Uber and Lyft are getting less unprofitable, but COVID-19 is still a drag on their business

Uber and Lyft reported their quarterly earnings this week, and while both companies are showing signs of improvement, the COVID-19 pandemic continues to cast a long shadow over the overall ride-hailing business.

It raises the question of how both companies, neither of which have ever turned a profit, can hope to claw their way out of the deeper financial pit in which they’ve been cast by COVID.

Uber lost $968 million over the last three months, with its adjusted net revenues down 16 percent compared to the fourth quarter of 2019. Over the entire year, the company reported a net loss of $6.7 billion, down slightly from the $8.5 billion it lost in 2019. It brought in less revenue compared to 2019 — $11.1 billion versus $13 billion — likely due to facilitating fewer trips, 5 billion in 2020 versus 7 billion in 2019.

On the flip side, Lyft lost $458.2 million over this past quarter, with its adjusted net revenues down a staggering 44 percent year over year. It lost $1.8 billion over the entire year, compared to $2.6 billion lost in 2019. (Both Uber and Lyft factor in stock-based compensation and payroll tax expenses into its net losses.)

As coronavirus cases spiked in much of the country over the winter, Uber and Lyft started to lose a significant portion of their customer base. People stayed at home, or when they did go out, they opted not to use ride-hailing apps. Uber said it had 93 million “monthly active platform consumers,” its term for users who take at least one ride on Uber or buy at least one meal on Uber Eats — a 16 percent decrease year over year. Meanwhile, Lyft reported a drop in monthly active users of 45 percent, from 22 million in the fourth quarter of 2019 to 12.5 million in 2020.

They may offer nearly identical services, but Uber and Lyft have very different strategies for stabilizing their businesses. Uber’s plans involve growing the parts of its business that it perceives as doing well, such as food and grocery delivery, while shedding those line items that aren’t generating any revenue and likely would continue to be a financial drain for years to come. It acquired two delivery startups, Cornershop and Postmates, and sold off its micromobility, autonomous vehicle, and aerial taxi divisions.

Uber is predicting that its delivery business will be profitable in 2021. It’s certainly looking better than the company’s other line items: delivery gross bookings was $10.05 billion this year, up 130 percent from 2019. “While the external environment remains uncertain, I am more optimistic than ever about Uber’s future,” CEO Dara Khosrowshahi said in an earnings call this week.

Delivery is no slam dunk for Uber; if anything, it could end up proving as risky as ride-hailing. Third-party delivery apps have come under fire in recent months for imposing exorbitant fees on already-struggling restaurants. Consumer pushback against UberEats and its competitors DoorDash and GrubHub is growing, while the companies are spending billions of dollars to grow their customer bases. But state legislatures are wary of the potential for food delivery to metastasize into something as problematic as ride-hailing and are already eyeing legislation to rein in onerous fees.

Lyft, on the other hand, has no delivery service of its own, so instead, it’s focusing on reducing costs, and in some cases, reducing supply to help mitigate those costs — that means preventing new drivers from joining the app while reducing its spending on marketing and other incentives. “Given the effect on demand, we were able to reduce driver acquisition and incentive spend, which had a positive impact on our financial results,” Lyft CEO Logan Green said in an earnings call.

Uber has the resources to grow (and shrink) its way out of the pandemic, while Lyft does not. It needs to focus on staying small, but not too small that it can’t compete with its much larger rival.

Despite a brutal year, the market has been kind to both Uber and Lyft. Lyft’s shares moved 14 percent higher in 2020, and the stock enters this trading week 23 percent higher than where it was at the start of last year. Uber’s shares shrank slightly after its earnings report, but the company still trades at a much higher revenue multiple than Lyft.

Meanwhile, Uber and Lyft drivers are pushing ahead with their legal challenges against Prop 22, the ballot measure that allows the companies to continue treating their workers like independent contractors. President Joe Biden, who opposed Prop 22, fired a Trump-appointed member of the National Labor Relations Board who authored several opinions affirming Uber and Lyft’s refusal to classify drivers as employees. And Democrats in Congress are hoping to push a bill that would echo California’s failed effort to make it harder for companies to treat workers as independent contractors.

The victory lap could be short-lived. Regulatory hurdles dot the road ahead for these ride-hailing companies. Profitability may be the least of their concerns.

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