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There are multiple ways to parse it. I guess they look at monthly unique users and say it's 160 million, but to your point, they're not super sticky. People are looking at Better Homes & Gardens, maybe once a month. Is that fair?
We did this a while back on trying to parse those things, but yes. It's always been a challenge when you are not a site that has consistent traffic, even if you have brand resonance. How do you build things that drive people back to you on a consistent basis? Obviously, they had the same issues with Angie on trying to accomplish that. That's been one of the overall challenges that IAC has been working on for probably half a decade at this point. They recently launched their People app, which I think is a similar attempt at figuring out how we get consistent engagement with our products.
Got it. And it sounds like you're pretty well versed on the ad tech side. I started to put my arms around the D/Cipher portion of the business and what they've started to build there and been building, but would love to hear any thoughts on differentiation for that.
The valuation is anybody's guess because with this company, there are not a lot of peer comparisons. Their valuation is pretty comparable to that of Wise, and Wise's valuations have also been coming down a little bit. But that's a separate thing, Wise. There's a lot of SMB business as well. Western Union, obviously, is not a comparable peer. Their EV/EBITDA is in low single digits, and that's because they have been not only losing share, but also actually losing revenue and declining. I think the big question that I'm trying to wrap my head around for ELF is what are the sources of future growth? How do they manage their channel mix more effectively?
The difficulty is not so much what sort of multiple do you put in earnings, it's what will earnings be because they reinvest through the P&L and the marketing expenses? So there is not that much in earnings. Then there's, of course, everything that they report as earnings. There's so much stock based compensation here.
You'll have to adjust for that in some way. It's really what sort of margins will this do over time. Matt Oppenheimer has so far always refused. I think he gets a question on every quarterly call, what sort of margins should this business do? He's never answered that. If they were to do an investor day and just say, "Hey. We're a 20-25% growth business for the next five years, and five years from now, we will do 10% margins and further upside on those margins after that." Then people have something to anchor it on, and depending on the numbers he puts out, the stock would not be trading at, what is it now? Two times sales?
Around two times. But I look at more at the EV/EBITDA. It's if you think about an EBITDA of $200 million this year on a conservative basis. The stock is at 15.
What metrics would you have to see deteriorate to give up your bullish stance on Lyft?
So gross bookings is what I think the market focuses on. For us, it's total rides, and it's amazing at the elasticity of demand we see between total rides and cost per ride. Meaning, if they take down cost per ride, you see almost one for one increase in total rides. So I think we analyze or track that relationship very closely. The other big thing too is what he calls the 'network efficiency' which is total incentives per ride. It's almost unfathomable how efficient he's been at reducing promotions while accelerating growth. Whenever you start to see it go the other way, meaning you're getting less leverage on our promotions, then I think maybe we're doing something wrong here.
The big risk too is whoever develops the next cool thing. We had the Women+ Connect that was our big cool thing Uber didn't have it and then last week Uber announces it. It removes our competitive advantage and one unique aspect that we had. So everyone's copying us. We keep losing partnerships and not really replacing them — losing them to Uber and Uber gets a new really interesting partnership on a weekly basis. Rivian's still out there — they've been talking about launching their robotaxis, they've been in the news lately so I think we'd want to keep a close eye on that.
I've been in these Teslas, and they really are good at driving themselves around town. It's absolutely impressive. They're not perfect though so you still can die 10% of the time. The threshold that you need for a robotaxi — you have to live 100% of the time. So I think that's what we're monitoring. Do you have a couple metrics that you're monitoring?
No, I think you covered them — it's market share, it's rides and the operating leverage that he's getting is fantastic. I own a Tesla, I have FSD, I use FSD, I love FSD, but I wouldn't send my kids in the Tesla without a driver. So it's great, but it's not there yet, of course. Which is what we see in Austin. It's a closed circuit, it's not as big as people thought it would be. It’s 100 cars or 120 cars or something. It's very small compared to what the projection was — thousands of cars or whatever. My understanding is that Tesla still has to run these to get safety data to the authorities to find a wider acceptance for their vehicles, which takes time. So there's a lot of time that will take.
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