Lyft, Inc. (LYFT) Q3 2023 Earnings Call

Lyft, Inc. (NASDAQ:LYFT) Q3 2023 Earnings Conference Call November 8, 2023 5:00 PM ET

Company Participants

Sonya Banerjee - Head, Investor Relations

David Risher - Chief Executive Officer

Erin Brewer - Chief Financial Officer

Kristin Sverchek - President

Conference Call Participants

Mark Mahaney - Evercore

Doug Anmuth - JPMorgan

Brian Nowak - Morgan Stanley

Ken Gawrelski - Wells Fargo

Deepak Mathivanan - Wolfe Research

Eric Sheridan - Goldman Sachs

Benjamin Black - Deutsche Bank

Michael Morton - MoffettNathanson

John Blackledge - TD Cowen

Operator

Good afternoon. And welcome to the Lyft Third Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode to prevent any background noise. Later we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions]

As a reminder, this conference call maybe being recorded. I would now like to hand over the call to Sonya Banerjee, Head of Investor Relations. You may now begin the conference.

Sonya Banerjee

Thank you. Welcome to the Lyft earnings call for the third quarter of 2023. On the call today, we have our CEO, David Risher, and our CFO, Erin Brewer. In addition, Kristin Sverchek, our President is here for the Q&A session.

We will make forward-looking statements on today’s call relating to our business, strategy and performance, future financial results and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and our recent SEC filings.

All of the forward-looking statements that we make on today’s call are based on our beliefs as of today and we disclaim any obligation to update any forward-looking statements except as required by law.

Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results may be found in our earnings materials which are available on our IR website.

Also, please be aware that today we have announced changes to our key business metrics. These changes are described in our press release and our supplemental slide deck, which are also available on our Investor Relations website.

And with that, I will pass the call to David. David?

David Risher

Thank you, Sonya. Hey, and good afternoon, everyone. Thanks for joining us. I am thrilled with our progress, creating a customer-obsessed and financially strong Lyft. More drivers and riders are choosing Lyft every day.

In fact, this is post Q3. It’s just in the past few weeks, our gross bookings have been the highest in our history. The actions we have taken over this year to refocus our business on drivers and riders including pricing more competitively and improving the customer experience are producing incredible results.

In the first nine months of 2023, we supported over 0.5 billion rides and generated more than $10 billion in gross bookings. Ride growth has accelerated each quarter this year, up 10% year-on-year in Q1, 17% in Q2, 20% in Q3.

With better balance in our markets -- marketplace, primetime is at the lowest level, it’s been in years and driver’s pickup times have gotten faster across our regions. These factors underpin a very solid Q3 performance.

Big headline this quarter is that more drivers are choosing Lyft and are driving more often. In Q3, this resulted in an almost 45% year-over-year increase in the number of hours’ drivers spent using Lyft with not incentivize driver hours gone even faster.

Our focus for drivers is on making Lyft the simplest way to earn and it’s paying off. So even while rider demand accelerated, our conversion rate, which means the share ride intents that converts to rides taken was stable and that translates to a higher volume of completed rides.

Overall, our execution was impressive. Our team has worked in lockstep to prepare for back-to-school and return to office and delivered very strong results. For example, over the roughly 70 regions we targeted for back-to-school and here we are really referring to university towns. Rideshare rides grew by 25% year-on-year, reflecting a surge in new and returning riders and drivers.

And with return-to-office morning commute rides grew even faster, up more than 30% year-on-year the last week in September. This means more after look activity too. We are seeing a pickup in weekday even rides particularly Thursday and Friday all this great execution.

Bottomline, we are happening more people get out and get connected which is our purpose and something we are really excited to see. And we will continue to listen to customers and act on what we are learning to create differentiated experiences.

Women+ Connect, which we introduced in early September is a great example. It’s a feature that prioritizes matching women and non-binary drivers and riders, giving them more comfort, more camaraderie and more control when they use Lyft.

In our early access cities, we have seeing great results, more than half of eligible drivers have opted into this feature, very unusual, and are keeping the future turned on nearly been hires time they are online.

Actually want to give you a little color just on this. The feedback we have gotten has been amazing. Ambrosia one of the drivers in Chicago told us, quote, having Women+ Connect actually encourages me to drive more, and Amy a driver in Phoenix said, I find myself driving more night with Women+ Connect, which has allowed new opportunities for me to earn money.

So listen carefully to what the drivers are saying, both examples speak to how customer obsessed features can directly improve their experience, but also our business metrics. In this case increasing driver hours, which of course leads to more rides on the platform.

Last thing, let’s say about this, right now as customers and city officials have taken notice and they are asking us Women+ Connect will be available in their market. That’s why we accelerated the rollout of Women+ Connect to an additional 50 cities and town last week and we expect it to be available nationwide early next year.

Women+ Connect is a great example of the type of innovation the customers want and they can reinforce our brand, expand our addressable market and help drive preference in growth over time.

As we move into the holiday season we will continue to deliver new customer obsessed features targeted to driver and rider needs. As one example, we want to make getting to and from airports stress free. We have already done a ton of work this year to make scheduled rides highly reliable. We actually have a big announcement coming tomorrow that will provide even more peace of mind rider is going to the airport this holiday season. So please stay tuned for that.

Finally, I wanted to touch on the small, but growing part of our business that can improve our margins over time. Lyft Media, we have a great opportunity to connect brands with our millions of riders in ways that deliver differentiated relevant messages and experiences.

In Q3 our Lyft Media unit launched in app advertising, which adds to our in-car, on-car and on-street offerings you have probably seen if you have been in Manhattan recently. We can tailor ads to where a rider is heading and to their lifestyle.

