PETITION

Starting in 2016, Juno USA LP, a NY-centric ride-hailing company was able, in just 3.5 years, to become the third largest ride-hailing business in New York, counting 50k contracted drivers and 50k rides per day as key business drivers (pun intended). Now it is kaput. The company filed for bankruptcy earlier this week.

At its inception, the company differentiated itself by offering drivers restricted stock units (“RSUs”) “with the expectation that such an approach would result in an overall enhanced driving experience for drivers and, in turn, riders.” This is interesting because, obviously, it incentivizes drivers to be more attentive to Juno rides than Lyft and/or Uber but it obviously doesn’t address the demand side of the marketplace function. 50k rides per day sounds like a lot. Yet, it pales in comparison to its competition: according to the Taxi and Limousine Commission, in 2018, Uber Inc. ($UBER) tallied 400k trips per day in NYC and Lyft Inc. ($LYFT) collected 112k trips per day. Moreover, NYC taxis typically make about 300k trips per day. In total these are staggering numbers — even more so when you consider that taxis are going bankrupt in record-breaking numbers and Uber and Lyft are losing money like crazy (Uber’s loss, ex-stock-based compensation, was $800mm last quarter!). Ultimately, that differential compelled a merger of rivals: Israel-based GT Forge, d/b/a Gett, acquired Juno in Q2 ‘17 and transferred its riders to Juno. At the same time, Juno cashed out the driver RSUs, using other incentives (read: higher commissions of 10%) to maintain its supply-side.

As we all now know from the WeWork debacle, financial metrics for high growth startups are different than what restructuring professionals are used to. EBITDA is a foreign concept here: “success” is measured by revenue growth. Here’s Juno’s revenue trend:

$218mm in 2017;
$269mm in 2018 (23% growth) 😀; and
$133mm in 2019. 😬

Juno does not, however, indicate what its operating costs and expenses were; it merely serves up excuses about early stage capital requirements and the need for monthly cash infusions from Gett. Over time, however, the operating expense burden coupled with “burdensome local regulations and escalating litigation defense costs” led to a 2019 YOY revenue decline of 34%. What the net loss was, however, is left unsaid in the company’s bankruptcy papers.

The litigation runs the gamut. The company has been sued by (a) former drivers for the termination of the RSU program (read: securities fraud); (b) riders for personal injuries allegedly caused in accidents during active Juno rides; (c) competitors for patent infringement; and (d) drivers, alleging that they are employees rather than independent contractors. It’s pretty hard to grow a business when you’re getting sued into oblivion and have poor business fundamentals. 👍

The City of New York really didn’t help those fundamentals. The company’s bankruptcy papers elucidate ride-hailing economics after NYC imposed mandatory minimums of $17.22/hour regardless of the number of rides undertaken during that time (something that Uber and Lyft continue to combat, including by freezing drivers out of the apps during low-demand times, something that irks the hell out of Bill De Blasio, apparently). Here’s how it works:

Drivers are entitled to a minimum of $0.58/mile + $0.27 per minute. “Each of these figures is separately divided by a so-called “utilization rate,” which is calculated based on the frequency that a TNC sends trips to drivers while they are available for work. The current industrywide average utilization is 58%.” (Petition Note: this also means that 42% of the time, drivers are just moving around clogging up NYC streets).
So, for a 10-mile trip that takes 30 minutes, you end up with:

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