Uber Reads the Road in Ride-Hailing
Lyft’s results show it will pay for its defensive driving against Uber
By Laura Forman
Wall Street Journal
May 4, 2022 7:19 am ET
Unlike its rival Uber, UBER -4.65% Lyft’s LYFT -29.91% crash has arrived in Hemingway fashion: Gradually, then suddenly.
Both ride-hailers’ shares were down around 46% over the last year heading into their first-quarter earnings reports, weighed down by a broader tech selloff as ride-hailing recovery seemed to chug along at a much slower pace than many investors had hoped.
But the wheels fell off for Lyft Tuesday. Its shares lost over a quarter of their value in after-hours trading following an earnings report that showed active riders falling on a sequential basis, ride-hailing demand still far from recovered in some major cities and further investments in driver supply needed.
Added investments, including in driver supply, led to a second-quarter outlook for adjusted earnings before interest, taxes, depreciation and amortization of just $10 million to $20 million—more than $60 million below what Wall Street was expecting at the midpoint. In a market that has recently swung from valuing growth at all costs to valuing profits, a weaker-than-expected bottom line was particularly alarming. If Tuesday’s after-hours reaction holds in Wednesday trading, it will represent its worst single-day trading loss on record.
Lyft’s commentary was so bad, Uber Technologies moved up its earnings release and conference call after watching its own shares trade off sharply in sympathy. In a report that was previously scheduled for Wednesday after the market’s closed, Uber raced to reassure its investors Wednesday morning it wouldn’t need significant incremental incentive investments to keep its own driver supply healthy. And while Lyft said its ride-share volume was still only around 70% recovered versus fourth quarter 2019 levels, Uber said trips for its mobility business were “approaching full recovery” versus 2019, while its mobility gross bookings had already outpaced prepandemic levels.
Citing recent trends, Uber also said it expected its mobility arm to deliver better than seasonal growth in the second quarter with total company adjusted Ebitda slightly higher than Wall Street’s forecast at the midpoint of its outlook.
Uber Chief Executive Officer Dara Khosrowshahi said Wednesday his company is “keenly aware” of the high value the markets are placing on companies generating and growing profits, noting its platform advantages, among other things, could drive competitive advantages and durable growth.
There are two key reasons Uber might be finding itself in a better position regarding driver supply right now. The first is that Uber’s multiple verticals are more appealing to drivers. Uber said Wednesday its multi-product platform strategy is differentiated from competition not only for consumers but also for drivers, “who can drive, deliver, or shop,” all within one app.
More likely, though, Uber simply paid more last year to make it more appealing. Recall last year, Lyft said its investments to boost driver supply would create a first-quarter revenue headwind of just $10 million to $20 million. Uber, meanwhile, cited a planned $250 million investment over the course of the year, albeit on a much higher revenue base.
As for potential go-forward expenses, it is worth noting that there are also downsides to being the Uber of all things in all places. Uber had an entire segment of its conference-call script dedicated to regulatory “progress,” facing various labor laws globally, some of which do not accept the notion of drivers as independent contractors as has been allowed for gig companies in the U.S. In addition to the financial risk that reclassification poses, the legal and campaign fees in the U.S. alone have hardly been inconsequential.
In the race toward sustainable profits, this week’s results could be an isolated turbo boost for Uber that stalls as the year evolves; or it could finally be the beginnings of the longer-term validation Uber has been seeking all along.
Perhaps Lyft just hasn’t been hungry enough.
Write to Laura Forman at laura.forman@wsj.com
Uber Reads the Road in Ride-Hailing - WSJ |
