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Lyft Is Expanding Its "Wait & Save" Program

By Evan Niu, CFA - May 6, 2020 at 10:00AM

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Just as ridesharing companies were making progress on "market rationalization."

As COVID-19 has obliterated just about any company even remotely connected to travel, ridesharing companies have been struggling to compensate for diminished demand and lost revenue by coming up with alternative services. Lyft (LYFT 2.65%) introduced a new Essential Deliveries pilot program last month, which entails drivers delivering essential items to partner organizations in a handful of markets. During the beginning of the public health crisis, Lyft suspended its Shared Rides offering, which had more affordable fares than Standard rides, in an effort to help curb the spread of the virus.

That has disproportionately impacted low-income riders, so Lyft is now expanding its "Wait & Save" offering in order to offer an affordable service.

Man waiting for a Lyft on a street corner at night

Image source: Lyft.

A new way to burn cash

In a blog post this week, Lyft said that Wait & Save would become available to "most" riders within North America. The service is fairly self-explanatory: Riders that are willing to wait longer to be picked up can pay a lower fare than normal. The longer that the rider is willing to wait, the less the fare will be.

The ride-hailing tech company notes that approximately 40% of rides in the U.S. either start or end in a low-income area, suggesting that those communities will need access to affordable transportation services.

"As the COVID-19 situation intensifies, it's clear that Lyft provides access to transportation for essential services, and is a lifeline for many communities," Lyft wrote. "We know that there are many who rely on Lyft during this time for rides to the grocery store or pharmacy, to work at essential businesses, or to care for loved ones."

Of course, lower prices always fundamentally stimulate demand, and ridesharing companies need as much help as they can get with demand right now. However, Lyft also says that drivers will still earn the same amount they would for a Standard ride while patient riders are paying less. That suggests that Lyft will be eating the difference, effectively subsidizing rides -- not unlike much of the ride-hailing industry's history.

Prior to the pandemic, ridesharing companies had been making progress toward "rationalization," a euphemism for increasing prices to economically sustainable levels after years upon years of setting mountains of money on fire.

Earnings incoming

Lyft is in a precarious financial position. The company has withdrawn its 2020 guidance due to all of the ongoing uncertainty surrounding the novel coronavirus, and quietly disclosed in a regulatory filing last week that it would be laying off over 980 employees (not contract drivers), or almost 20% of the workforce. Other cost-cutting efforts include furloughing nearly 290 other workers while cutting salaries for exempt employees and executives.

Lyft reports first-quarter results today after the close and intends to provide investors with updates around actions it is taking to "strengthen its financial position, improve its cost structure, and support drivers and riders on the Lyft platform." Stay tuned.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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