Have Lyft and Uber finally figured out how to turn a profit from ride-sharing?
Uber Technologies and Lyft, two long-standing, financially struggling ride-sharing businesses, have shocked skeptics by doing what many said was unachievable: racing toward consistent profitability.
Uber’s first year of profitability as a publicly traded corporation came in 2023. Uber refueled on Wednesday following the release of its improved long-term financial targets during its investor day. Its shares increased 15%.
At the event on Wednesday, Uber CEO Dara Khosrowshahi boasted about the company’s future and said, “Many people question whether Uber could ever make money.”
Lyft, a smaller competitor, predicted on Tuesday that it will achieve cash-flow positivity for the first time this year. It will therefore make more money this year than it spends. Even though it’s not a profit, investors interpret it as a significant indication since a year after hitting that tipping point, Uber began producing a profit.
David Risher, the chief executive of Lyft, who was brought on board last year to assist in turning the business around, said, “It is a huge milestone for us.”
The shares of Lyft rose 35% on Wednesday. Despite initial uncertainty caused by an embarrassing earnings error that added an extra zero to a key number, the stock soared on the strength of the positive outlook.
Uber and Lyft wasted billions of dollars trying to gain market share over a ten-year period. Their current priorities are cost control and profitable growth.
“The model’s viability is no longer in doubt in this new era,” stated Youssef Squali, an analyst for Truist Securities who covers both firms.
According to him, ride-sharing has evolved into a service that people pay for, meaning it’s no longer a free option. “The question at hand is what kind of margins this business can support when it matures,” he stated.
This week’s announcements offered investors some hope that the sector can maintain its progress. However, the journey here hasn’t been smooth. Both businesses have recently given up on costly moonshots and made difficult cuts.
During the pandemic, Uber slashed hundreds of jobs and abandoned its grand goals to create self-driving technology. Smaller layoffs were made to its freight and delivery companies as part of the ongoing belt-tightening that lasted the entire year.
Last year, Lyft fired hundreds of employees and hired Risher. It wants to do rid of its bike section, which is well-liked by consumers but doesn’t generate enough revenue.
On their individual applications, Khosrowshahi and Risher have begun acting as drivers and transporting passengers. The CEOs claim that speaking with passengers and learning about their problems has humbled them. It has also prompted improvements to already-existing features and the creation of new ones.
According to both businesses, they won’t spend money as quickly as they did in the past. Investors are hoping that this will signal the end of the price wars and steep discounts that caused significant losses.
“The days of extravagant promotions to draw clients are long gone,” stated Pierre-Dimitri Gore-Coty, the head of Uber’s delivery division, on Wednesday.
The corporations who reduced their expenses and increased their focus have been rewarded by the marketplace. Uber’s stock has more than doubled over the last 12 months, and Lyft’s stock has increased by 52% since Wednesday’s rise. During the same time frame, the tech-heavy Nasdaq Composite Index increased 33%.
Uber has the lion’s share of the US ride-sharing business, which disadvantages Lyft in the race for market share. Due to its improved outlook, MoffettNathanson upgraded Lyft from a sell to a neutral rating, but cautioned investors that the business is still losing money and is “at the mercy of Uber.”
Analysts claim that there is still more space for the industry to expand. Now that the businesses have grown to a certain size, they can take advantage of this to encourage clients to utilize their services more regularly. On top of that, they can create new companies, such as an advertising platform that has already begun to yield significant profits.
Compared to many of its tech rivals, Uber and Lyft are far more affordable. Because they don’t hire drivers or own automobiles, their company requires less capital. Both businesses have pledged to be disciplined when it comes to hiring in the future. In an effort to save expenses, Uber has begun automating certain support functions and intends to use artificial intelligence.
A few significant regulatory battles have also been won by the firms. In California, a ballot initiative for 2022 was approved by Uber, Lyft, and other companies, enabling them to keep their drivers classified as independent contractors. Though there may be further obstacles in the future due to a new rule by the Biden administration, that vote set the precedent for gig-worker legislation across the country.
Several rivals in the gig economy are also beginning to mature. Instacart revealed on Tuesday that it was reducing employment by 7% while still turning a profit in the three months that ended in December. DoorDash has also been reducing its losses. The company will release its fourth-quarter results on Thursday. Uber Eats is a competitor of both applications.
