Uber and Lyft Release Earnings and Broadcom Acquires Symantec Enterprise Security Business
Weekly Recap #5: August 5th — 9th
On Friday, Uber posted its Q2 earnings, and its stock price took an immediate 12% dip in after-hours trading. The company reported $5.3Bn in losses, $4Bn accounting for IPO-related driver rewards and employee RSUs.
On Wednesday, Lyft also released Q2 earnings, beating analyst’s revenue projections. The stock closed at $62.29 on Wednesday, still below the company’s IPO price at $78.29. Lyft is still far from profitability, posting $644.2M in losses for the quarter.
These two companies have been competing against one another on various cost and revenue drivers. Lyft has been easing ride discounts while raising prices. Uber is also said to be easing back on ride discounts. However, UberEats still takes “very low to negative” take rates in India.
Since both companies are a marketplace to connect riders with drivers, there is a supply and demand dynamic between the two. Uber and Lyft are competing for both drivers and passengers. The effect on their margins are a necessary cost for competition, and should soon pass with these acting as investments into future revenue opportunities by expanding demand for their service.
There are opportunities for growth in transportation such as driverless vehicles and expanding customer markets, both geographically and in other industries. The competition over pricing will come down to unit economics. The underlying acquisition costs to grow users can be detrimental. Being profitable might not be the best option. The company that favors growth and finances it properly will win out. Uber’s approach has been to tackle these problems outright by building their projects in-house. Lyft, on the other hand, has been leveraging partnerships to compete.
Uber Vs.Lyft Revenue Opportunity Breakdown
Driverless & Electric Cars: The biggest challenge the ride-sharing market is facing relates to the cost to maintain the supply of drivers. Driverless cars will enable Uber and Lyft to maintain a fleet of vehicles ready for any time of day. The shift to driverless vehicles will reduce ride costs. It will be interesting to see Uber house a fleet of cars on their balance sheet.
Uber and Lyft are not directly driving this movement, as they are two players in this vast market of 46 corporate players. However, there is a shortage of AI talent with most acquisitions acting as Acqui-hires. For example, Apple recently acquired Drive, focusing on engineering and product design talent. Other players in this space include Waymo (Google), Tesla, Audi, and Toyota, to name a few.
Lyft previously had a partnership with GM to release a fleet of self-driving Bolts. However, Lyft is now working with Waymo (Google) on a fleet of self-driving pilot projects. Waymo is developing a custom-design driverless fleet, set to sell as a hardware and software package.
Former Uber CEO Travis Kalanick understood the significant opportunity autonomous vehicles would present for transportation. In an aggressive move to dominate the transportation space, Uber acquired the self-driving truck startup Otto in 2016. A clear signal Uber is conscious about their position in ride-sharing and commercial vehicles. Around the same time, the company faced backlash for ignoring autonomous testing allegations. Following a fatal accident in Arizona on March 2018, Shortly after the Uber suspended all of its self-driving car trials.
“Last-Mile” or “Micro-Mobility”: This movement is comprised of scooters or electric bikes, for those individuals who prefer an inexpensive transportation option for those within a specific distance. This user shares considerable overlap with the ride-sharing segment. It’s for those trips that are long enough to consider ordering a ride, but short enough save and walk instead.
Uber acquired the dockless bike startup Jump in April 2018 for a reported $200M. Jump offers an electric-scooter as well, which recently went through a makeover. In 2018, Uber invested $335M in Lime’s $1.1 Bn Series C round, led by GV. The check size gave Uber 30.45% of the round.
Lyft unveiled their electric scooters this year for Denver. The pink-wheeled scooters are said to be more durable, possibly improving the short-life span of shared-scooters due to vandalism. The goal is to solve the unit economics problem the scooter market is facing. Scooters are not able to cover the costs of
Food Delivery: This area of business will enable both ride-sharing companies to capitalize on their existing network of drivers. The supply of their marketplace can meet the demands of other industries.
Uber operates UberEats, a service where over 220,000 restaurants in 500+ cities can send requests to local drivers for food delivery. The request is sent to the standard Uber driver app. Uber Eats is the fastest growing and most profitable unit within Uber. UberEats enables a higher take-rate, generating more revenue for Uber. The app takes a percentage from each party for facilitating the transaction:
- Customer: Delivery fee from each customer, which functions as a sliding scale.
- Driver: A percentage of the gross fare
- Restaurant: A 30% fee on each order
Similar to the Lyft’s approach with Driverless cars, partnered with Taco Bell in 2017 to create Taco Mode. Users currently in Lyft could press a button on their app to direct the driver to the nearest Taco Bell. The service was only available between the hours of 9 p.m and 2 a.m. The experimental service was shut down due to driver and user complaints of messiness.
Global Markets: It seems uber is alone in chasing the global market. The company is taking on regional competitors in Didi (China) and Ola (India). The company’s S-1 laid out the potential revenue of the markets.
Uber went on to define its Total Addressable Market as “11.9 trillion miles per year, representing an estimated $5.7 trillion market opportunity in 175 countries.” That is not a small market: it’s about 7% of gross world product, and an even higher percentage if you only measure those 175 countries (Uber cannot enter an additional 20 countries after selling its operations in those countries to competitors). — Ben Thompson
Meanwhile, Lyft had a strategic partnership with Didi, which was called off in 2017. Lyft only operates in Canada and all 50 states.
