A few years ago, e-scooter rentals were all the rage. Start-ups like Lime and Bird were taking the micro-mobility market by storm, and the boom was enough to attract the attention of ridesharing platforms Uber and Lyft. Both established companies dabbled in e-scooters to varying degrees, including acquiring smaller e-scooter start-ups and/or creating new segments. Uber scooped up Jump and quickly sold it, while Lyft bailed on e-scooter rentals in 2019.
Meanwhile, scrutiny around the economic viability of e-scooter rentals quickly intensified as critics argued that the business of renting e-scooters suffered from horrendous unit economics. That brings us back to Bird, which announced this week that it is going public by merging with special-purpose acquisition company (SPAC) Switchback II (NYSE:SWBK.U).
Image source: Getty Images.
Pivoting during the pandemic
The COVID-19 pandemic expectedly took a toll on Bird's business as people stopped commuting and stayed home. Bird's platform facilitated 40 million rides in 2019, generating $162 million in gross transaction value and $151 million in revenue, and resulting in negative $226 million in adjusted EBITDA for the year. Rides plummeted to 18 million in 2020 due to the virus crisis, and revenue dipped to $95 million. The lingering question is where Bird goes from here as the world recovers.
Bird wants investors to consider it an electric vehicle (EV) play, as scooters that run on batteries instead of gas sounds great for the environment. But what's not good for the planet is how people tend to trash rented e-scooters. Videos of users vandalizing the vehicles regularly went viral a few years ago due to how incredibly cheap they are to rent (typically just a couple dollars).
The company previously used to employ gig workers called Bird Chargers, whose task was to collect e-scooters and plug them in to charge. Bird has rebranded those workers as Bird Flyers, and also launched a program last year called Fleet Managers where local entrepreneurs sign up to manage and maintain a fleet of e-scooters on Bird's behalf. Bird suggests that the Fleet Managers model improves unit economics while aligning incentives through revenue-sharing.
However, critics argue that the Fleet Manager program has the potential to saddle contract workers with debt. While the offering doesn't have up-front costs, Bird encourages Fleet Managers to purchase fleets of e-scooters from Bird, with the company providing financing. The fine print of the contracts show that Bird still actually retains ownership of the vehicles, according to a scathing OneZero report, and there are various other fees. It's worth noting that many Fleet Managers are satisfied with their income.
Not interested
I purchased units of Switchback II earlier this year based on confidence in the management team. Switchback's first SPAC deal brought Chargepoint public, which I'm extremely bullish on for the long term as the dominant EV charging network in the U.S. (I subsequently separated the units into common stock and warrants.)
Ambitious forecasts have become a mainstay of many SPAC mergers, and this one is no different. Bird is projecting that rides will soar to 170 million in 2023, bringing in $815 million in revenue that year. E-scooter sharing and renting bears many similarities to ridesharing, another industry that suffers from poor unit economics. Bird is effectively outsourcing fleet management using a model that resembles franchises, transferring all sorts of risk -- operational, financial, regulatory, etc. -- from the company to a network of contractors.
That's not a business that I'm interested in owning, so I plan to either sell or redeem my Switchback II shares.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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