By on August 2, 2021

While the tech industry does have firms pushing useful applications and products, it’s quite possibly the most disingenuous business sector of the modern age. Companies selling literally nothing more than false promises routinely see multi-billion-dollar valuations. The necessary hardware is always just “years away” and sold to investors who haven’t realized it was never real in the first place. A significant portion of the industry is also little more than reorganizing payment structures or access to services for the sake of convivence, making sure you’re locked into a plan that keeps your financial and personal details perpetually on file. But sometimes this actually results in worthwhile solutions which may (or may not) be capable of turning a legitimate profit.

Ride-hailing firms are probably one of the earliest and best examples of all the above. Uber and Lyft both lost a lot of money in 2020 but both remain convinced that profitability is just over the next hill. But there are plenty of obstacles littering the incline. 

Uber’s revenue fell from $13 billion in 2019 to $11.1 billion in 2020, as Lyft went from $3.6 billion to $2.4 billion in the same timeframe. While we can blame much of that on demand being suppressed by the virus of unspecified origins, both companies were branching out into services that thrived during the pandemic (specifically food delivery) and weren’t on track to become profitable anyway.

But that’s allegedly changing. Uber even has redefined adjusted EBITDA for this year to ensure that it can tell investors at the end of 2021 that it’s profitable — provided you ignore twelve different expense categories the company earmarked in advance. Lyft’s goals were similar and the company has been streamlining itself and increasing fares to make sure it has its adjusted earnings profitability by the third quarter of 2020. Unfortunately, now that everyone in the media is screeching about the Delta variant, massaging those predictions into something rosy could become substantially harder.

The European Union has begun implementing vaccine passports for certain forms of travel, despite lockdown protests becoming routine over the summer. Other nations are also considering instituting new restrictions on the population as a way to combat the latest COVID strain that’s getting everyone’s panties in a twist. Regardless of how foolish or sound you happen to find those restrictions to be, they remain poised to hamstring sectors of the economy on a global scale.

“The continued uncertainty around the pandemic’s trajectory will suppress both supply and demand for rideshare services until we see what the Delta variant’s death toll really is,” Forrester analyst James McQuivey told Reuters this week.

Suppressed demand is something ride-hailing companies have already attempted to contend with by instituting new COVID safety rules on both their customers and drivers. But this may have also had unintended ramifications. Rules stipulating that vehicles had to have their windows down drove away many would-be customers during the colder months. Your author effectively abandoned ride-hailing over the updated protocols, deciding it was more enjoyable to spend the extra time and money to find parking than be subjected to freezing winds with someone that likely had their mask around their chin anyway and was expecting to be tipped upon arrival.

But it wasn’t just customers that Uber and Lyft lost in 2020. It was also losing employees (which the platforms reference as “independent contractors” so they’re not made eligible for benefits) who realized the money wasn’t going to be there when everyone was staying home. While some transitioned to delivery services like Uber Eats, many simply stopped driving altogether. Now the sector is confronting a pretty massive driver shortage, mimicking what we’ve seen among the long-haul trucking industry.

From Reuters:

During the second quarter, when it appeared the coronavirus threat was receding, Uber and Lyft were focused on luring drivers back with large pay incentives.

Analysts at KeyBanc Capital Markets in a note said the incentives were proving effective at getting more drivers on the platforms, allowing the companies to start strategically dialing back the extra pay.

KeyBanc said its proprietary data showed guaranteed fares per ride dropped 5.5 [percent] to $14.78 from June to mid-July.

Public data from regulators in Chicago and New York City, two of the companies’ largest markets, shows a continued growth in trips and vehicles in recent months.

Heartening but perhaps a little short-sighted. Those seeking full-time employment as drivers could probably be better served by getting into the trucking industry. Cargo delivery, particularly that which requires additional certifications, is absolutely desperate to refill its ranks after 2020 and has been raising rates accordingly with benefits. Many truckers retired last year and applications rates have declined as the general assumption was that these jobs would soon be replaced by autonomous vehicles. While that may be true in the long term, AVs remain nowhere near ready for public consumption. The little delivery bots you sometimes see milling around college towns are tailed by a human supervisor on a scooter or bicycle and their larger counterparts require constant adult supervision to ensure they can’t run amok.

Uber spent well over $1 billion on self-driving technologies itself. But ultimately sold off that unit to Aurora after its development efforts greatest achievement was being the first company to kill a pedestrian with an autonomous test vehicle. Venture capitalist Bill Gurley (one of Uber’s earliest supporters who was rumored to have a hand in ousting former CEO Travis Kalanick) called the whole program a mistake in February.

“We probably burned $2.5 billion on autonomous that was a waste of money,” Gurley said at the time, adding that he wished the money had still been around during the pandemic to invest more heavily into Uber Eats.

Ridership is presumed to increase over the next few months, particularly if COVID protocols are left lax. But the core business has been totally eclipsed by food delivery. It makes one wonder if any ride-hailing firm has the business model necessary to actually make money.

