Bird Shows Progress in Scooter Profitability - Long March Continues

Bird's Financial Performance and Path to Profitability

Recent financial disclosures from Bird, a U.S.-based scooter sharing company, indicate a strengthening business structure and a potential route to long-term profitability. Achieving this, however, depends on the successful alignment of several key factors.

Bird, previously engaged in intense competition with Lime, is currently advancing towards becoming a publicly traded company through a merger with Switchback II Corporation. This transaction establishes a valuation of approximately $2.3 billion, incorporating a $160 million PIPE investment.

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The COVID-19 pandemic presented significant challenges for Bird and comparable businesses globally. Widespread stay-at-home orders led to a substantial decrease in the utilization of shared-asset services and ride-hailing platforms. Bird experienced a reduction in rides, mirroring similar impacts on companies like Airbnb, Uber, and Lyft.

Companies responded to these challenges in diverse ways. Airbnb implemented cost reductions and secured additional funding. Lyft concentrated on its primary business model while reducing expenditures. Uber, conversely, expanded its food delivery service, which experienced a surge in activity as demand for ride-hailing declined.

A Shift in Business Model

Bird fundamentally altered its operational approach in response to the crisis. This strategic shift has demonstrably improved the company’s financial performance, offering a viable pathway to future profitability – contingent upon the accuracy of its projections.

Today, we will examine the changes Bird has implemented, their effect on the company’s financial outcomes, and the projected timeline for achieving profitability.

Key factors influencing Bird’s success include maintaining favorable market conditions and effectively managing operational costs.

The company’s ability to secure and retain riders will be critical to its long-term financial health.

Furthermore, the successful integration with Switchback II Corporation is essential for accessing the necessary capital for growth.

Bird’s future hinges on a combination of strategic execution and external circumstances aligning favorably.

Fleet Management: A Shift from Ownership to Management

Initially, companies like Bird and Lime adopted a strategy of purchasing and deploying substantial fleets of electric scooters. This approach proved to be not only capital intensive but also resulted in persistent and significant expenses. Maintaining the scooters – including charging and relocation to meet demand – demanded considerable resources, both in terms of personnel and vehicles.

Furthermore, the rapid depreciation of scooters due to wear and tear or vandalism contributed to the financial challenges. Consequently, these businesses became adept at attracting investment, only to allocate those funds towards acquiring more scooters and covering escalating costs, ultimately leading to losses.

Over time, however, operational efficiencies began to emerge. As scooter-share companies increasingly focused on developing their own hardware, their financial performance improved. More durable scooters reduced depreciation rates, and advancements in battery technology enabled a greater number of rides per charge.

Despite these improvements, profitability remained elusive, even prior to the onset of the COVID-19 pandemic. High operating costs and an inability to achieve break-even, even on a gross margin basis, were persistent issues. Historical financial data from Bird illustrates the financial difficulties experienced during this period.

Examining the company’s recent filings reveals the following:

• In 2018, Bird recorded revenues of $58.5 million, but experienced gross margins of -$212.2 million and a net loss of $367.4 million.
• During 2019, Bird’s revenues increased to $150.5 million; however, gross margins remained at -$135.7 million, resulting in a net loss of $387.5 million.

The pandemic prompted a significant shift in Bird’s business strategy.

Rather than directly operating its own fleets, the company transitioned to a fleet management model. This involved enabling independent operators to control and deploy scooter fleets, often in smaller geographic markets. Empowering end-users with hardware ownership, coupled with the use of more robust scooters – which lowered depreciation – has substantially enhanced Bird’s revenue quality. Nevertheless, considerable work remains to be done.

As demonstrated in the company’s latest presentation, Bird has successfully transformed its in-market scooters from a source of capital expenditure into a contributor of modest incremental profits:

When analyzing these figures conservatively, we prioritize ride profit, inclusive of scooter depreciation – represented by the smaller numbers on the right side of the chart. Nonetheless, Bird has demonstrably improved its business performance through this revised operating model.

Ride profit, expressed as a percentage of sharing revenue, is not a Generally Accepted Accounting Principle (GAAP) metric. While it contributes to gross profit, it does not represent the complete financial picture. Therefore, a comparison with the company’s gross profit data is warranted.

According to the company’s latest GAAP reconciliation data, the numbers highlighted in the red box illustrate this correlation:

We observe a clear relationship between improvements in ride profit and enhancements in gross margins. Furthermore, the company’s recent gross margins from Q2 2021 represent its best performance to date based on available data.

Has Bird achieved a turning point, establishing a viable path towards profitability with its new model? It is a possibility, but the journey will be protracted.

According to its own projections, Bird needs the following to occur to reach adjusted EBITDA profitability – a non-GAAP metric:

• A sustained increase in the number of rides per day per scooter, alongside rapid expansion of its in-market scooter fleet. This combination is expected to significantly increase gross transaction value and revenues.
• Continued improvement in ride profit margins, including a greater than 50% increase from 2021 expectations (40% ride profit margin) to its 2023 forecast (62% ride profit margin). Improved ride-focused profit is anticipated to drive better gross margins.
• Enhanced operating leverage, with gross margins scaling faster than operating costs.

The culmination of these factors is projected to result in Bird achieving positive adjusted EBITDA for the full year 2023.

This anticipated progress is visually represented in the following numerical breakdown:

In an optimistic scenario, Bird could eliminate its adjusted losses within a few years. However, if challenges arise – such as slower-than-expected scaling of rides per scooter with hardware deployment – the projected profitability could be delayed or unrealized.

Critically, Bird’s net income is not guaranteed to be positive in 2023. While adjusted EBITDA may turn positive, the company could still remain unprofitable when considering all costs.

In conclusion, Bird has delivered Q2 results that exceeded expectations, potentially mitigating investor redemptions in its SPAC transaction – a concern that has impacted other recent SPAC mergers:

However, these improvements are merely that – improvements. They do not definitively prove long-term viability.