“We’re pleased with our progress this quarter,” Uber CEO Dara Khosrowshahi said yesterday, during the company’s highly anticipated earnings call. During his overview of the company’s performance, he disputed those questioning if Uber would ever be profitable (“I’ve seen that meme”) and criticized New York City’s cap on the number of ride-hailing drivers (“malarkey”).
But no matter what topic Khosrowshahi turned to, there was no escaping the company’s gaping, $5.2 billion quarterly loss.
Khosrowshahi, like any corporate executive facing that kind of figure, added some good spin to the story. He highlighted all the ways this was a sign of success to come. A majority of the loss, roughly $3.9 billion, was due to stock-based compensation for its employees after the company went public in May. That still means a $1.3 billion loss, twice what it lost the last time this quarter. But, as the CEO noted, it’s just so rare to find this kind of growth at scale. Regardless, he said, we’re doing well against the competition.
“Our top competitor is car ownership,” he told investors. “We’re faring very well.” (U.S. car ownership, however, is still increasing.)
Is it new mobility, or just a money pit?
Uber’s billion-dollar boondoggle of a quarter comes amid a string of bad financial news for the new generation of transit tech companies. Not only is it difficult trying to disrupt the way Americans travel, it’s also very, very expensive. As these companies suddenly appeared in cities worldwide over the last decade, promising an easier and more efficient way to get around, they offered trips that were subsidized enough by venture capital to be affordable luxuries.
Lyft, Uber’s main rival in the U.S., had a slightly better earnings call earlier in the week, only losing $644 million during the quarter (which was more than triple the company’s $178.9 million loss the same quarter last year). Earlier in the summer, Bird, the multibillion-dollar electric scooter startup, appeared to have money issues of its own. Reports from the Information that the company was looking to raise money once again after quickly burning through its cash on hand (“Hit by Big Loss, Bird Seeks $300M in New Funds”) rankled CEO Travis VanderZanden so much that he took to Twitter and called the publication “DisInformation.”
With mounting losses and no concrete proof of long-term profitability, the idea of a profitable transportation tech company seems like a mirage. Even though these companies benefit from a sharing economy model that allows them to treat their armies of drivers as contractors—whom they argue love the flexibility and freedom of setting their own hours, despite a string of driver strikes demanding higher pay this past spring—the lack of loyalty can be expensive. This means the companies are continually paying large sums to recruit drivers, which raises overall operating costs, and passengers are very price-sensitive when booking rides. (Lyft’s recent earnings call highlights that they’re “only” spending 19 percent of profits on sales and marketing, compared to 35 percent last year).
While that’s bad news for investors and employees, or course, it’s a larger crisis in the nation’s transportation system. For roughly the last decade, Uber and Lyft and other technologies have been the focus of wild claims of growth and guarantees that they would revolutionize how we get around, reduce traffic, and cut emissions. After billions of dollars of investment, Uber and Lyft recently released studies that showed their own vehicles were causing more traffic congestion, up to 14 percent of total vehicle miles traveled in some cities.
This week, Jalopnik’s Aaron Gordon made a list of transit projects that cost less that Uber’s multibillion-dollar loss which suggests a big question: Has the tech solution that many not only bet upon but invested heavily in distracted us from supporting existing transit and infrastructure needs?
With these newly public companies so heavily vested in not only rideshare but micromobility—Uber owns Jump, the dockless electric bike-share and scooter company; Lyft owns bike-share company Motivate—is the ability of scooters, electric bikes, and other car-free modes of transit to fully mature connected to the financial fortunes of these huge companies?
Will performance pressures continue to drive up prices?
It’s clear pressure has been mounting, especially for the companies which have recently gone public, as the transition from venture capital-backed startup to post-IPO corporation has come with a reality check. Some analysts felt that the less-than-enthusiastic response to the Uber and Lyft IPOs means these companies need “more people to take more rideshares, at higher prices,” if they hope to ever become profitable. Ever since they went public—Lyft in March, Uber in May—there’s been signs of a slow upward creep in prices.
“The amount that venture capitalists are subsidizing people’s lives right now is much higher than people realized,” says Sam Korus, an analyst with investment firm ARK Invest, told Time magazine.
Lyft announced that it had made “price adjustments” starting in June, raising prices on routes in select cities. Uber has also experienced growing pains, both with ride-hailing and with its micromobility options. The company’s Jump subsidiary, which operates scooters and electric bikes, raised prices in select markets last month, including Los Angeles and Sacramento.