So imagine you on the way to the movies and getting an ad that allows you to preorder your drinks and your popcorn. Great experience means you are even ready to go by the time you get there.

This is what’s opening up conversations with partners like Universal Pictures. We want to help design and co launch new ad products including in app video advertising, which will roll out this quarter.

It’s still early days. And this is a small business now, but we see a ton of potential to be creative and how we enable brands to engage with riders and relevant moment and build a meaningful, and of course, very high margin business.

Now before I turn the call over to Erin. It’s worth taking just a moment to reflect on the road we have traveled over this year and really over my first seven months or so. We have refocused our business, we have streamlined our cost structure and we are operating in a healthy and competitive way.

We are also building a culture of true customer obsession and operational excellence. These are all foundational to our ability to deliver profitable growth. In fact, the phrase, you will hear me say several times this customer obsession drives profitable growth and that’s what we are seeing.

So as we move on 2024 we got our foot on the pedal. I want to say a huge thanks to the entire Lyft team for their unbelievable work. We have got a lot more to do but we are super excited about the road ahead.

Erin, over to you.

Erin Brewer

Thanks, David. Good afternoon, everyone, and thanks for joining us today. I am going to kick things off by addressing the changes we are making to our key business metrics. Then I will review our Q3 results, as well as our Q4 guidance.

Before I dive in, I want to remind everyone that unless otherwise indicated, all income statement measures are non-GAAP and exclude select items, which are detailed in our earnings materials.

Starting with new metrics. Today we introduced gross bookings, rides and adjusted EBITDA margin as a percentage of gross bookings. If you haven’t seen our supplemental slides, please take a look at them as they contain detailed information including seven quarters and two fiscal years of historical data. We hope you find this information useful. Overall, our expanded disclosures better align our reporting with our strategic priorities and how we are managing the business.

Let’s start with rides, which represent how much our platform is used across Rideshare, as well as bikes and scooters. At a high level, when we grow rides, it shows that drivers and riders are choosing Lyft. Our objective is to grow rides within the construct of building a durable, healthy and profitable business.

Next gross bookings, which reflect the aggregate size and impact of our business. On the Rideshare side, gross bookings includes, applicable fees, tolls and taxes invoice to riders but excludes tips to drivers. This is consistent with our largest competitor.

Gross bookings also include amounts that are invoiced to our non- Rideshare operations. For example, related to bikes, scooters, Express Drive, data licensing and advertising. We are also moving to reporting adjusted EBITDA margin as a percentage of gross bookings. Please note that our definition of adjusted EBITDA as described in our earnings materials and SEC filings is not changing.

As a reminder, in connection with our IPO, we disclosed rides and bookings metrics I am going to touch on how these new metrics compare. Our definition of rides is consistent with the prior metric. However, our S1 disclosure would have reflected a significant volume of shared rides, which as a reminder was largely sunset earlier this year.

Next, the gross bookings metrics we have released today is largely consistent with the definitions of bookings included in our S1. However, in our S1 pass-through fees, like, tolls and taxes were excluded, and today, we have included those pass-through fees in our definition of gross bookings, again, which is consistent with our largest competitor.

Given our focus on gross bookings we are shifting away from formally providing metrics that anchor to revenue. Of course, you will still be able -- will still continue to disclose revenue, cost of revenue, adjusted EBITDA and Active Riders, so you will still be able to calculate revenue based metrics. However, beginning in Q4 of 2023, we will no longer present as key metrics, revenue per Active Rider, contribution, contribution margin or adjusted EBITDA margin as a percentage of revenue.

With that, let’s now move to our third quarter performance. We came together as a team with purpose to deliver a great experience for drivers and riders, and saw strong results consistent with our outlook. Driver and rider demand and engagement increased and our rides growth accelerated.

Let me share a few operational and financial highlights for the third quarter. We supported 187 million rides and 22.4 million Active Riders. Total rides grew 20% year-over-year. Within this, Rideshare rides grew 22%. Ride frequency referring to the average number of rides per Active Rider was the strongest it’s been in more than three years, but remains a significant growth opportunity.

We saw continued momentum in travel with airport trips growing by nearly 15% year-over-year. And regionally, the West Coast showed the biggest sequential improvement in Q3 with nights out and commute leading the way.

Gross bookings were $3.554 billion, up 15% year-over-year. This reflects strong ride growth, partially offset by lower prices year-over-year, given our competitive focus and improving health of our marketplace.

Revenue was $1.158 billion, up 10% year-over-year and slightly above the high end of our outlook, driven by Rideshare strength.

Cost of revenue was $638 million, up 15% year-over-year, driven by higher ride volumes along with higher per ride insurance costs, reflecting last year’s third-party insurance renewals.

Operating expenses were $455 million, down 18% year-over-year. As a percentage of gross bookings, operating expenses were 13%, reflecting an improvement of 5 percentage points versus Q3 of 2022, primarily driven by our recent cost restructuring actions.

Relative to Q2 of 2023, operating costs increased by $45 million sequentially, reflecting targeted marketing investments, along with volume driven costs related to bikes and scooters. Adjusted EBITDA was $92 million, which as a percentage of gross bookings was 2.6% and reflects momentum across the business.

We ended the quarter with a solid cash position with unrestricted cash, cash equivalents and short-term investments of approximately $1.7 billion.

Now turning to Q4. We are off to a great start. Our teams are executing extremely well and demand was strong for the month of October. Driver hours maintain their 45% year-over-year growth and our Rideshare ride growth accelerated above the 22% we achieved in Q3. We also delivered a great Halloween week experience for drivers and riders with driver hours, ride intents and rides, each reaching new multiyear highs.

