Bird brain

The e-scooter company declared most of its financial results unreliable and issued a going concern warning

Photo by Ty O'Neil via Getty Images

Like a lot of companies, Bird Global Inc. offers various payment options. One of these is “Bird Cash,” a virtual wallet that lets riders add credit to their Bird account in preset amounts, then use this balance to pay for rides. Bird prompts prepaid users to turn on an “auto reload” feature that enables the company to automatically reload balances that hit zero, but users can toggle this feature off. If you do disable auto reload, Bird advises that when a ride price exceeds your prepaid balance, “any difference between the cost of your ride and preloaded amount will be applied to your default payment method.”

This is a pretty straightforward system, not unlike how many metro cards work for public transit. Also like prepaid metro cards, sometimes you end up on a trip that you don’t have enough credit to pay for. This often happens in transit systems that tier their fares—i.e. charge different rates based on the distances or zones traveled through, like the London Tube—which makes it possible to start a journey thinking you have enough credit only to realize too late that you’re underfunded. Because of this payment quirk, some of these systems allow customers to carry a small negative balance on their cards at the end of a trip. The Washington D.C. metro’s SmarTrip and the Bay Area’s Clipper Card used to do this, while London’s Oyster card still does.

Letting transit riders exit stations even if they owe a few cents or dollars on their fare is arguably good policy. It helps to keep passengers moving through stations, services running on time, and station staff available to handle more pressing issues than collecting $0.25 from a rider. That said it does come with a cost—specifically, unpaid fares and lost revenues, which the transit agencies usually have to swallow.

When the Clipper system first rolled out in the Bay Area in 2010, a few savvy transit users figured out that they could spend $10 more than the value of a card, essentially arbitraging the system for free rides. Clipper first tried to tackle this by adding a $3 surcharge to purchase a new card in 2012. The following year, BART stopped letting Clipper users carry a negative balance on their cards, directing them to pay any outstanding amount at “Add Fare” machines before they could exit the station.

The D.C. metro similarly introduced “exit fare” machines in January 2018 that required customers to pay off negative balances before leaving the station, citing “an environment where every dollar counts” and “unresolved negative balances” of $25 million over the past 17 years. Meanwhile in London, negative balances on Oyster cards as of January 2019 totaled -£13.5 million, according to a TfL response to a public records request.

I mention all this because Bird BRDS 0.00%↑ is having major accounting issues thanks to people who rode scooters without having enough money in their Bird wallets:

Specifically, for certain customers with insufficient preloaded “wallet” balances, the Company’s business systems recorded revenue for uncollected balances following the completion of certain Rides that should not have been recorded. The Company believes the error resulted in an overstatement of Sharing revenue in the consolidated statements of operations for the impacted periods and an understatement of deferred revenue in the consolidated balance sheets as of the end of each impacted period.

That is from an update Bird filed with the SEC on Monday advising that its financial statements for the past 2.5 years should “no longer be relied upon,” something even I didn’t have on my Bird bingo card. The root of the problem is those preloaded wallet balances, which led Bird to record as revenue rides that were never paid and, in the company’s words, “for which collectability was not probable.”

Source: Giphy

Bird published this disclosure hours before it released third-quarter results containing a second piece of deeply bad news:

As of September 30, 2022, the Company had $38.5 million in unrestricted cash and cash equivalents which, without additional funding, will not be sufficient to meet the Company’s obligations within the next twelve months. If the Company is unable to raise additional capital or generate cash flows necessary to expand its operations and invest in continued innovaton, it may not be able to compete successfully and may need to scale back or discontinue certain or all of its operations in order to reduce costs or seek bankruptcy protection, which would harm its business, financial condition, and results of operations. As such, these factors raise substantial doubt about the Company’s ability to continue as a going concern.

Yep, that’s a going concern warning. You might remember that Helbiz, the only other shared e-scooter operator to go public, also issued one of these back in April. Bird’s $38.5 million in unrestricted cash and cash equivalents also happens to be just slightly more than the listing price of Bird co-founder and former CEO Travis VanderZanden’s Miami mansion, which has been on the market for 69 days and counting, and has had its asking price reduced to $37.5 million from $39.9 million.