A Uber spokesperson replied, in response to the electric bike price hike, that “Our new pricing brings us in line with the market so that we can continue to deliver clean and reliable transportation with a sustainable business model.”
And in late July, the company fired more than 400 people from its marketing team, a loss that employees referred to as the “marketing red wedding.”
3/ Bird is now making $1.27 on every ride on the Bird Zero scooters, which is over 75% of our fleet. Yes, this includes charging, repair, all other local ops, and the cost of the vehicle (depreciation). pic.twitter.com/hTN6LkaBeG— Travis VanderZanden (@travisv) July 12, 2019
Bird has also been struggling, at least according to a story by The Information. In the first quarter, the scooter operator lost roughly $100 million overall, while revenue shrunk to $15 million, with just $100 million cash in hand (after raising more than $700 million since it launched in Santa Monica in 2017). Bird and its CEO have argued that the company’s trajectory is on much more solid footing than these reports would indicate; the company is now making money on every ride taken by the new Bird One model, which makes up 75 percent of the total fleet.
CEOs of all three companies have argued that they are currently making extensive investments in scaling and technology, and both Uber and Lyft say this past quarter was one of heavy investment for the future. And it’s not like there aren’t models of public companies that make little to no profit for years and still succeeding, such as Amazon.
But some industry analysts remain skeptical, despite the positive pronouncements of VanderZanden and Khosrowshahi. Korus, for example, believes it’s only a matter of time before some scooter companies start going out of business.
“I think times are changing now that Uber and Lyft are public companies and although they’re trying hard to sell the narrative that losses today are in favor of future growth, public investors are skeptical,” says Harry Campbell, a long-time ride-hailing industry analysts who runs the Rideshare Guy site. “And rightfully so. I don’t think they’ll be paying drivers more in the future but I do think they’ll be trying to increase their take rate or the spread between what passengers pay and what drivers get to keep.”
Khosrowshahi made it a big point during the earnings call to talk take rate, the amount of money the company makes off each ride, after subtracting driver payment. Higher take rates mean more profit, but it’s a delicate dance when it comes to making both labor and customers happy. Higher prices may impact consumers, while upping the rate may take money away from drivers, long frustrated by the increasing challenge of making money on these platforms. As Uber stated in its filing with the government before it went public, they can’t pay drivers much less without severely hurting retention rates, which would then cost them more money to acquire new drivers.
According to Campbell, he thinks it’s more likely that Uber will slowly charge passengers more over time and keep the increases for themselves as opposed to sharing it with drivers.
What’s the long-term impact on transportation overall?
The micromobility market, where many of the big players such as Bird and Lime have yet to go public, is currently in a race to develop and deploy scooters that last long enough to recoup their initial investments. Bird says it’s well on its way with the new Bird One model.
Some investors aren’t so sure; Asad Hussain, emerging technology analyst at PitchBook, recently noted that while venture investing in micro-mobility exceeded $3.8 billion in 2018, only $968 million has been invested in the first half of 2019 (at a time when companies are rapidly expanding in Europe and elsewhere).
“We believe Bird’s management team is at a critical junction,” Hussain wrote, “as it seeks to convince skeptical investors that its scooters can operate long enough to justify their higher manufacturing cost, while investors become more selective in how they deploy capital.
According to Kersten Heineke, a Frankfuty, Germany-based mobility analyst at McKinsey, there’s a profitable future for Bird and other micromobility operators. They’re cheaper than car sharing and have substantially less operational costs. The question are how to expand the user base to maximize profit and how well the second, or in some cases, third generation of scooters perform when it comes to durability. He feels that by next spring, scaling, especially in European cities that are more amenable to bikes and car-free modes of transit, will help.
“I feel this will be profitable in the long run, and the middle run as well,” he says.
What’s the next step for transit tech? All have pushed a narrative of better, smart, cheaper operations, the traditional startup pitch about wringing efficiencies from scaling and better technology. As Alison Griswold, a reporter for Quartz who writes the Oversharing newsletter about the sharing economy, writes, Uber has always operated on a “you-have-to-lose-money-to-make-money philosophy,” which isn’t nearly as easy to continue as a public company. Now that these companies need to show a path to profitability, can they strike the right balance between profit and affordability? All of these companies argue that they’re turning a corner, and they all have plenty of time and money to make their case. But the easy money has clearly run out; the question is how they evolve to meet much tougher financial terrain.