With that, let me review our Q4 guidance. I will highlight that our outlook is consistent with our previous directional comments on the fourth quarter. We expect gross bookings of $3,600 billion to $3,700 billion, up 13% to 16% year-over-year.

We expect total rides growth year-on-year will accelerate slightly from the 20% year-on-year growth rate we saw in Q3 driven by Rideshare. If you are doing comparisons on a sequential basis, note that our outlook implies a slight decline in total rides, again sequentially and due to bike and scooter seasonality.

We expect adjusted EBITDA of approximately $50 million to $60 million and an adjusted EBITDA margin as a percentage of gross bookings of roughly 1.4% to 1.6%. This reflects a full quarter impact of our third-party insurance contract renewals that went into effect on October 1st.

As you may recall, last quarter, we provided directional Q4 outlook in terms of revenue. So just to sync that up for you, here’s how our formal guidance compares. We now expect our fourth quarter revenue will grow mid-single digits quarter-over-quarter, which is at the high end of our prior directional comments. On a year-over-year basis, our outlook implies revenue growth in low to mid-single digits, reflecting our competitive focus and greatly improved marketplace health versus Q4 of last year.

We expect fourth quarter adjusted EBITDA margin as a percentage of revenue will also be at the high end of prior directional comments and roughly in line with the 4% we achieved in Q2 2023. Again, this refers to adjusted EBITDA margin as a percentage of revenue.

And finally, as we make the transition in reporting, consistent with our updated key metrics, I thought it would also be helpful this quarter to share some comments on cost of revenue and operating expenses.

We expect our fourth quarter cost of revenue will increase by approximately $100 million quarter-over-quarter, reflecting the impact of our third-party insurance contract renewals, along with higher Rideshare ride volumes. We expect operating expenses will be roughly flat quarter over quarter.

With that, I will bring our prepared remarks to a close. Our team is focused on building a business that is both customer obsessed and financially strong. I have been impressed with the team’s solid execution and focus on delivering great experiences for drivers and riders. We have had a really great start to our fourth quarter and I am excited about the road ahead.

Operator, we are now ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mark Mahaney from Evercore. Your line is now open.

Mark Mahaney

Okay. Thanks. I make it a point ever to congratulate management teams, but congratulations on the much greater disclosure. I think it’s a huge win for investors and for you. So thanks for doing that. Two questions I had. One is you talked about the long-term drivers. If we think about the long-term drivers of the company in terms of riders, rides provider, bookings provide, take rate, et cetera. I think, Erin, you mentioned a particular confidence about increasing the rides per rider. But just long-term, as you think about those drivers, which do you think you have the most power to move, where would be the biggest driver of growth going forward? And then secondly, just a small question on scheduled rides, what’s the kind of penetration rate you are seeing with that now and just talk about the benefit that has to the model. I assume that’s higher margin rides for you? Thank you

David Risher

Hey, Mark. It’s David. I will start and then Erin and I will kind of tag team on this. First, by the way, thanks for the congratulations on the increased transparency. It’s something that Erin has been focused on since day one and it’s just wonderful to see the team to be able to deliver on it. So I am glad you like it and I hope it helps.

On growth, here’s how we think about it. It’s not going to surprise you to hear customer obsession what drives our focus here. And let’s just start and I am going to zoom out for just a second, so forgive me for a little bit of a long answer, but let’s just start with doing the basics right.

Now you do the basics right, every full day, day in and day at 365 days a year and customers really notice that and that’s where you see things like pricing in line with the market come take rate in line with the market and so on and so forth.

Then on top of that, you really build execution excellence. And if you look at a couple of examples that we have had, I mentioned back-to-school in my remarks, that didn’t just happen, right? Back-to-school getting 25% year-on-year growth in 70 markets requires a lot of work.

We did the same around Halloween, and as we alluded to, those are not just recent year highs. Those are all-time highs that we achieved in two weeks in the first couple of weeks of October in terms of gross bookings. So really exceptional performance there. And it just speaks to the importance of just ongoing operational excellence, which is a real focus.

And then we add on top of that, you can start to look at differentiated products and services. I mentioned Women+ Connect. That’s not a small market. We are talking about 50% of the population are women, of course, only 23% of our drivers are women.

By the way, only 15% of driver hours are driven by women, 15%. So that shows there’s a huge upside in focusing on making women fill more comfortable driving and riding obviously, which can really generate all kinds of growth over the long-term.

Let’s take another use case, mode, you probably saw, I think, 100 articles have been written in the paper over the last couple of months about return-to-office. So we read those articles. We are participating ourselves. People are back in the office here at Lyft and we are out there selling to companies.

We have got relationships with Amazon, with Netflix, with LinkedIn, where we are trying to take the worst part of community, which is the non-productive kind of high stress time and make that into a better time for employees, which obviously works well for Lyft as well. So that’s a big deal. And so differentiated products, they give people a reason to choose Lyft over Uber, but they also give us a way just to accelerate our growth.

And then the end on scheduled drives. Scheduled rides is so interesting. Right now, it only makes up about 5% of our Rideshare rides, which is actually sort of surprising, right? It’s actually a little bit less, because -- and if you think about it, just using the airport use case, you are going to go to the airport, right? And by the way, it’s so to weak, because oftentimes you linked up your calendar and so we can remind you about that.

So since you know, we can start to get ready, right? We can remind you when you make your scheduled ride and then we can really double down on making sure that, that is a great experience and we are actually going to be talking more about this tomorrow. We have got a pretty exciting product launch to come to tomorrow around this, but it really is around de-stressing your life, particularly around the holiday.

