Can Uber and Lyft ever be profitable?

The Uber app in operation in India. Uber
is facing questions from analysts after posting a record $5.2
billion quarterly loss. | SOPA Images/LightRocket via Gett

Uber’s road to profitability just got $5.2 billion further

“We’re pleased with our progress this quarter,” Uber CEO
Dara Khosrowshahi said yesterday, during the company’s highly
anticipated earnings call. During his overview of the company’s
performance, he disputed those questioning if Uber would ever be
profitable (“I’ve seen that meme”) and criticized
New York City’s cap on the number of ride-hailing drivers


But no matter what topic Khosrowshahi turned to, there was no
escaping the company’s gaping,
$5.2 billion quarterly loss

Khosrowshahi, like any corporate executive facing that kind of
figure, added some good spin to the story. He highlighted all the
ways this was a sign of success to come. A majority of the loss,
roughly $3.9 billion, was due to stock-based compensation for its
employees after the company went public in May. That still means a
$1.3 billion loss, twice what it lost the last time this quarter.
But, as the CEO noted, it’s just so rare to find this kind of
growth at scale. Regardless, he said, we’re doing well against
the competition.

“Our top competitor is car ownership,” he told investors.
“We’re faring very well.” (U.S. car ownership, however, is

still increasing)

Is it new mobility, or just a money pit?

Uber’s billion-dollar boondoggle of a quarter comes amid a
string of bad financial news for the new generation of transit tech
companies. Not only is it difficult trying to disrupt the way
Americans travel, it’s also very, very expensive. As these
companies suddenly appeared in cities worldwide over the last
decade, promising an easier and more efficient way to get around,
they offered trips that were subsidized enough by venture capital
to be
affordable luxuries

Lyft, Uber’s main rival in the U.S., had a slightly better
earnings call earlier in the week, only losing $644 million during
the quarter (which was
more than triple the company’s $178.9 million loss the same
quarter last year
). Earlier in the summer, Bird, the
multibillion-dollar electric scooter startup,
appeared to have money issues of its own
. Reports from The
Information that the company was looking to
raise money once again
after quickly burning through its cash
on hand (“Hit
by Big Loss, Bird Seeks $300M in New Funds”
) rankled CEO
Travis VanderZanden so much that he took to
Twitter and called the publication “DisInformation.”

With mounting losses and no concrete proof of long-term
profitability, the idea of a profitable transportation tech company
seems like a mirage. Even though these companies benefit from a
sharing economy model that allows them to treat their armies of
drivers as contractors—whom
they argue love the flexibility and freedom
of setting their
own hours,
despite a string of driver strikes demanding higher pay this past
—the lack of loyalty can be expensive. This means the
companies are continually paying large sums to recruit drivers,
which raises overall operating costs, and passengers are very
price-sensitive when booking rides. (Lyft’s
recent earnings call
highlights that they’re “only”
spending 19 percent of profits on sales and marketing, compared to
35 percent last year).

While that’s bad news for investors and employees, or course,
it’s a larger crisis in the nation’s transportation system. For
roughly the last decade, Uber and Lyft and other technologies have
been the focus of wild claims of growth and guarantees that they
would revolutionize how we get around,
reduce traffic
, and cut emissions. After billions of dollars of
investment, Uber and Lyft recently released studies that showed
their own vehicles were
causing more traffic congestion
, up to 14 percent of total
vehicle miles traveled in some cities.

This week, Jalopnik’s Aaron Gordon made a list of
transit projects that cost less that Uber’s multibillion-dollar
which suggests a big question: Has the tech solution that
many not only bet upon but invested heavily in distracted us from
supporting existing transit and infrastructure needs?

With these newly public companies so heavily vested in not only
rideshare but micromobility—Uber
owns Jump
, the dockless electric bike-share and scooter
company; Lyft
owns bike-share company Motivate
—is the ability of scooters,
electric bikes, and other car-free modes of transit to fully mature
connected to the financial fortunes of these huge companies?

The exterior of the New York Stock Exchange in May 2019, adorned in an Uber banner to celebrate the company’s initial public offering. Shutterstock
Uber, which went public in May, faces increasing pressure to turn a
profit.Will performance pressures continue to drive up prices?

It’s clear pressure has been mounting, especially for the
companies which have recently gone public, as the transition from
venture capital-backed startup to post-IPO corporation has come
with a reality check. Some analysts felt that the
less-than-enthusiastic response to the Uber and Lyft IPOs means
these companies need “more
people to take more rideshares, at higher prices
,” if they
hope to ever become profitable. Ever since they went
in March
Uber in May
—there’s been signs of a slow upward creep in

“The amount that venture capitalists are subsidizing
people’s lives right now is much higher than people realized,”
says Sam Korus, an analyst with investment firm ARK Invest, told

Lyft announced that it had made “price
” starting in June, raising prices on routes in
select cities. Uber has also experienced growing pains, both with
ride-hailing and with its micromobility options. The company’s
Jump subsidiary, which operates scooters and electric bikes,

raised prices in select markets
last month, including Los
Angeles and Sacramento.

