Uber Technologies and Lyft might be improving at getting less unprofitable, but COVID-19 is still hitting their business hard. Last week, Uber revealed it lost $6.7 billion last year, while Lyft lost $1.8 billion. The two companies have been used as ‘proxies as analysts believe their figures offer early indicators of an economic rebound and the COVID-19 pandemic is still casting a shadow over both.
2020 was a brutal year
During its latest quarter, Uber lost $968 million as its adjusted net revenues went down 16 percent compared to the same quarter last year. 2020’s net loss amounted to $6.7 billion which is a slight improvement from 2019’s $8.5 billion. But revenue of $11.1 billion for the year was significantly less than $13 billion in 2019 as only 5 billion trips were made in 2020 versus 7 billion in 2019.
Lyft lost $458.2 million over the last quarter, with its adjusted net revenues plummeting 44 percent YoY. For the whole year, it lost $1.8 billion, which is also a slight improvement compared to $2.6 billion lost in 2019. It’s important to note that both ride-hailing companies factor in stock-based compensation and payroll tax expenses into their net losses.
In the eyes of Wall Street, these two seem to be joined at the hip as they are the two undisputed leaders in the U.S. car-hailing market. They also went public just five weeks apart in back 2019. But when we pop open the hoods, we get to find two entirely different engines at play as despite offering nearly identical services, Uber and Lyft have very different strategies for stabilizing their businesses.
Uber focuses on growing in areas it does well in, such as food and grocery delivery, while abandoning line items that aren’t generating any revenue and threaten to drain its finances in the future. Through this strategy, it acquired two delivery startups, Cornershop and Postmates, and sold off its micromobility, autonomous vehicle, and aerial taxi divisions. Uber predicts that its delivery business will be profitable in 2021 and it has already emerged as the country’s second largest player in restaurant delivery. But even the delivery business is no slam dunk for Uber as third-party delivery apps have come under fire recently for imposing dreadful fees on the already-struggling restaurant industry that is fighting for survival. Competition is also intense as DoorDash Inc and GrubHub are spending billions of dollars to grow their customer bases so this segment could easily end up being just as risky as ride-hailing.
Lyft has no delivery business to speak of, so it is focusing all its attention on reducing costs and even supply, if necessary, to meet that goal. It was able to reduce the number of drivers joining the app along with its marketing and incentive spending, which had a positive impact on its financial results.
Surviving the pandemic
Uber has the resources to grow, or better said shrink, its way out of the pandemic, while it is much more challenging for Lyft, which needs to focus on staying small, but not too small that it risks being eaten by the big fish. The worst part is that business travel is unlikely to fully bounce back for “a couple years” and therefore, cannot go back to being a reliable income stream for both companies in the near future. But, despite a brutal year, the market has been kind to both as Lyft’s shares moved 14 percent higher in 2020 whereas Uber’s shares shrank slightly after its earnings report, but it still trades at a much higher revenue multiple than Lyft.
Uber and Lyft drivers are still facing legal challenges against Prop 22, the ballot measure that allows the companies to continue treating their workers like independent contractors. Regulatory hurdles can make or break both ride-hailing companies so profitability may be the least of their concerns. The biggest threat right now continues to be the unknown that may still exist within the whole pandemic arena. Improving profitability won’t matter much if they don’t have a valid reason to exist in a new normal that is being shaped as we speak.