By the way, scheduled rides it’s obvious when you are talking about airport rides, but I am looking at Kristin, our President here, and she revealed the she occasionally goes to apply these class or yoga, right, I forgot the word, and she is going to start to schedule that, because she knows what is going to happen. It’s easier than doing it on demand and reliable.

To your margin question, yeah, it is a little bit of a higher margin product, it’s a higher reliability product, and so as a result, we can charge a little bit more, we can pay drivers a little bit more, which encourages them to be there on time and it’s a better experience for both rider and drivers.

So lots of upside there, and it’s just, I think, one example of one of our modes that as we lean more into, we can really drive growth product. So I know that was a long answer, but I just wanted to kind of cover a bunch of bases. Erin, anything you want to add to that?

Erin Brewer

Yeah. No. Mark, the only thing that I would say is, David, I think, you covered many of the levers and so I think it’s important to understand that, we really do have multiple growth levers across the business.

But you also talked about frequency as you think about active riders, and it’s really gratifying to see that frequency, as I think about that year-over-year, even sequentially quarter-over-quarter is increasing.

I am sure some of that is again getting out and about after the pandemic or returning to office. But we still think there’s obviously more opportunity there in addition to all of the other levers that David mentioned.

Mark Mahaney

Thank you, Erin. Thank you, David.

David Risher

Sure.

Operator

Our next question comes from Doug Anmuth from JPMorgan. Your line is now open.

Doug Anmuth

Thanks for taking the questions. David, after a couple of years of price inflation, it feels like we are starting to see some moderation on a like-for-like basis and then combined with the mix shift, perhaps, into more affordable ride options for consumers. Just curious how you are thinking about pricing exiting the year and into 2024? And also just wanted to ask about another ride mode in terms of Wait & Save. I think you have talked about that as around 30% of rides in the past. Can you give us an update there on how that product is doing? Thanks

David Risher

Yeah. Sure. So sort of great points both. So, on pricing, we -- pricing has been fairly stable right now. No major changes. It sounds as around a little bit, as you would expect, but it’s not a significant, we don’t expect a significant change there. We kind of like what we are seeing, and frankly, our riders do too. It’s one the reasons why we have seen such great ride growth quarter-on-quarter and year-on-year.

On Wait & Save, I am actually really glad you brought it up, because I think it’s a great reminder. People do not price rises in a vacuum. And as a rider, you don’t -- you are not -- your choice is not binary.

And so if you are more price sensitive as a rider or if you are at a more price sensitive time in your life or if you are at a time where you frankly have a little of time, you don’t mind burning because you want to go get a coffee at Starbucks or whatever, Wait & Save is a great option.

And we see it still no major changes from where it was before. I will tell you that Wait & Save riders take about double the rides of non-Wait & Save riders. So that really suggests that there’s a segment that you can really speak directly to. And we can optimize it over time, we can improve the economics and so on and so forth, but it’s a really important part of the mix.

And just to answer the question that you didn’t ask, but I will answer it anyway, which is that Uber has got a mode for price-conscious folks, too. It’s called shared rides. And we innovated there, it’s an area where we started. We largely have turned it off, except for some very specific use cases because we don’t find our riders or our drivers like it very much. So we think just on a head-to-head basis, we have got a better, more customer access strategy there.

Doug Anmuth

Great. Thank you, David.

David Risher

Sure.

Operator

Our next question comes from Brian Nowak from Morgan Stanley. Your line is now open.

Brian Nowak

Okay. Thanks for taking my questions. I have one on the implied take rate. I appreciate the bookings disclosure. So I know take rate can be somewhat crude. But if we sort of take the revenue and divide it by your bookings, it looks like your effective take rate is sort of somewhere in the low 30s somewhat higher, I think, than your competitive peer in the U.S. How do you think about that take rate over the next year or so to try to sort of load balance, supply and demand and sort of more supply into the overall ecosystem? Thanks.

Erin Brewer

Yeah. I will start with that one. As a reminder, of course, we report as a single segment and that includes both our Rideshare business, but also a mix of bikes and scooters, fleet, media, et cetera. So as you think about that total revenue as a percentage of gross bookings, there’s more than rides here there.

What I will say about that, though, as you think about TBS fleet and Media. That will drive revenue as a percentage of gross bookings up about 2 percentage points to 3 percentage points, if you will, depending on seasonality and depending overall in the quarter.

But what I would really say bottomline is we, of course, track in a very methodical way how we are competing in the market, both in terms of price and as it relates to driver earnings, we feel confident that since Q2, we have been operating in pricing competitively and in line with the market.

And if I can steal a phrase from David, people are voting with their feet, right? More drivers and riders are choosing Lyft, and that’s, again, just another data point that gives us a sense of where we are competitively.

David Risher

Yeah. I will just underscore the last thing that Erin said. Our driver -- our strategy with drivers is to pay them fairly for sure and to continue to make sure it’s a great way to earn. And so we expect to pay in line with the competition, just the same way we price. And yeah, I mean, we have seen 45% historic highs and driver hours. So really no material difference there. I think it’s more of a math issue around how we present versus how Uber does.

Brian Nowak

Great. Thank you.

Operator

Our next question comes from Ken Gawrelski from Wells Fargo. Your line is now open.

Ken Gawrelski

Thank you. I appreciate it. I appreciate the question. Could you please help me think about medium-term insurance inflation? How should we just think about the various dynamics that might play into that first? And then second, again, a kind of more medium-term question, which is if you look out beyond the next several quarters, how do you think about the various factors driving overall ride growth, both from an industry level and from a less level specifically? Thank you.

Erin Brewer

Thanks, Ken. I will start with the insurance question and then hand it over to David. So as a reminder, we renewed our most recent set of third-party insurance contracts effective October 1st.

