SALT LAKE CITY — Ride-sharing companies are hemorrhaging money.
Uber posted its quarterly earnings on Thursday, making headlines for a $5 billion loss and slowed growth. The bulk of the losses can be attributed by payouts related to its initial public offering, but the company still spent enormous sums on development.
The same huge losses came for Lyft as well: Two months after the competitor went public, it reported 1.14 billion dollars in losses. Lyft’s latest earnings release, however, showed growth, and its losses are slowly declining.
Investors are wary and were concerned prior to the latest earnings. Uber’s IPO was called “hugely dissapointing” by CNN Business. Whether these companies will ever become profitable has been a looming question for some time, and it depends in large part on automation, in which both companies have been investing heavily. And whether they can deliver in time to reassure investors could be the key to their survival.
The ability to regularly get into the back of a driverless car is supposed to be right around the corner. Or at least, that’s the promise implicitly made by companies like Uber and Lyft. In one SEC filing, Lyft identifies the failure to develop autonomous vehicles “in a timely manner” as a risk factor. Uber pointed to the same risk factor if they fail to “successfully commercialize autonomous vehicle technologies.”
Ride-sharing apps are also numerous. Yes, Uber and Lyft are the biggest players, but in cities like New York, one can quickly accumulate four or five apps on their phone. I once had four — Juno, Via, Uber and Lyft — and would click between them, looking for the cheapest price or promo code. As one Washington Post columnist wrote, there is “fierce competition over every single ride.” The loyalty of riders remains in question, and the nature of the platforms makes it easy to quickly choose one over the other. As consumers have repeated over and over again, they are simply looking for the cheapest, easiest option.
This March 20, 2018, file photo shows the Uber app on an iPad in Baltimore. Uber is about to embark on a wild ride on Wall Street with the biggest and most hotly debated IPO in years. Uber’s shares begin trading on the New York Stock Exchange, Friday, May 10, 2019.
One bright spot for companies is a recent Pew study that showed 36% of Americans have now used a ride-sharing app, astonishing growth from 2015 when just 15% had ever used the service and many did not know that ride-sharing apps existed.
The crowded market and ease of switching from one service to another has forced Uber and Lyft to compete on price, cannibalizing their profit margins.
Faith in Uber and Lyft’s ability to become profitable does not rest on the current mode of doing business, though. A company that has been pilloried for paying drivers low wages, posts consistent losses, and in theory should have few operating costs, shouldn’t look promising. But in the new business model of the digital age, the thing a company is currently making, creating or selling is not always the thing they are pitching to investors — and in this case, driverless vehicles are the real promise.
Bring this idea up to anyone in Silicon Valley and they will point to Amazon. It started off selling books, but what it was really pitching was domination and expansion of something that didn’t really exist yet — an online marketplace that customers would visit before the physical store.
At a tech conference, Uber’s CEO Dara Khosrowshahi said, “Cars are to us what books were to Amazon. Just like Amazon was able to build this extraordinary infrastructure first on the back of books and they went into additional categories, you’re going to see the same thing coming from Uber.” The mega-valuations of profitless companies demand a kind of domination, a monopolizing of markets, to ever live up to the potential.
FILE – This Tuesday, June 12, 2018, file photo shows the Uber app on a phone in New York. Uber on Thursday, April 18, 2019, said that it is releasing a new feature to help riders ensure they’re getting into the right vehicles. The development comes several weeks after a University of South Carolina student was killed after getting into a car she had mistaken for the Uber ride she hailed.
But what if the thing ride-sharing companies are promising can’t be delivered, or at least not fast enough to keep afloat? Elon Musk has been optimistically announcing the advent of fully autonomous vehicles almost every year — they were coming in 2018, then 2019, and now 2020 will be the year they finally make their debut.
The autonomous vehicle marketplace is also very crowded. Over 60 companies have been given permits in California to test autonomous vehicles. The latest news reports are now predicting that automated taxis won’t be available until 2025, and it will be a decade until consumers can purchase their very own driverless vehicles.
Regulations will create additional hurdles and public perception of fatal accidents. Last year an Uber autonomous vehicle killed a woman crossing the street in Arizona. As more autonomous cars grace the roads, more accidents are inevitable — and the question looms of how much the public will tolerate.
None of these factors are exactly new, but now that ride-sharing companies are public, there is increased scrutiny. The appetite for quarter after quarter losses may be coming to an end. But if investors are patient with Uber and Lyft and place the kind of faith in them that the markets placed in Jeff Bezos more than 20 years ago, they may yet see a return.