Photo Credit: Barna Bartis
Uber, Lyft and Waymo are each having a challenging time establishing the profitability of their business models. America’s ride hailing services have become some of the most breakout companies of the smartphone revolution. Each have promised a bold view of the future: an end to car ownership, the birth of mobility service provision, and the spread of autonomous fleet vehicles.
Tantalizing, disruptive, and groundbreaking, in theory anyway.
Despite having been more hyped than any IPO releases since Facebook, both Lyft and Uber have underwhelmed investors.
Waymo’s plan to partner with Lyft received a good deal of buzz, but the company is nonetheless struggling to keep up with more hyped rivals such as Elon Musk’s Tesla.
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Is This Really the Future of Mobility?
At any point in the last two years, if you looked at the global automotive industry, it would be impossible not to see the mark being left by America’s ride hailing juggernauts. Nearly all major car manufacturers as well as an ever growing assortment of high tech startups looking to piggyback have made steps towards mobility service provision.
And yet, today, March 10th of 2019, with Uber and Lyft both public companies, with stock prices falling well below pre IPO expectations, questions are emerging.
Uber limped onto the stock market after being the most hyped tech company of the last several years. Many investors were intrigued by the company’s meteoric growth, and yet others showed clear concern due to lingering issues such as operating losses.
An Uncertain Future
In 2018, Uber reported an operating loss of $3 billion.
With over $11.3 billion in revenues, the company was profitable but there are questions about the sustainability and scalability of its success. The company announced in the run-up to its IPO sale that it anticipates sustaining similar losses in 2019 as it makes strategic investments.
The problem is that for Uber to remain profitable, it will need to take a radical look at its business model and in doing so, it just might threaten exactly what made it a success in the first place.
The story for Lyft is very similar.
Both Uber and Lyft have been able to grow thanks to influxes of cash from investors which allowed them to maintain prices lower than the averages charged by similar providers across the U.S.A. As public companies, it will be nearly impossible for Uber or Lyft to keep this up.
“Right now they are both in the mode of ‘let’s capture market share,’ and the bottom line is less important than capturing revenue and market-share growth, but once you become a public company and you have to release your earnings every quarter, people will be very closely monitoring your earnings,” said Reena Aggarwal, Georgetown’s McDonough School of Business.
One of the biggest challenges to profitability is Uber’s strenuous relationship with its drivers. In the run-up to the company’s IPO, an international strike was put into effect. Drivers feel they are being taken advantage of as executives profit off their hard work.
They might have a point.
Uber drivers are contractors and do not receive any benefits of any kind. Despite this, the company has announced plans to provide more incentives though they also anticipate driver relations will be strained further.
“As we aim to reduce driver incentives to improve our financial performance, we expect driver dissatisfaction will generally increase. Autonomous driving advances may add to driver dissatisfaction over time, as it may reduce the need for drivers,“ said Uber.
Uber, Lyft and Waymo are all facing tremendous scrutiny as their business models are tested on the open market. Many investors believe that self driving cars will lead to a boost in profitability each of these companies need.
As likely as this is, given the current landscape, it is uncertain when fully autonomous vehicles will be able to function as the long promised robo-taxis that will be necessary to achieve this.
“The idea that they can wait until there are autonomous vehicles [before they become profitable] is foolish, we are many years away from that. It is not clear that Wall Street and investors are going to wait that many years for them to become profitable,” said Larry Mishel, Distinguished Fellow at the Economic Policy Institute.
Source: Marketwatch