We renewed those very consistently with how we communicated on our previous earnings call. So that gives us substantial visibility over the next 12 months. So nothing has changed there from what we have previously communicated.

Rising auto -- that being said, rising auto insurance costs are a reality of our industry overall. The rate increases we saw in this most recent round were lower rate increases than in the previous year. So certainly some signs that, I think, some of the COVID impact on these rates is abating.

But that being said, a core part of how we think about managing our overall cost strategy is thinking about managing our strategy around insurance over a multiyear period and it really encompasses not only thinking multiyear, but working across the company in a really cross-functional way. So it encompasses a couple of different areas.

The first one is just around product improvements. The next one really initiatives around safety. We have been working for many years on various initiatives around safety and we still think there’s more room to grow with that as our capabilities have become more sophisticated. So anything that helps promote safety, obviously, reduce accidents, using our telematics to improve settlement outcomes is going to be a core part of our strategy.

And then finally, what I would say is, on the policy side. We continue to be active on what we view as common sense policy reform. Specifically, as it relates to T&C insurance requirements, these function at a state level.

But we are also working side by side with our insurance partners, some of the largest insurance carriers certainly in the U.S., in their efforts as an industry to combat what’s sometimes called the social inflation, other times referred to as legal system abuse.

So it’s really a multi-pronged, multi-directional strategy as it relates to insurance. But again, for this year and for our renewals that we just completed, we completed those as expected and we have substantial visibility for the next 12 months.

David Risher

So, Ken, I will kind of pick up exactly where Erin is leaving off. So just talking about the next 12 months in insurance. I will maybe give a little bit of perspective over the next couple of years in terms of growth.

If you think of -- let’s say this, the strong execution and just continued operational excellence can really, really drive the business is strong. But if you want to look even longer you have got to tap into things that are super, super deep. And it turns out people really like to be together, and people really like to be enjoying their lives outside of just their houses and so forth and so on.

And by the way, not only do people like that, but there are all sorts of other companies and organizations and that also like that, cities like that, because it gets people out buying. Partners like that. We have got a great partnership with Chase Bank, for example.

We can talk about that more in-depth later if we are interested, but the credit card partnership we have with them with their Chase Sapphire is great, great partnership and one that I think in a lot of ways is just getting started.

So I think if you sort of look over the next couple of years, it becomes a little bit less sort of what I think it’s a little bit of a tired story of kind of just Uber and Lyft and so on and so forth and much more into how can organizations like ours that are really focused on doing really innovative work for customers.

How can we really take our Rideshare network and make it a bigger and bigger part of people’s lives such that they end up having a bigger better life and that our partners increasingly can support and get behind as well, because it helps them out as well. So it’s a little philosophical and we can try to get a little more detail, but that’s at least the way we think about it.

Ken Gawrelski

Thank you.

David Risher

Sure.

Operator

[Operator Instructions] Our next question comes from Deepak Mathivanan from Wolfe Research. Your line is now open.

Deepak Mathivanan

Hey, guys. Thanks for taking the question. Kind of a two parter question on bookings growth. It was nice to see some acceleration in 3Q. But more broadly, how do you think about the market and sort of the industry growth for 2024? And then the second one related to that, Uber is seeing some benefits from new verticals inside Rideshare, kind of product like Shared Ride and also products like Reserve, how do you think about the opportunity for incremental growth from there? And maybe can you unpack some of the contribution from these products that you currently have at all? Thank you so much.

Sonya Banerjee

Hey, Deepak. Really quickly. Sonya, can you actually hear us?

Deepak Mathivanan

Yeah. We can.

Sonya Banerjee

Okay. Awesome. David, go ahead.

David Risher

Okay. Sorry, a little technical glitch there. And my apologies, just as you were starting that question, we had a little technical thing on it. Can you just repeat the first part of that question one more time?

Deepak Mathivanan

Yeah. No. I was just asking about your expectations for industry growth in 2024 in the U.S. Rideshare space?

David Risher

Yeah. We probably, and Erin, I will chime in on this as well. Obviously, we are not giving any longer term guidance besides what we just gave for Q4. We are still very much on track for what we call our long-range plan, LRP, but that will be the beginning of next year.

But I would just say, broadly speaking, we see a lot of reasons to be really optimistic about growth. Let’s start with where we are today and then try to extrapolate a little bit. Again, just looking back the last couple of weeks, we have seen growth higher than we have ever seen in our corporate history, not just talking about sort of just going back to 2019, but literally since day one. So that’s to energizing.

Number two, we see some secular trends. Travel will continue to be a big growth driver. You are seeing that across the sector will continue to be a big growth driver. Again, you are seeing that across the sector as people come back to work post-pandemics. So those are sort of secular trends.

And then when you look at where we sit in, we really are, again, we are customer obsessed, right? So we are really trying to take a look at large segments like women, for example, or like airport travel, which includes business travel, leisure travel and so forth, and say how can we create more and more differentiated experiences that drive that incremental use and incremental frequency, right?

And we all know this. I mean heavy users of Rideshare, because you asked about the sector, they might use the service maybe a couple of times a month, that already gets to be a pretty heavy user. And most people go to work three times a week, at least most people go to social activities a couple of times a week.

So in a lot of ways, I think, we are really underpenetrated in terms of how people can use in their daily lives. So again, I know maybe a tiny bit philosophical, but when we look at our 2024 trajectory, we feel super good.

Erin Brewer

Yeah. The only thing I’d add to that, David, obviously, fully agree. As you think about our model, I think, it’s important to note that as we get into Q2 of 2024, we will have anniversaried a couple of important things.

