Lyft reported first-quarter 2019 earnings in their first-ever report as a public company with overall positive results. Our takeaways:

Steady growth of user metrics

Lyft’s active riders grew 46% y/y to 20.5M, average revenue per rider grew 34% to $38, and revenue grew 95% to $776M. Separately, the company said it will no longer report total rides, as they want investors to focus on the number of riders and total revenue as the type of trip riders take begins to shift from just a car ride to a combination or cars, bikes, scooters, autonomous taxis, and public transportation.

An industry in transition

As we expressed in a note before Lyft went public, we see ridesharing as an industry in transition from the hardly compelling business of a high-tech taxi network to the potentially massive opportunity of consumer transportation-as-a-service. We believe this transition, especially with respect to autonomy, will both take longer and be more impactful than people think. We expect the balance of 2019 to involve heavy investment and the stock to be unpredictable in the short-term. Long-term, we think Lyft will be successful in capitalizing on an industry-wide shift from car ownership to service-based transportation.

The company is in investment mode. In the first quarter of 2019, R&D expense was up 10x y/y to $631M, G&A was up 4x to $377M, Operations and Support was up 3x to $187M, and Sales and Marketing was up 64% to $275M. This is a strong indication of a company in transition. We were expecting several years of somewhat blind investment as the transition to autonomy and transportation-as-a-service became more clear, but we were encouraged to hear that management believes 2019 will be their peak loss year. While losses will be narrowing, Lyft is still likely several years away from profitability.

Autonomy

On the call, Lyft announced that their partnership with Waymo will soon include 10 autonomous vehicles operating in the Phoenix area by the end of Q3 2019. This is a small rollout, and the vehicles will be staffed with safety drivers, but the significance of the partnership can’t be overstated.

We believe partnering with other companies developing autonomous vehicles (AVs) is the most effective way for ridesharing networks to capitalize on the transition to autonomy. Because expensive AVs will need to spread their cost over maximum utilization, shared, on-demand fleets are the most likely go to market. We believe the rollout of such technology will be incremental – first in small geofenced areas or fixed routes that are well mapped with gradually expanding boundaries. Lyft and Uber will, as Lyft pointed out on the call tonight, undoubtedly have demand with both origin and destination in a given geofenced area. Because AVs will be able to go some places but not all, a standalone app is unlikely to be downloaded and used over Lyft or Uber, which can take you anywhere. Partnering will be an effective strategy, and Lyft is beginning a deep partnership with the arguable leader in autonomy. The company still plans on employing a two-pronged approach, both partnering with companies like Waymo, and developing autonomous technology in-house in their Level 5 division.

Underappreciated management

An underappreciated component of the Lyft story is the strength of Lyft’s culture and the depth of the management team. This creates a measurable long-term benefit for the company that extends to employee retention, talent recruiting, and winning investor support.

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