Bird founder Travis VanderZanden is selling his Miami mansion

In light of all this, the Q3 results hardly seem worth going over, especially because we can’t put them in context with Bird’s now unreliable historical results, but here’s a quick recap: For the quarter ended Sept. 30, Bird reported revenue of $72.9 million, a net loss of $9.8 million, and adjusted ebitda of $0.2 million, securing that first quarter of positive adjusted ebitda the company has long promised. Average vehicle utilization remained low, at just 1.5 rides per vehicle per day, a dismal showing for the warm summer months that should be peak scooter season as well as down 26% from the same time last year.

Shane Torchiana, who replaced VanderZanden as CEO in September, outlined a number of steps the company is taking to improve utilization and asset efficiency—increasing vehicle deployments, extending vehicle lifespans, and better matching vehicle ‘drops’ with locations where people will actually use them—but Bird CFO Ben Lu warned that rides for the current quarter are already trending “in line to slightly below normal seasonality,” which, you know, isn’t a great sign. The investor call, meanwhile, was brief but full of zingers. For instance, here is a question that came from a Bird shareholder through a new Q&A platform the company is using:

What actions are you taking to generate more profitable opportunities for the company. As an investor, I am concerned about the company never being able to become profitable.

Another investor noted that the “risk of delisting is now very high” for Bird’s stock, which has been trading below $1 for five months, and asked the company to reiterate plans to regain complaince with the NYSE. My favorite line came from Torchiana himself, who in his introductory remarks observed that, “We don’t believe that selling $2 for $1 is a viable business strategy and do not plan to stay in markets where that’s a requirement.”

These are all steps in the right direction—improved vehicle efficiency; strategic scooter placement rather than scattershot distribution; deciding to stop giving away free money—but for Bird it may very well be too late. The problem with the venture subsidy model is it allows companies to build unprofitable businesses that, if and when the VC funding floor falls out, often aren’t prepared to support themselves. Sometimes these companies reach sufficient scale at which they are arguably ‘too big to fail’ and able to recoup their earlier losses (see: Uber) but more often they fail. It strikes me that most of the steps Torchiana outlined for getting Bird to profitability are common-sense measures that you would have hoped a global scooter-sharing player that raised nearly a billion dollars and was valued privately at $2.3 billion would have already figured out and implemented rather than be scrambling to retroactively apply five years down the line.

It’s also worth contemplating that the wallet accounting mistake that has scrambled Bird’s finances and compounded its already dire financial outlook is something that, as we discussed at the beginning, many public transit systems deal with routinely and absorb a loss from. This is arguably because public transit systems are just that—a public utility that more often than not loses money. Allowing customers to purchase prepaid passes is an important way to make the system accessible to people who might not have Apple Pay or a credit card or another method of payment, and making your system accessible is a core principle of public transport, even if it means you take a loss on it. As I’ve said before, many of the problems that plague micromobility operators stem from the tension between offering a service akin to public transport while operating it as a for-profit private company. Bird’s wallet mishap is yet another reminder that the balance of those two is a tough one to strike.

Outtakes:

• I noticed in Bird’s latest Terms of Service, updated Sept. 30, that Bird has introduced several subsidiaries to manage its wallet payments. These include “Bird Rides Europe B.V.,” a private limited company registered in the Netherlands, for Europe; and “Bird Treasury Services, LLC,” a limited liability company organized in Florida, for the U.S.

• Bird has “assigned and delegated to Bird Treasury all of its rights and obligations with respect to the U.S. dollar Wallets and Wallet balances that existed on or prior to September 30, 2022 so that Bird Treasury may operate and manage those Wallets and Wallet balances.”

• The webpage for Bird Treasury is fabulously vague and mainly features a full-size image of a forest. It also includes an equally vague description stating that Bird Treasury Services “provides certain treasury and cash management services to its customers, including investment and information services and the administration of global bank accounts and administration of associated banking relationships. In addition, we administer the Bird Wallet program on behalf of Bird Rides.”

• I have some hunches, but if you have thoughts about why Bird has set up these wallet manager subsidiaries, know anything about Bird Treasury Services, or plan to let Bird manage your investments and bank accounts (!!!!) do get in touch.