First and foremost, that’s really the first full quarter where we operated competitively and in line with the market as it relates to our pricing strategy, and it’s also the quarter, obviously, we in Q2 of the current year we enacted a cost restructuring program. So as you think about 2024, Q2 2024 will be the quarter where we anniversary those two items.

Deepak Mathivanan

Got it. And then the second part on contribution from products like Shared Ride and potentially something similar along the lines of Reserve, how do you think about that?

David Risher

Yeah. So in our world, we started Shared Ride back in I think it was 2019, 2018, something like that. Even further back, my apologies. But we actually found that it wasn’t a particularly great experience for riders or for drivers.

Riders didn’t like it so much, because it feels like a sort of a diversion from where they are going. They are all taking a weird left turn and another weird left turn. And the drivers don’t love it because for drivers, the least enjoyable part of a ride is the pickup and drop-off. And so it, of course, increases pickup and drop-off.

So it’s an area that we have decided largely to sunset. There are a couple of use cases where we still use it, but it’s not a very consumer facing product. And instead, we have Wait & Save, which allows people to wait or have a little bit more flexibility in return for getting some money off. And as I mentioned before, it’s a great product for us. It represents anywhere between 25% and 30% of ride volumes something along there.

Our -- what Uber calls Reserve, that’s our scheduled ride product. And you will be hearing more about that tomorrow where we are making an even stronger commitment to reliability on those so that when people use it, particularly go to the airport, they have got a great experience. I think there’s enormous upside there.

I think there are a lot of time in people’s lives where with a little bit of thought, reserving ahead of time can actually reduce the hassle and stress in their lives. And as I mentioned before, it has a slight premium price to it. It also has better economics for drivers as well, so they like it to.

I will bring up one other thing since you mentioned kind of ride types. We are just in the process, and again, we will be talking more about this tomorrow, but I will give you a preview today of launching a product called Extra Comfort. Extra Comfort is an affordable sort of higher end ride. The cars are newer, the drivers are more experienced, the leg room is a little bit bigger, you can choose a quiet ride and so on and so forth.

You will see it if you open up your Lyft at today in almost all of the country and tomorrow even more you will see it and it’s priced at maybe $1 above the normal experience. But it’s a nice experience.

And you might think of it as comparable to Economy Plus in airlines, and if you follow the airline industry, you will know that that’s a crazy profit driver format. It’s making up something -- the prices are almost double economy and they are selling out on us.

So we look at that as an area very customer-focused, because it allows customers to have a little bit of an upgraded experience, a little better economics for us, a little bit higher margin product and one that represents a very small part of our ride volume today and can grow over time.

Deepak Mathivanan

Thanks so much.

Operator

Our next question comes from Eric Sheridan from Goldman Sachs. Your line is now open.

Eric Sheridan

Thanks for taking the question. Maybe just two, if I could. In terms of capitalizing on the market opportunity when you look out to next year, David. I would love to get your sense of what you see as the mission-critical sort of two or three elements on either the product side or the investment side to continue some of the momentum, especially as you move into environment where you will be lapping some of the changes you have had to make to pricing this year. That would be number one. And then in terms of the Q4 adjusted EBITDA as a percentage of bookings. Can you walk us through some of the headwinds and tailwinds we should be keeping in mind in the Q4 guidance that impact margin guidance, just so we better understand some of those velocities, both headwinds and tailwinds leaving 2023 into 2024, almost as a way to think about incremental margins going forward? Thank you

David Risher

Sure. Yeah. Let’s Erin and I will tag team on this. I will start off, Eric. So I think, I guess, I would come back to differentiated products and services in 2024 and I will mention two again. One, we have already talked about actually, which is Women+ Connect.

That’s a new product for us. We just launched it in 50 new markets last week. By the beginning of next year or at the beginning of next year, we hope to roll that out nationwide. Again, that’s not a small marketplace, right? We are talking about roughly half the U.S. population.

And if you looked -- and I encourage you to do so, if you haven’t, on social media at the comments that we are getting, they give you a pretty good indication of why we are so excited about it. Literally, women rider is saying, I am in tears now because of what you have done. I am so appreciative that this will allow me to feel more comfortable in a new city. At a time of day, I don’t usually feel comfortable riding and a part of town not usually comfortable.

Or for drivers saying, this is going to allow me to drive more or work with my friends to get them on the platform as a driver, because it’s a great opportunity. But I am only using it for scheduled rides or airport rides right now, because I just don’t feel comfortable or have not traditionally but Women+ Connect unlocks all of that.

So I think that’s an existing product, but you will see us continue to pour gasoline on that bond fire because it’s great for riders and great for drivers, and obviously, you have tried broad volume and so forth. There are others, but I am probably not in a good position to talk about them now because I don’t want to tell anyone else listening on the line.

For drivers, similarly, anything we do for drivers that increases driver supply, it’s a big win. And I will give you an example of something that we have already launched. So it’s not competitive, but it’s such a great product, and frankly, it’s doing really well, which is -- it’s called Drive within the region and it allows you as a driver to say, you know what, I need to be home by 7 tonight to have dinner or I need to be at my kid school, the 2 in the afternoon to pick them up. And by there are actually two different products. One is basically allows you to pick a destination. The other allows you to pick a radius within which you will drive today.

These are both innovations we have started over the last couple of months and they are really picking up massive team for drivers. In fact, actually, I don’t know a role here. So I will tell you a little more for drivers, I think is super interesting.

It’s called priority load for drivers and it allows drivers to -- it gives drivers additional -- you might call it ride flow. And in so doing, they actually trying to make more money per hour, which is really interesting. Again, I can go into detail if you are interested. But the drivers that we have offered that to, which tend to be our more loyal longer term drivers. Absolutely love it and because it allows us to earn more money on the platform.

