Weekly Brief: Lyft And Uber Set to Hike Fares

The ride-sharing fairytale as we know it is over.

Last week Uber reported a $5.2Bn loss in its latest quarterly results. Even for a company conditioned to very large losses, that’s a whopper. In fact, it’s the largest quarterly loss in company history, which is problematic given that Uber, like Lyft, is now a publicly traded company. Granted, $3.9Bn of the loss comes from IPO-related expenses and payouts but, still, the loss is 50% larger than analysts expected. Uber’s growth continues to slow quarter over quarter – it’s now down in the teens – and its revenue keeps coming up below expectations. The latest quarterly report led to a single day drop of nearly 7% in Uber’s stock price.

Uber has a bunch of cash in its company vault, so it can weather losses like these without too much of a sweat for now. Yet, with growth slowing, revenue under-performing and public shareholders anxious to see improved performance, if not profitability, there’s no doubt where this is leading: hailing an Uber is about to get more expensive. Uber CEO Dara Khosrowshahi didn’t say that outright last week but Lyft CFO Brian Roberts did. In fact, he admitted that Lyft has already started hiking prices for some rides, as of this June, with a particular focus on high-demand routes at peak times. When a stadium lets out after a game, for instance, or a conference unloads its attendees into rush hour traffic. When you really want a ride, that ride will cost you more.

Price hikes partly help to explain why Lyft had a stronger quarter than Uber. The company lost $644M but it brought in $867M in revenue as opposed to the $809M that it had projected and its revenue per active rider was up more than 20% from the same period in 2018. Some of that increased revenue per rider came from higher usage rates but higher prices also played a factor. That would have been unthinkable before Lyft’s IPO, when its number of users and frequency of use were key metrics to prove that it had as much upside potential as venture capitalists believed. Indeed, Lyft and Uber have been subsidizing the cost of rides from the get-go with venture capitalists’ money. Now that their respective IPOs are in the rear-view mirror and users have become hooked on the ride-sharing experience, it makes good sense to lower subsidies and squeeze more revenue out of each rider.

Khosrowshahi wouldn’t say that Uber’s rate hikes were imminent but he did acknowledge on the earnings call that the “competitive environment” for hiking prices was strong. Translation: it’s going to happen soon.

Expect Uber to hunt for profits in other ways as well. In the wake of its quarterly earnings report, word leaked that it has put a deep freeze on all new software engineer and product manager hiring. The hiring freeze won’t apply to its self-driving car division but, otherwise, the company is looking to lock down the hatches and potentially start trimming back employee headcount as well. Back in July the company laid off 400 marketers as a cost cutting measure. More layoffs may be in the offing.

Even then Uber may not be able to come anywhere near profitability. The same goes for Lyft. Which leads us to self-driving cars. If you can cut driver salaries out of your revenue equation altogether and have your cars drive themselves, you’ve got a game changer on your hands. The question becomes, can Uber and Lyft hold on that long? This last year has made it abundantly clear that robo-taxis aren’t going mainstream anytime soon. It may be 2030 before we have anything like true robo-taxi fleets cruising around our cities. Are investors okay with Uber and Lyft losing hundreds of millions a quarter until that time? One way or another, your wallet is about to take a hit.

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