Despite all of the success of ride-sharing companies, unit economics remain a problem for transportation. There are solutions on the horizon, but significant cost-cutting will have to happen for either company to survive. Uber seems to be looking to a few areas of its business to save costs, cutting out office perks and laying off 400 marketing employees. It seems growth at all prices might not have its consequences.
Notable IPO:
WeWork is planning to release its S-1 for an IPO next week. The coworking space company is reportedly looking to raise more than $3.5 Bn, which would make it the second-largest U.S. IPO this year, behind Uber’s $8.1 Bn.
Notable M&A:
Broadcom officially announced it will acquire Symantec’s enterprise security business for $10.7 billion in cash as it recently ended talks to acquire Symantec in its entirety. M&A plays a central role in Broadcom's growth strategy and has been on an acquisition run years. Broadcom’s $100Bn acquisition of Qualcomm was blocked by President Trump. Following this failed acquisition, Broadcom acquired mainframe Software company CA Technologies for $18.9Bn in cash.
The Symantec enterprise deal will provide Broadcom with security software and cloud products, which include endpoint protection, data loss prevention, web, network, and email security, as well as cloud application security, all important security services. Broadcom CEO Hock Tan stated, “by acquiring this number one cybersecurity franchise, we will gain a portfolio of mission-critical security solutions, which are deeply embedded among our global 2000 customers.” Broadcom’s acquisition strategy is paying off.
Notable Investments:
Securiti.ai, a San Jose, Calif.-based maker of tools to automate cybersecurity and compliance processes, has raised $31M in Series A funding led by Mayfield, with General Catalyst also participating. The company emerges from stealth after CEO Rehan Jalil founded Securiti.ai in 2018. Rehan, previously CEO of Elastica, merged with Bluecoat for $280M, later acquired by Symantec for $4.7Bn. The rest of Rehan’s executive team, Michael Rinehart, Chaks Chigurupati, and Tanveer Zamir, has been with him from Elastia.
The track-record of this executive team, along with their industry experience, will lend itself well to the compliance market. Compliance is a costly procedure, with 88% of companies spending more than $1M to prepare for GDPR and 40% report spending over $10M. The industry is about to see an increase in regulation, a precedent set forth with the EU’s GDPR and California’s upcoming Consumer Privacy Act, slated for 2020. Not to mention, companies in the healthcare sector will need to be HIPAA compliant, as well.
Securiti.ai is not alone in pursuing this space. Apitble, a San-Francisco based infrastructure hosting company, raised its $12M Series A funding back in June. Maverick led the round with Thrive Capital and WTI participating. There will be more entrants in the compliance space, as more regulation is introduced.
Ramp Financial, a New York-based company that offers credit to other startups, has raised $7M from Founders Fund, BoxGroup, and Coatue Management. Techcrunch reports a $25M pre-money valuation for the round, netting investors about 19% of the company. Eric Glyman and Karim Atiyeh found Ramp, and the pair sold their last company Paribus to Capital one.
Ramp is entering a space already dominated by Brex, a San Francisco-based provider of industry-specific corporate credit cards. The company raised its $100M Series C back in June. Brex is currently valued at $2.6Bn. Kleiner Perkins led the investment with participation from Greenoaks Capital, Ribbit Capital, Institutional Venture Partners, and DST Global. Ramp is still in the early stages of development. There will be severe ground the company has to cover to catch up to Brex, which has become the industry standard for startup credit cards.
Capsule8, a New York-based startup that offers cybersecurity protection for Linux production environments, has raised a $6.5M Series C from led entirely by Intel Capital. The company’s platform detects zero-day attacks in real-time. Zero-day attacks are carried out on the day of a product’s launch when some vulnerabilities in the system are still undiscovered. Capsule8 will use the capital to expand sales, marketing, product development, and customer-facing initiatives.
Intel Capital backing Capsule8 is a good sign for the market. Intel is excited by Capsule8’s approach to securing the entire infrastructure. Not to mention zero-day exploits constitute a significant problem. Nearly 30% of malware attacks are zero-day exploits. The real-time capability to monitor the attacks is an emerging trend within the Cybersecurity known as Security Automation and Orchestration. The space has seen a few exits with Microsoft acquiring Hexadite for $100M and Splunk acquiring Phantom Cyber for $350M.
Statespace, a New York-based company that helps assess and train esports athletes, raised $2.5M in seed funding led by FirstMark Capital, with Expa, Lux Capital and WndrCo participating. Aim Lab, the company’s flagship product, is an FPS training simulator to help gamers improve their accuracy and movement mechanics. Statespace has also partnered with the Pro Football Hall of Fame to develop the cognitive combine, raw statistics to measure a gamers skill level.
Statespace is partnering with Programmers and Masterclass to provide training in competitive games such as Rainbow Six Siege, Fortnite, CS:GO, and Overwatch. The service can easily be expanded to feature more games in other genres. The company will use the capital to expand Aim Lab beyond Steam to mobile and eventually console, prioritizing Xbox over Playstation, as well as launch the Academy.
Despite popular opinion, esports is still in its infancy when it comes to standard benchmarks for training or even pools of data on streamers. Creating a standard for training in eSports will solve problems that involve working with coaches, such as scalability and quality — developing the Aim Lab as a game makes the process of training easier as well — at least on the mechanics. Depending on the content, The Academy should incorporate more game-specific details, such as which attachments to use on which guns, map layout, and other game-specific information.