So these are all things -- some of them are more kind of in front of the curtain and some of the more but behind the curtain, but you add on them up and each one of them, I think, is a pretty significant growth driver.

You talked about Media. Again, we can go more to detail about that. I am sure maybe later in the conversation, we will also talk about AI and some of the opportunities that gives us. But I don’t think we feel at all constrained with ideas on that there are strong growth drivers, and I will say this because otherwise, Erin will raise our eyebrows at me.

We feel like we have got the right cost position to do this. We do not have to hire a much more people or do much more things like that. We have got a great, great team that’s doing amazing work. We just have to continue to focus on customers and driving more leverage on the platform.

Erin Brewer

And Eric, as it relates to your question on Q4 adjusted EBITDA margins as a percentage of gross bookings. What I would say are tailwinds as you think about this sequentially quarter-over-quarter, we talk about the health of our marketplace.

That has definitely been a tailwind for us. It continues to improve and we will continue to do so in our estimates here in the fourth quarter. And we have got revenue going up in the fourth quarter and operating expenses staying flat. So there’s some leverage there.

And then as it relates to the headwind, that is primarily reflecting that are the increases we are expecting from our recent insurance contract renewals will fully flow through cost of revenue beginning at the start of the fourth quarter.

Eric Sheridan

Thank you.

Operator

Our next question comes from Benjamin Black from Deutsche Bank. Your line is now open.

Benjamin Black

Good evening. Thanks for the questions, Perhaps one on Lyft Media. So can you dig a little bit into sort of what the early takeaways have been? Where do you see the need to invest more to grow that business on the infrastructure side, sales force side, sort of more products. I really would be great to hear sort of how big you think the advertising business could become over sort of the medium- to long-term. And then one on sort of contra revenue, so your competitor obviously spoke about favorable supply tailwinds, which is supporting lower contra. I am curious to hear how you are thinking about your current sort of driver incentive levels, how far we have been seeing a normalization here and is there anything you can do or work from an operational standpoint that could structurally lower driver incentive spend per trip? Thank you.

David Risher

Yeah. Benjamin, I will take the first and Erin will take the second. It will be another tag team. So, yeah, let’s talk media for a second, because it’s such an interesting opportunity and we will start super big picture.

Today, if you are a brand and you are trying to come up with a new way to sort of speak with your customers, gosh, the online world has gotten a little bit small for you. You can buy Google AdWords and they will charge you for that and you can do some stuff on Meta, for example.

But if you really want to go over your customer, you are probably not as excited about Twitter anymore, sorry, editorial comment there. But anyway, so these are the things that kind of brands are looking at.

And yeah, we know that our younger generations are super brand focused and very responsive to brands. So people are looking for new areas. Now TikTok, of course, is doing a lot of work there and they are having a huge amount of success.

But if you think about the experience that a rider has when they open up the app, they start to look for a ride. What have they told us? They have told us not only where they are going from, but where they are going to. And then they have effectively told us that they are going to spend 5 minutes, 6 minutes, 7 minutes, 8 minutes, 10 minutes, 15 minutes in a sort of captive situation in a place where they are not got a lot going on aside from just kind of looking at the car window.

So we have four products that we use and I will go through them super briefly. So first, we have got the in-app ads. In-app ads start literally as you request a ride and you go through what we call a ride matching screen, which might take 15 seconds to 30 seconds or so.

We are serving on about 70% of those requests right now, we are serving in-app ads. And our goal there is that those ads be relevant and interesting, right? We are not interested in a credit experience. In fact, exactly the opposite.

What we are seeing is very high credit rate. We are not going to talk about the numbers just yet, but they have been really nice to see. And we are also seeing something very interesting and what we were hoping for, but weren’t necessarily expecting was the cancellation rates tend to go down. In other words, as people have something else to do besides sit around and kind of wait they actually spend time interacting with that ad rather than canceling the ride. So that’s super exciting for us. It’s a win-win.

Then you get in the car. Now in the car, two things happen. Number one, you still got the app on your phone and people maybe to a surprising degree to check the app as they are headed to their destination, so that gives us another ad service. But also increasingly, we are putting tablets in cars. We have got about 8,000 screens right now in cars that spread across 14 markets.

And what they do is they give us the opportunity, of course, for the ride, they can map their progress to their destination and they can give the driver a tip and these other sorts of things. But we also have advertising there.

Apple has been a very strong advertiser there as an example and they react, right? They are liking what they are seeing and we can understand why when we look at the data. That’s super exciting, and again, we want those ads to be great. Nothing like the taxi things you can see in the U.S., in New York, which are not so big.

I will also say, as a quick aside, drivers participate in the economics of those tablets as well. And so when you were getting served an ad as a rider, also contributing to the driver and the driver of course appreciates that and that makes them more willing to drive for less, which is wonderful.

The third thing, which you might have seen, particularly in New York City are the rooftop, the visual rooftop screen. A number of different organizations have these. We think our screen happens to be one of the best in terms of its resolution, in terms of its cost, its ease of use, it’s repairability and so on and so forth.

We have got about 1,000 screens right now and we will see that grow over time, which allow obviously really interesting. Imagine a city-wide takeover. Of course, they are all digital. So you can blast out Movie Premier across an entire city in a matter of hours.

And then the fourth, because of our EBS business, any time you see a bike station, a docking station, you will see a panel next to it. Some of those are analog, old school. Some of those are digital, new school. Over time, of course, more would be digital as we electrify and we have got some really interesting work going on there, for example, in Chicago, but that’s another ad service, and imagine, again, that city takeover of a movie.

