Arguably, no company has its finger on the pulse of the global economy like Uber (NYSE:UBER) does. The ridesharing giant operates in most of the world, and its business ferrying passengers to places like work, back home after a night out, or to the airport is highly correlated with the health of the global economy.
It’s not a surprise, then, that Uber stock fell sharply in the initial weeks of the coronavirus sell-off. Investors feared that its business would slow as consumers became less likely to go into shared spaces like rideshare vehicles.
In an update last week, the company reassured investors that its financial position was strong enough to endure an 80% decline in Rides bookings for the rest of the year and still finish with $4 billion in unrestricted cash. Uber didn’t expect such a sharp plunge for the rest of 2020, but that was the worst-case scenario that the company had modeled. It also said that its Eats business was growing as more restaurants and consumers look to delivery, and since the update, Uber’s stock has nearly doubled, showing that management successfully restored investors’ confidence.
However, the information was valuable not just to Uber shareholders, but all investors who are looking for insight into the crisis, given the company’s valuable transportation data. Here’s what Uber’s CEO Dara Khosrowshahi had to say about the current crisis and a recovery.
1. Seattle is a leading indicator
The Seattle area experienced the first significant coronavirus outbreak in the U.S. and was the first area to implement measures that have become common in a number of states, like closing schools and limiting restaurants to just takeout and delivery. Khosrowshahi said on the March 19 call that Uber rides in Seattle had declined by 60%-70% from a year ago, the result of much fewer people going to work, going out, or traveling in general.
Washington state also seems to be doing a better job controlling the outbreak than other states, as new case growth has slowed to just single digits. In other words, Seattle and Washington state seem to be further ahead on the recovery curve. Investors looking to see how daily life and businesses bounce back to life during the recovery should pay attention to what’s happening in Seattle.
2. Hong Kong is already recovering
In Hong Kong, which experienced a much more modest outbreak than the U.S. has because of early implementation of preventive measures like testing and social distancing, Uber is already seeing rides begin to recover as the decline has improved from a 45% drop-off to a 30% decline. Asked how rides were returning in Hong Kong, Khosrowshahi said, “First use case that we see coming is the commute use case, the work use case,” which is the company’s biggest use case and has come back aggressively. People want to get back to work, he added, but also noted that rides related to things like travel or going out to restaurants were slower to recover as the coronavirus still remains a threat.
For investors, the implications may be that work-from-home stocks that have done well during the outbreak, like Zoom and Slack, may see usage slip when the recovery first starts. When non-essential businesses and offices begin to reopen in the U.S., consumers may continue to avoid restaurants and travel, as the outbreak isn’t going to suddenly stop but gradually recede.
3. The crisis favors the strongest operators
Commenting on the pandemic’s effect on the ridesharing industry, Khosrowshahi said, “I think these kinds of crises typically lead to weaker players dropping out. They lead to consolidation, and they lead to the strongest player (succeeding),” and he cited the company’s balance sheet and its Eats business.
Though the Uber chief was speaking specifically about ridesharing and transportation, his comment could apply to almost any industry that’s been impacted by the crisis. In retail, for example, the winners so far appear to be titans like Amazon, Walmart, and Costco, which sell products consumers need right now and have the scale to meet rising demand. Smaller retailers, especially those selling discretionary items like clothes, may be forced into bankruptcy by the crisis as many have had to close stores. Right now, companies with strong balance sheets and diversified business models are generally in a much stronger position than smaller, specialized businesses. After the crisis, larger players are likely to make market share gains as smaller competitors will be weaker or may even have disappeared.
4. How the recovery will play out
Finally, Khosrowshahi, who was previously the CEO of Expedia, gave his best prediction of what a recovery would look like based on what he’s seen in Hong Kong and elsewhere. He said:
I think that the minute these lockdowns are removed people are going to go back to work carefully, safely. I think there will be social distancing, there will be cleaning supplies everywhere. People will be careful and will act differently, but they are going to get to work and that means going to offices. Then, slowly but surely, I think that life will return to normal as far as going out, socializing… and then finally travel, I think travel will open up and I used to be in the travel business previously. It is amazing how quickly travel comes back, but it has to have the right circumstances to come back and clearly you don’t have those circumstances. But, I think again, once the circumstances are OK for travel, I think those floodgates will open. We’re not seeing that happen yet, but we fully expect to see it happen. I’ve seen it happen before.
The unanswerable question right now is how the virus will spread in the U.S. and other parts of the world, and how long it will keep people from living their normal lives. If Khosrowshahi’s assessment is correct, investors should expect to see a gradual return to everyday life as consumers go back to work, start eating out at restaurants again, then take a (much-needed) vacation.