Longtime money-losing ride-share companies Uber Technologies and Lyft have surprised naysayers by doing what many thought was impossible: racing toward steady profits.
2023 marked Uber’s first year of being profitable as a public company. Uber put more gas in its tank Wednesday after it outlined better long-term financial goals during its investor day. Its stock jumped 15%.
“Many people question whether Uber could ever make money,” Uber Chief Executive Dara Khosrowshahi said at Wednesday’s event as he took a victory lap and bragged about the company’s future.
On Tuesday, its smaller rival, Lyft, projected it would become cash-flow positive for the first time this year. That means it will generate more cash than it spends this year. While that isn’t a profit, investors see it as an important signal as Uber swerved to profitability a year after reaching that turning point.
“It is a huge milestone for us,” said Lyft Chief Executive David Risher, who was hired last year to help turn the company around.
Lyft’s stock surged 35% Wednesday. The stock rose on the back of the rosy outlook despite initial confusion from an embarrassing earnings typo that added an extra zero to a key number.
For over a decade, Uber and Lyft burned through billions of dollars in an attempt to grab market share. Now, their focus is on profitable growth and cost discipline.
“We are in a new era where the viability of the model is no longer in question,” said Youssef Squali, a Truist Securities analyst covering both companies.
Ride-sharing has become a utility, he said, and customers are paying for it even though it is no longer an inexpensive offering. “Now the question is, at maturity, what kinds of margins can this business support?” he said.
Announcements this week gave investors some confidence that the industry can sustain the momentum. But getting here has been a bumpy ride. Both companies have made painful cuts in recent years and abandoned expensive moonshots.
Uber cut thousands of jobs during the pandemic and shelved ambitious plans to develop self-driving technology. The belt-tightening continued through last year, with smaller cuts in its freight and delivery businesses.
Lyft appointed Risher last year and cut hundreds of jobs. It is looking to unload its bikes division, which is popular with customers but doesn’t bring in enough money.
Khosrowshahi and Risher have started posing as drivers and ferrying passengers on their respective apps. Experiencing drivers’ pain points and chatting with riders has been humbling, the CEOs say. It has also led to new features and spurred upgrades on existing ones.
Both companies say they won’t burn through cash the way they used to before. Investors hope this will mean an end or de-escalation of the deep discounts and price wars that led to hefty losses.
“Long gone are the days of exuberant promos” to attract customers, Pierre-Dimitri Gore-Coty, the chief of Uber’s delivery business, said Wednesday.
The markets have rewarded the companies for cutting back on spending and becoming more focused. After rallying Wednesday, Uber shares have more than doubled in the past 12 months, and Lyft shares have jumped 52%. The tech-heavy Nasdaq Composite Index rose 33% over the same period.
Uber commands most of the U.S. ride-sharing market, putting Lyft at a competitive disadvantage. MoffettNathanson upgraded Lyft to neutral from a sell on its improved outlook but warned clients that the company is still losing money and “at the mercy of Uber.”
Still, analysts say there is more room for the industry to grow. Now that the companies have achieved some scale, they can leverage that to push customers to use their services more frequently. They can also build new businesses on top, including an advertising platform that has already started generating lucrative returns.
Uber and Lyft have a huge cost advantage over many tech peers. They don’t own cars or employ drivers, making their business less capital-intensive. Both companies have said they would be disciplined about future hiring. Uber has started automating some support roles and plans to leverage artificial intelligence to keep those costs down.
The companies have also won some key regulatory battles. Uber, Lyft and others won a 2022 ballot measure in California that allowed them to continue classifying their drivers as independent contractors. That vote set the tone for gig-worker legislation in the rest of the nation, though a new Biden administration rule could add some challenges along the way.
Other gig-economy counterparts are also showing signs of maturing. On Tuesday, Instacart announced it was cutting 7% of its staff while reporting a profit in the three months through December. DoorDash, which reports its fourth-quarter results Thursday, has also been trimming its losses. Both apps compete with Uber Eats.
Write to Preetika Rana at [email protected]
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