[Image: Jonathan Weiss/Shutterstock]

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21 Comments on “Do You Think Uber and Lyft Will Ever Be Profitable?...”

  • avatar

    “We probably burned $2.5 billion on autonomous”

    If I had a dime for every time I had thrown away $2.5 billion…

    • 0 avatar

      I hear ya. $2.5 bil here, 2.5 bil there and eventually you’re talking some REAL money. Bugatti money.

      • 0 avatar

        Forde Motor Company is headed for 3 dimes worth:

  • avatar

    Uber and Lyft could be profitable right now if they gave up Silicon Valley ambitions of trying to be the next great thing.

    Both companies don’t want to admit they will be as profitable as old-school taxi companies with a bit more IT overhead.

    They are now mature businesses without much room for growth. Both should focus on returning dividends to shareholders.

  • avatar

    Low pay workers are finding they have a better life sitting at home and getting a government check. I’m sure there’s no consequences to this. UBI FTW.

    If autonomous cars are an everyday reality, you’ve wiped these companies biggest expense and profits would soar.

    I’m not an investor, but I can see the case being made. We’re probably 90% there already, its more about navigating the legalities of autonomous vehicles.

    Almost all tech companies right now are vastly over valued.

  • avatar

    I’ve always wondered if Uber/Lyft drivers actually make any money after accounting for all expenses, especially depreciation.

  • avatar
    SCE to AUX

    Q: Do You Think Uber and Lyft Will Ever Be Profitable?
    A: Is there any evidence they can be?

    I agree with zerofoo above ^^, they may discover they are profitable at the same time their prices are on par with a taxi ride.

    As for Uber’s autonomous misadventure, that was entirely predictable. That pedestrian death settled out-of-court was a showcase for the future of autonomous driving. I don’t see any company’s legal department signing up for the liability that comes with Level 5 driving.

    Statistically socializing the risk to prove AVs are safer means nothing when it’s your loved one who gets popped. Takata airbags have saved many lives, but tell that to the families of their 31 victims. This is why Takata is bankrupt today.

  • avatar

    I very much doubt that people aren’t signing up for trucking jobs again because “the general assumption was that these jobs would soon be replaced by autonomous vehicles.” The working conditions are terrible, and the pay even worse. The solution to the driver “shortage” in trucking is making one (or both) of those less-bad. Period.

    I bust out laughing every time some lobbying group complains that there’s a “shortage” of a profession with a (relatively) low barrier-to-entry. The turnover rates of well north of 100%, and the (super-short) average career length of a new OTR driver should be a bright, shining, beacon that the problem ain’t supply.

    And it’s no different with ride-hailing. If the job doesn’t pay well enough, there will be a tough time attracting drivers; no PhD in Microeconomics necessary to figure this out… it doesn’t take terribly long for your drivers to figure out that net of costs (gas and wear-and-tear), they aren’t earning very much.

    As far as the subject of the article goes? In the end, the ride-hailing apps are just a more-efficient version of taxi dispatch; nothing more, nothing less. In the end, cars, gas, and drivers cost a certain amount of money, and no techno-magic is going to fix that any time soon. I expect that ride-hailing will become less-popular as the rates will approach (if not entirely equal) that of taxis.

  • avatar

    Uber and Lyft rely on people with poor math skills burning up the equity in their cars to give people rides for less than those rides are worth. This is why real taxis cost more – both the driver AND the car need to get paid. And the car needs to earn 56 cents a mile, the driver needs to earn $20/hour, including dwell time and time spent driving to pick up a fare. It’s the same principle as delivering pizza with your own car. Everything is great until your car breaks down, then you don’t have the money to repair or replace it.

    • 0 avatar

      Yep; there’s real value in app-based dispatch vs. the frankly piss-poor way it was done before.

      That value is not nearly as much as needed to justify their stock price; nothing makes those costs magically go down to anywhere near what people have been used to paying for ride-hailing.

  • avatar

    To answer the headline question, I must say, No, they will not be profitable. At least, not without jacking their prices up to where they’re equivalent to nearly every other taxi service, which will eliminate their raison-de-être.

    • 0 avatar
      Felix Hoenikker

      My wife and I just came back from a two week trip to Alaska where we tried unsuccessfully to get Uber rides.
      The first one from the Anchorage Airport to our B&B was quoted $23 on Uber. However no cars were available. A short walk to the taxi stand at the airport revealed about 12 taxis waiting. The same ride cost $18 by taxi.
      Another attempt in Homer to get a 3 mile ride ended in failure after repeated attempts. The workers at the restaurant we called from said that there was only one Uber driver in town.
      Our local Honda dealer uses Uber for trips back and forth to the service department. They are fairly timely and free at least to the customer.
      So my experience is never to pay for an Uber because you won’t get one.

