Ride-hailing firms like Uber are searching for lifelines

By Kate Conger

OAKLAND, Calif. — After Seattle became the first major city in the United States to experience a widespread coronavirus outbreak in March, Uber’s business there plunged between 60% and 70%, the company’s chief executive said.

A month later, with much of the country and many other parts of the world in lockdown because of the virus, investors fear the experience in Seattle is playing out in the entire business of Uber and its ride-hailing rival, Lyft.

The two companies, which were never close to being profitable when the economy was booming, face an existential question: How will they and their drivers stay afloat when most people are staying home?

On Thursday afternoon, Uber told financial analysts that it couldn’t forecast how much revenue it would generate this year because of the upheaval caused by the coronavirus. In February, Uber had said it expected to bring in between $16 billion and $17 billion this year.

Lyft has not yet made a similar announcement. But data collected by outside firms indicates the businesses of both companies collapsed in March.

Drawing from aggregated debit and credit card purchases of millions of U.S. consumers, for example, analytics firm Second Measure found that spending on Uber’s rides dropped about 83% in March.

“I think every major metropolitan area, and really the whole country, is going to be down 70 to 80%,” said Tom White, a senior research analyst with financial firm D.A. Davidson.

In Paris, one of Uber’s largest markets in Europe, Rayann Aly stopped driving after lockdowns were imposed in March. He said that business had dried up and that he was concerned for his health. Like other major cities, Paris is largely empty of traffic. The government has not provided a timeline of when the restrictions will be lifted.

“There is no business,” Aly, 38, said. “People stay at home.”

For now, the strategy at Uber and Lyft, like that at many other companies, appears to be: Wait it out. Financial analysts expect the companies to cut back on marketing and the incentives they often offer for drivers. If widespread shelter-in-place orders continue through the summer, analysts said, layoffs or furloughs among the companies’ thousands of office workers are possible.

Also, they’re trying to deliver food — as much of it as possible.

Uber’s money-losing food delivery service, Uber Eats, is suddenly in higher demand. It most likely surpassed Uber’s ride-hailing business in sales by mid-March and jumped about 27% for the month, according to Second Measure.

Although Lyft had no food delivery business before the pandemic, it created a temporary one. On March 22, it announced that it would begin delivering meals and groceries for students and seniors. And Wednesday, Lyft expanded the program to 11 major cities, including Atlanta, Houston, San Francisco and Seattle.

“Delivery is the bright spot in this,” said Ron Josey, an analyst at JMP Securities. “Times like these do usher in a fundamental shift in how we, as consumers, act. While the fundamental shift might not be to ride-share during this time, it is toward doing more things at home.”

Uber and Lyft also have financial flexibility because their drivers are not on their payrolls. The companies treat drivers as independent contractors and do not pay for health care, vehicle maintenance and other costs that they would be responsible for if drivers were considered employees.

Lyft directed drivers who were out of work to apply for jobs at Amazon, which said it planned to hire more than 100,000 new workers to meet increased demand caused by the pandemic. Uber suggested that out-of-work drivers try Uber Eats or apply for work with Amazon and other delivery platforms.

Rideshare Drivers United, which connects ride-hail drivers, has been flooded with requests for help from drivers who are trying to get unemployment benefits or file wage claims against Uber and Lyft, said Ivan Pardo, a labor organizer with the group. Under the federal coronavirus stimulus package, gig workers are eligible for unemployment insurance.

Last year, Uber and Lyft had disappointing initial public offerings of shares on Wall Street, largely because investors were leery of cash-burning businesses that were far from profitability. Both companies laid off some full-time employees and trimmed marketing budgets. Uber also got out of money-losing markets, selling its food delivery business in India and South Korea.

But the companies started 2020 with optimism. For years, they burned through cash as they expanded; in 2019, Uber lost $8.5 billion and Lyft $2.6 billion. But Uber predicted that it could be profitable by the end of this year, and Lyft said it would be profitable by the end of 2021.

“This hit is going to make getting to profitability even harder,” said Bill Gurley, a general partner at venture capital firm Benchmark and a former Uber board member. “It may become an incentive to actually restructure or cut costs in a way they haven’t been willing to before, which might make the recovery to profitability quicker.”

Before the virus hit, Lyft expected revenue in the first quarter to top $1 billion. Analysts now expect revenue to be about $922 million. Uber had hinted during its last earnings report that it expected first-quarter revenue to be slightly below $4 billion. Analysts now estimate $3.5 billion.

The second quarter, which runs to the end of June, is expected to be much worse. JMP Securities recently projected that Uber’s revenue would fall 45% in the quarter and Lyft’s 61%.

Investors are spooked. Uber’s stock is down 17% since the beginning of March, while Lyft’s stock declined 26%.

But both companies still have plenty of cash. At the end of 2019, Lyft had $2.8 billion. In March, Uber said it had ended February with about $10 billion in cash. Of that, about $1.5 billion was committed to its acquisitions of Careem, a ride-hailing company in the Middle East, and Cornershop, a grocery delivery service.

Despite pressure from some drivers, neither company is rushing to get back on the road. In April, Uber began running a television commercial urging consumers to stop using it for rides. “Stay home for everyone who can’t,” the commercial implored.

Uber also issued a notice to riders in its app, asking them to stay home. In Lyft’s app, a similar message appeared: “Only travel if you must.”

“I thought, wow, that’s interesting. They are even suggesting that I not use them,” said Mark Mahaney, internet analyst at RBC Capital Markets. “They do have to ride out the lockdown. The question is just when the business will recover.”

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