Bird's Bankruptcy Filing: Why Scooter Economics Failed

Bird Scooters to Go Public Through SPAC Merger

The electric scooter company, Bird, is set to become publicly traded through a merger agreement with a special purpose acquisition company (SPAC). This development follows months of speculation and reporting regarding a potential deal.

Deal Overview and Key Players

Bird is joining forces with Switchback II, resulting in an implied company valuation of $2.3 billion. A private investment in public equity (PIPE) of $160 million will be spearheaded by Fidelity Management & Research Company. Furthermore, Apollo Investment Corp. and MidCap Financial Trust are contributing an additional $40 million in asset financing. (Please note: Apollo is in the process of acquiring TechCrunch’s parent company.)

Historical Business Performance

Historically, Bird’s operational results from 2019 and 2020 indicate a business facing significant challenges. Financial filings reveal a substantial cost structure coupled with revenue that was not profitable. The company experienced negative gross profit in both recent full-year periods, suggesting its initial business model struggled to gain traction in the marketplace.

Growth Metrics and Pandemic Impact

Bird has demonstrated growth in terms of user base and geographic reach, as highlighted in its investor materials. Currently operating in 200 cities worldwide, the company has facilitated over 95 million rides and added 3 million new riders during the COVID-19 pandemic. The investor deck also emphasizes positive year-round economic performance throughout the pandemic period.

However, a closer examination of the detailed financial statements reveals a contrasting narrative.

Financial Losses and Cost Reduction

The scooter company reduced its gross loss from $135.7 million in 2019 to $23.5 million in 2020. Despite this improvement, the company’s fundamental economic challenges persisted throughout fiscal year 2020.

Update: Bird has responded to inquiries regarding its fleet management business and strategies for reducing losses. Their statement is forthcoming.

The startup reported a net loss of $387.5 million in 2019 and $208.2 million in 2020, even as it downsized its operations. Notably, Bird reduced its workforce by 400 employees in 2020 as part of cost-cutting measures.

Revenue Trends

In 2020, Bird generated $79.9 million in revenue from shared rides, representing a 43% decrease from the prior year. Conversely, product sales revenue increased by 30% year-over-year, reaching $14.66 million. Total company revenue for 2020 amounted to $94.6 million – a nearly 37% reduction compared to 2019. While the COVID-19 pandemic significantly contributed to these declines, the losses remain substantial.

Unit Economics and Profitability

The company’s substantial unprofitability stemmed from severely unfavorable unit economics. According to the investor presentation, Bird’s fiscal 2018 exhibited a ride profit margin of -348% as a percentage of “sharing” revenue, inclusive of depreciation. These figures did show improvement throughout fiscal 2019 and into the following year.

Business Model Shift

However, within fiscal 2020, a notable shift occurred. Bird’s ride profit economics moved into positive territory during the second half of the year. This change was achieved through a fundamental restructuring of the company’s business model.

A Revised Strategy for Bird

Bird’s original business model, centered around purchasing and deploying its own fleets of scooters globally, has proven unsuccessful. This is evidenced by the company’s financial performance and its subsequent shift towards a franchise-based system, empowering independent operators to establish scooter fleets under the Bird brand. Essentially, Bird transitioned to a “franchise” model during the COVID-19 pandemic.

According to its SPAC presentation, revenue generated from fleet managers constituted 94% of Bird’s total “sharing” revenue during the latter half of 2020. This approach of enabling fleet managers to operate Bird scooters within their respective cities has also opened access to smaller, previously untapped markets, which the company asserts demonstrate superior economic viability compared to larger urban centers.

Initially, Bird gained notoriety for directly competing with Lime in major metropolitan areas. However, this strategy now appears to have been a costly misstep. Bird reports a “ride profit margin” of only 10% in large cities, factoring in “vehicle depreciation,” while smaller markets yield a more favorable margin of 19%. The company recently secured a permit to operate in New York City. (Update: Access to its original market in Santa Monica has since been revoked.)

By combining its more efficient – meaning, less financially damaging – partner-fleet model with deployments in smaller markets, Bird believes it can achieve both growth and a cessation of the substantial financial losses it has incurred to date.

Regarding potential growth, should we accept the company’s projections at face value? Perhaps not, but a recent, reasonably encouraging growth trend may attract investors. The following data is sourced from the company’s investor deck:

Image Credits: Bird investor deck

The company is poised to present significant year-over-year improvements in 2021, largely due to comparisons against the pandemic-affected results of the previous year. Importantly, Bird is also exceeding its 2019 sharing GTV, indicating growth even when measured against a more typical operational period.

Improved economics coupled with some degree of growth – what could be unfavorable? A number of factors. Despite the enhanced scooter economics observed in the second half of 2020, Bird still reported a negative gross profit in the fourth quarter. While a modest gross profit of $600,000 was achieved in Q3 2020, this represents a single period of near break-even performance following years of investment and development.

Those investing in Bird must anticipate consistently negative GAAP results alongside improvements in adjusted metrics. During the quarter in which Bird achieved gross-profit positivity, it simultaneously experienced an adjusted EBITDA loss equivalent to 65% of its revenue. Furthermore, the company contracted in size during Q4 2020 due to the seasonal nature of its business.

Additional Insights from the Filings

The submitted documents also illuminated several other previously unknown aspects of the company’s business practices.

Consider the 2019 acquisition of Scoot. The initial purchase price was not publicly revealed by Bird. However, records now indicate that Bird paid $8.6 million to acquire Scoot. This was financed through $500,000 in cash and the issuance of an $8.3 million convertible note, which included a $200,000 debt discount.

Subsequently, Bird converted these convertible notes into 640,261 shares of Series D-1 redeemable convertible preferred stock.

The extent to which the Scoot acquisition positively impacted Bird’s financial performance remains uncertain.

Furthermore, the acquisition of Circ, a micromobility startup based in Berlin, in January 2020, is noteworthy. Bird acquired Circ for $190 million, utilizing Series D and Series D-2 redeemable convertible preferred stock. As a result of this transaction, Bird gained control of $68.7 million in cash and $5.5 million in intangible assets.

In June 2020, Bird discontinued scooter-sharing services in multiple cities throughout the Middle East, an operation previously overseen by Circ. The company initially described this action as a “pause of operations.” This decision to cease, or temporarily suspend, Circ’s operations impacted services in Bahrain, the United Arab Emirates, and Qatar.

We have contacted Bird for a statement and will provide updates as soon as a response is received.

Update: Certain revenue figures have been revised to reflect accurate calculations. An initial mathematical error was identified and corrected.