  • avatar

    You all do not get the idea behind Uber/Lyft. It is the ride SHARING. It is not a taxi and drivers are not employees. They just try to use cars more efficiently cutting CO2 emission in a process. Most people ride in their car alone and taking some people along for small reward is a good idea.

  • avatar

    I’ve written this many times.

    Uber and Lyft’s business model is dependent upon SAE Level V autonomy.

    Right now, that’s a pipe dream.

    Best estimate applying Moore’s law – 18ish years away – and we’ll never solve the ethical dilemma of who gets the better odds in a pending accident.

    Neither company has 18 years of runway and both have cranked up rates so high that taxis once again offer a better value prop – and it isn’t even close.

    PREDICTION: At some point, Uber and Lyft merge together and like Uber becomes the dominate management structure. Stress – AT SOME POINT – not saying next week.

  • avatar

    Of course they’ll be profitable.

    The business model itself is fine. People need a ride to get from A to B.

    The issue is that Uber and Lyft need to manage the transition from a growing startup into a mature business. To go from “growth at all costs” to a steady and manageable revenue stream.

    There are two ways to do this:
    (1) Just turn into an international Taxi chain.
    (2) Focus on their core competency in IT and divest themselves of the actual physical driver infrasture.

    I think number 1, while seemingly easier and less risky, is much more likely to run them out of business because the overhead will eat them alive and leave them vulnerable to both the existing players AND the new upstarts.

    Whereas number 2 will be harder to accomplish but more likely to leave them with nice, high margin, and profitable niche. Basically instead of micro-managing the drivers, they could just jettison that whole thing entirely and focus just on connecting driver to rider. Eventually, the drivers will end up consolidating or being subsumed under the regular Taxi company infrastructure and UBER would just be the portal through which people get in contact. Like how eBay doesn’t actually sell products.

  • avatar

    No. The Uber/Lyft model is not profitable at anywhere near current pricing. As stated by several posters above, Uber/Lyft makes money by their drivers being both underpaid and by the drivers using up their car’s longevity. I have tried to use Lyft in the last few months from LAX and “no drivers available”. I guess a lot of drivers are wising up. Also, last month my daughter was in NYC. Almost NO yellow cabs, as the Medallion bearing taxis had been driven out of business. Uber ride from midtown Manhattan to JFK airport (which used to be $45 fixed rate in a cab) was $120!!!!! And the driver complained that Uber kept almost all of it!! As far as delivery of food, most restaurants in L.A. prefer you to order from their web site and pick it up. Interestingly, the pricing on their own web sites is usually a dollar or two less per entree. This entire situation is exactly analogous to Health Insurance and HMOs. Despite promises of great savings, the purchaser’s price goes up, the provider’s share goes down and the intermediary laughs all the way to the bank.

    • 0 avatar

      “Despite promises of great savings, the purchaser’s price goes up, the provider’s share goes down and the intermediary laughs all the way to the bank.”

      Well put. The very definition of the grifter economy.

  • avatar

    Most of the problems with traditional taxi systems stem from the “medallion” concept, which guaranteed no competition to the big medallion “investors” (often named Vito and Nunzio) with their big political contributions to keep it that way.

    An Uber or Lyft that is required to meet the same safety and insurance standards as a “yellow cab” would certainly be competitive with taxis provided that there is no limit on the number of vehicles that can be operated. The number of “cabs” would sort itself out when supply appropriately met demand.

    Of course, we would have to shed a bitter tear at the fate of those whose multi million dollar holdings in taxi medallions became worthless. Some of us might cry ourselves to sleep over that for as much as a night or two.

    It does occur to me that the software infrastructure is now in place for a group of individual drivers to form their own city or countywide “co-op” offering Uber style access without the need to raise Wall Street money. I wonder if anyone is running the numbers on that concept right now?

  • avatar

    NYC Medallions aside, most taxi regs make some sense. License drivers, inspect cars, regulate them…there are real reasons. Uber and Lyft ? Anyone with a license and a car….Just ignore all regulations.

    Great business model, just ignore regulations and run the workers via algorithm (machine boss), while leveraging other people’s equity in vehicles.

    At least it loses money, so it has that going for it…..which is nice.

  • avatar

    No. The fundamental issue is that they are designed to be profitable at Level 5 automation. Is there a zone in which a) drivers are compensated at a level in which Uber/Lyft “contractor” turnover isn’t above 100% yr/yr and b) their pricing is competitive with taxis? I don’t think there is. There isn’t an inexhaustible supply of gullible drivers, which is what their business plans basically specify, and taxi services are already rolling out app-based pickups that mimic the “frictionless” transaction that drew people to the apps in the first place. They are stuck between the proverbial rock (attracting drivers with attractive compensation) and the hard place (taxi services who suddenly find themselves having to compete for fares) and are praying that Level 5 autonomy comes before they have to admit they are an app, a PR department, and the face of a failed social experiment.

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