So I know there’s a lot of detail, but that maybe gives you a sense of the scope of our ambition. If you think of the scale of this, advertising is a multibillion dollar sort of opportunity. Not that I am just talking about for us, but I am talking about of this type of advertising. I think is still in its early days for us, it’s fairly small, but it’s up I think 4x year-on-year and we really like what’s gone.

Erin Brewer

Yeah. And I will take the question on contra revenue incentives. I might start with, if you don’t mind, bragging on our marketplace team a little bit. This is the team that manages this piece of our business every day. And clearly, since we have pivoted to the focus on competitively pricing competitively with the market, et cetera. I think that team has just delivered masterfully.

Keep in mind that we operate one of the most complex sort of real-time dynamic marketplaces that exist out there, and so as a consequence, we are going to be making dynamic decisions as it relates to both driver and rider incentives.

But to give you a sense on you know the performance that, that team has delivered from a contra revenue per incentive perspective, we have become more efficient per ride in Q2, again in Q3. We expect that to continue to get more efficient in Q4, so they have just done a masterful job at getting supply where it needs to be doing a great job for drivers about sort of predicting the time and the places where we will see demand. And so I want to give that team a ton of credit.

That being said, again, there’s a dynamic nature here. So while on a contra revenue incentive in Q3 that got -- that definitely got more efficient. For example, on the rider side, we spent a little bit more, again, in a very targeted way, supporting our back-to-school efforts, which David highlighted.

So that piece of the incentive structure is still quite small. It’s less than 5% of revenue. But I highlight that just to give you a sense of how we will make those decisions in a reasonably dynamic way. But I am really pleased with where we are overall in terms of the continued health in our marketplace and the balance that we see there.

Benjamin Black

Great. Thank you very much.

Operator

Our next question comes from Michael Morton from MoffettNathanson. Your line is now open.

Michael Morton

Thank you for the question and also the additional disclosures. I was wondering your competitor has spoken to 1P insuring self-insuring versus 3P model. I would love to hear maybe a little bit about the pros and cons of each strategy, and how you think about that going forward? When we did the meet and greet in the Bay Area, you spoke about it a little bit, keeping the insurance companies honest. But that would be great to learn a little bit more about how you are approaching that?

Erin Brewer

Sure. For a number of years, what I would say is that, we have had a mix, a portion of our book that is self-insured and then a mix where we contract with third parties through relationships that extend over many, many partners we have been with for many, many years.

And so we always look at this from a number of dimensions. One, obviously, ensuring that we are getting the best and most competitive rates. We now have about 10 years of data across the marketplace. I think that helps give us a really informed point of view and instead of the previous experience that helps us make smart decisions.

We like the mix that we have today. Certainly, in terms of the portion of our book that we contract with third parties, that gives us certainty as it relates to cash flow and so having that mix, we think, is a good portion of our business.

So I wouldn’t expect that, that total mix might move by a few percentage points on any given point in time in our renewal cycle. But I think, overall, we are pretty pleased with the mix that we have and we think it’s a very, very competitive structure.

Michael Morton

Okay. And I forgot to ask, are you able to quantify like what percentage of the total book in taxes and tolls are?

Erin Brewer

This total pass-through as a percentage of total bookings? Is that what you are asking, Michael?

Michael Morton

Yes.

Erin Brewer

That’s roughly 10%.

Michael Morton

Great. Thank you so much.

Operator

Our next question comes from John Blackledge from TD Cowen. Your line is now open.

John Blackledge

Great. Thanks. Two questions. First, could you talk about Lyft’s competitive position in the third quarter in any geos where you might have seen some share gains? And then, second, just any further color on the growth on the West Coast and kind of where it is, where the ride volume is relative to pre-pandemic levels? Thank you.

David Risher

Yeah. I will say a little bit about the second and actually, Sonya you will have to remind me. But West Coast grew fastest. I think it was actually our fastest growing region in the third quarter. And I think a lot of that -- some of that was focused execution, frankly. We actually doubled down in a couple of markets to understand how to continue to grow those markets.

Some of it’s also secular. The West Coast has lagged a little bit in back-to-work. But we see that coming across super strongly. I don’t think we will talk too much about the other regional stuff unless someone else in the room has anything stronger to say there.

Yeah, the only thing I would just say generally is, it is a -- it’s very interesting. Our -- Lyft is both a North American Rideshare platform, of course. But it’s also a very local Rideshare platform. And so we every week to give you a little peek behind the curtain in our operational, we call it, a weekly business review meeting.

We really go all the way. We helicopter all the way up to what we see in macro all the way down to the micro, what’s going on in region A or region B and why might things be moving in unexpected directions there. So the way we run the business is very much at both levels. But I think rather than going to more detail, we will just kind of leave it there.

John Blackledge

Thank you.

David Risher

Sure.

Operator

This concludes our question-and-answer session. I will now turn the call back to Lyft’s CEO, David Risher, for any closing comments.

David Risher

For sure. Thank you so much and let me find my well notes here. Yeah. Thanks for joining us all. That’s the main thing I wanted to say. I want to say a huge thank you to the Lyft team. Erin mentioned the marketplace team, but they are not alone. When you look at what we have been able to talk about today, it’s only because of the amazing work so many of our team members have done, hugely, hugely appreciate that.

We are a super customer obsessed. I think you heard us say that a whole bunch of times. Our focus is on creating a customer obsessed financially healthy business and our basic thesis is that customer obsession is what drives our profitable growth. We are really excited about the momentum we have seen and the growth we have seen in this past quarter and we are looking forward to updating you on our business and progress in the new year. So thank you to all.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.