A Uber spokesperson replied, in response to the electric bike
price hike, that “Our new pricing brings us in line with the
market so that we can continue to deliver clean and reliable
transportation with a sustainable business model.”

And in late July, the company fired more than 400 people from
its marketing team, a loss that employees referred to as the
red wedding

3/ Bird is now making $1.27 on every ride on
the Bird Zero scooters, which is over 75% of our fleet. Yes, this
includes charging, repair, all other local ops, and the cost of the
vehicle (depreciation).

— Travis VanderZanden (@travisv)
July 12, 2019

Bird has also been struggling, at least according to a story by

The Information
. In the first quarter, the scooter operator
lost roughly $100 million overall, while revenue shrunk to $15
million, with just $100 million cash in hand (after raising more
than $700 million since it launched in Santa Monica in 2017). Bird
and its CEO have argued that the company’s trajectory is on much
more solid footing than these reports would indicate; the company
is now making money on every ride taken by the new Bird One model,
which makes up 75 percent of the total fleet.

CEOs of all three companies have argued that they are currently
making extensive investments in scaling and technology, and both
Uber and Lyft say this past quarter was one of heavy investment for
the future. And it’s not like there aren’t models of public
companies that make little to no profit for years and still
succeeding, such as Amazon.

But some industry analysts remain skeptical, despite the
positive pronouncements of VanderZanden and Khosrowshahi. Korus,
for example, believes it’s
only a matter of time
before some scooter companies start going
out of business.

“I think times are changing now that Uber and Lyft are public
companies and although they’re trying hard to sell the narrative
that losses today are in favor of future growth, public investors
are skeptical,” says Harry Campbell, a long-time ride-hailing
industry analysts who runs the Rideshare Guy site. “And
rightfully so. I don’t think they’ll be paying drivers more in
the future but I do think they’ll be trying to increase their
take rate or the spread between what passengers pay and what
drivers get to keep.”

Khosrowshahi made it a big point during the earnings call to
talk take rate, the amount of money the company makes off each
ride, after subtracting driver payment. Higher take rates mean more
profit, but it’s a delicate dance when it comes to making both
labor and customers happy. Higher prices may impact consumers,
while upping the rate may take money away from drivers, long
frustrated by the increasing challenge of making money on these
. As Uber
stated in its filing with the government before it went public
they can’t pay drivers much less without severely hurting
retention rates, which would then cost them more money to acquire
new drivers.

According to Campbell, he thinks it’s more likely that Uber
will slowly charge passengers more over time and keep the increases
for themselves as opposed to sharing it with drivers.

Nassner What’s the long-term impact on transportation overall?

The micromobility market, where many of the big players such as
Bird and Lime have yet to go public, is currently in a race to
develop and deploy scooters that last long enough to recoup their
initial investments.
Bird says it’s well on its way with the new Bird One

Some investors aren’t so sure; Asad Hussain, emerging
technology analyst at PitchBook, recently noted that while venture
investing in micro-mobility exceeded $3.8 billion in 2018, only
$968 million has been invested in the first half of 2019 (at a time
when companies are rapidly expanding in Europe and elsewhere).

“We believe Bird’s management team is at a critical
Hussain wrote,
“as it seeks to convince skeptical investors
that its scooters can operate long enough to justify their higher
manufacturing cost, while investors become more selective in how
they deploy capital.

According to Kersten Heineke, a Frankfuty, Germany-based
mobility analyst at McKinsey, there’s a profitable future for
Bird and other micromobility operators. They’re cheaper than car
sharing and have substantially less operational costs. The question
are how to expand the user base to maximize profit and how well the
second, or in some cases, third generation of scooters perform when
it comes to durability. He feels that by next spring, scaling,
especially in European cities that are more amenable to bikes and
car-free modes of transit, will help.

“I feel this will be profitable in the long run, and the
middle run as well,” he says.

What’s the next step for transit tech? All have pushed a
narrative of better, smart, cheaper operations, the traditional
startup pitch about wringing efficiencies from scaling and better
technology. As Alison Griswold, a reporter for Quartz who writes
the Oversharing
newsletter about the sharing economy, writes, Uber has always
operated on a “you-have-to-lose-money-to-make-money
philosophy,” which isn’t nearly as easy to continue as a public
company. Now that these companies need to show a path to
profitability, can
they strike the right balance between profit and affordability
All of these companies argue that they’re turning a corner, and
they all have plenty of time and money to make their case. But the
easy money has clearly run out; the question is how they evolve to
meet much tougher financial terrain.

Source: FS – All – Architecture 10
Can Uber and Lyft ever be profitable?