Uber, however, public markets seem determined to reign in the value private investors had put on the company, which bankers estimated to be worth $120 billion last year.

It’s unclear what Uber’s slipping value will do to unicorns waiting to go public. Yes, it is possible that Uber’s first-day slump is a sign that public investors aren’t as keen on cash-burning startups as expected. If true, the changed sentiment could impact Slack and other unicorns looking to go public.

Yet Uber and Lyft are nearly unique in how much money they lose. Both firms also sport slimmer gross margins than many cash-burning software companies. But what Uber had that made it unique was a hybrid of stiff losses and slow growth. Lyft, meanwhile, had only half of the same set of issues.

It’s also worth noting that, in recent memory, there is no other unicorn managing to go public with such a dark cloud over its tenure as a private company. Over the years, Uber ran into an incredible amount of negative press over its and contended with concerns about its.

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When went public earlier this year it added over $2.3 billion to its coffers. is set to sell as much as $10 billion in stock when it debuts this quarter, although some of that total is expected to include secondary shares; Uber itself won’t sell the full ten bills, shares from existing holders will constitute a fraction of the haul. And news out this month makes it plain that Southeast-Asian ride-hailing shop this year.1

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That’s $14.3 billion in combined primary and secondary shares expected to sell this year, so far, from just three ride-hailing companies. The dollar-figure will rise, provided that or or any other market category constituent returns to the trough. The full-year dollar figure for ride-hailing’s capital raises for the year should hit $15 billion in 2019; the total inclusive of Uber’s secondary offering through its IPO will be higher.

If it feels like we’ve written this post before, that’s partially correct. Our chronicling of the ride-hailing industry’s capital needs is ceaseless as the cohort keeps raising for more funds.

At least until now. With Lyft’s IPO under water — Lyft is worth less than $60 per share this morning, far off its IPO price of $72 and all-time high north of $80 — and Uber’s financials boasting of slowing growth and quarterly losses in the billion-dollar range, perhaps the money won’t always be available.

That’s an argument that made , noting at the end of her piece that:

One thing that won’t change as the elite unicorns go public: They’re still wildly unprofitable�����Ի� will be for some time. But from now on, fewer unicorns will be able to rely on the gushers of investor cash on which they’ve built their lush magical forests.

The magical forests quip at the end is a Bloomberg quip also used by its own . As in, the magical forest where the unicorns roam and financial reality doesn’t despoil the hype.

Ovide will eventually be correct, but precisely when I don’t know. It may be that Uber and Lyft’s losses and slowing growth do curdle the funding chum for fellow on-demand unicorns this year. But with the biggest dollars still pushing the space () I don’t know when reality will, as the cliche goes, set in.

The that on-demand companies vending transportation, food delivery, and similar categories of service currently rack up cannot continue forever. And whether the group of unicorns can turn the corner and reach even free cash flow positivity feels more wager than certainty at this point.

More when Uber sets an IPO price range.

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Last night priced its IPO at $72 per share, the high point of its raised range. The ride-hailing company had previously signaled an anticipated range of $62 to $68 per share. For Lyft, the capital-raising event was a success. Whether the float of its shares performs well comes next.

We’ll bring you notes about Lyft’s performance once it begins to trade.

But for a , Lyft’s IPO is already a welcome bonanza. The Information tracking the company’s venture backers’ various performance. The short version is that Lyft backers have done well, and its early investors did ���������well. 1

The venture model depends on runaway hits to pay for duds and more. Many venture investments return a fraction of their initial investment or nothing at all. The old saw that most companies fail is a worn cliche for the reason that it’s true. (A look at how the startup death rate works in practice can be found , when your friends at Crunchbase News wrote under a different banner, the “graduation” rate between various venture milestones.)

A lot of folks just don’t make it. But as the Lyft IPO throws into contrast, when a company does very well, the wealth goes a long way.

Money In, Money Out

In the age of unicorns, a time when companies are getting larger than ever while private, do big exits mean that venture players are doing better than ever? Are hundreds of billion-dollar companies pushing venture results into the sky?

I don’t have a numerical answer for you this morning, but probably not. And for a few reasons. First, venture funds are , as winning companies hang back from going public. This extends the time in which VCs hold investments on their books, lowering returns on a time-adjusted basis. (More on the time-value of money .)

But that’s slightly small potatoes. Other factors tinkering with venture returns are competition (there’s a lot of it in the market today), and so-called “founder friendly” terms that investors must tolerate in today’s market to access the best deals.

Then there’s price. put out an that I read this morning. Our first-quarter venture report starts dropping next week, so I took a peek. Observe this set of facts, condensed for our needs:

“Up rounds exceeded down rounds 81% to 8%, with 11% flat in Q4 2018 […] [with] an average price increase in Q4 2018 of 85%, an increase from the 71% recorded in the prior quarter, and the highest average price increase since Q3 2015.”

The Fenwick file goes on to state that “[s]tronger valuation results compared to the prior quarter were recorded across each series of financing.” So this isn’t just a late-stage or early-stage affair; startups are still getting more expensive.

I think that the normal venture game of needing smash hits to provide material returns to LPs then probably hasn’t changed much; bigger startups mean bigger exits, but bigger funds also mean larger denominators to levitate. Throw in the historical reticence of unicorns to go public (more here), and you’ve got an interesting, but still difficult mix of factors for investors to navigate while they pursue sufficient returns to raise their next fund.

Except, perhaps, for Lyft’s investors today. I bet they’ll take the whole weekend off from worrying about their next fund, so long as Lyft’s shares do well out the gate. More on that shortly.

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