This has been a big year for ride sharing companies as the giants in the space – Uber and Lyft – both went public this year. Uber (NYSE: UBER) delivered the biggest IPO of the year and analysts were expecting a lot from Lyft (NASDAQ: LYFT) as well. But since going public, both companies have struggled to retain and grow their valuation. Investors are becoming more realistic about valuations and are clearly paying heed to some financial metrics when assigning the values to the businesses.
For the recently reported second quarter, Uber’s revenue grew 14% to $3.17 billion, short of the market’s estimated revenues of $3.36 billion. But what really shocked the market was a net loss of $5.2 billion for the quarter. Excluding stock-based compensation, Uber’s losses of $1.3 billion were 30% higher than previous year’s losses. Adjusted loss per share was $4.72 compared with the Street’s estimated $3.12. To manage profitability, Uber announced plans to lay off nearly a third of its 1,200-person marketing department.
Among key metrics, it recorded nearly 100 million Monthly Active Platform Consumers (MAPCs) for the quarter, growing 30% over the year. The number of trips taken by its customers grew 35% to 1.2 million.
Gross bookings for the quarter grew 31% to $15.8 billion with the core ride-hailing business generating $12.19 billion, ahead of the analysts’ estimate of $12.11 billion. Uber Eats business generated $3.39 billion in gross bookings, missing the analysts’ expectations of $3.51 billion.
Besides the rapidly growing losses, the market is concerned with the continuous deceleration of growth. Its revenue growth rate has fallen from 106% in 2017 to 42% last year to a comparatively modest 14% this quarter. This was its slowest growth rate ever recorded and the sixth consecutive quarter of deceleration. Uber’s declining market share was highlighted by the Second Measure back in 2017 when it pointed out that its share of the US ride-share market declined from 82% at the beginning of 2017 to 71% at the end of the year. And the fall is being witnessed across the globe in Russia, China, and South East Asia.
Uber’s Growth Focus
Uber tried to calm investors by suggesting that it will “continue to invest aggressively in growth while driving efficiencies from scale”. Its results will have to improve dramatically to suggest that the investments are working.
As part of the growth drive, Uber has been focusing on the adoption of Uber Rewards. Uber Rewards were made available in the US from May this year and they allow enrolled consumers to earn points and rewards for Ridesharing and Eats. The service is available for free for its app users and depending on the usage, riders can see their status go from Blue to Diamond. Like an airlines mileage program, Uber Rewards customers can look forward to cash coupon, extended support, flexible cancellation, priority pickup, and other complimentary upgrades depending on the status of their Rewards membership.
Earlier last month, Uber launched Uber Comfort, an affordable upgrade to the UberX product offering, that offers higher-rated drivers, newer and larger vehicles, and rider preferences. It is available in 44 cities in the US and Canada and in 8 cities in Australia. It is also enhancing its high-end Uber Black experience with features such as quiet mode, temperature control, and luggage help.
Besides ride sharing, Uber is counting on its other businesses to drive revenues and margins. Uber Eats continues to gain ground. During the last quarter, its MAPCs grew 140% over the year. It also expanded its restaurant selection to 320,000 restaurant partners. It is also seeing growth in Uber Freight as it added new shipping customers across the enterprise, middle market, and the SMB segments.
Earlier this week, Uber announced the availability of a dispatcher tool for desktop computers for Uber Freight. Similar to its mobile offering, the tool will allow carriers to manage trucks and loads and is focused on large carriers. The web portal will let dispatchers view and book loads, assign them to available drivers and manage the loads end to end. It will give Uber Freight access to much more capacity beyond its base of owner-operators.
But Uber will need much more than Eats and Freight to turn the tumbling valuation around. Its stock is trading at $34.61 with a market capitalization of $58.8 billion. It had touched a high of $47.08 in June this year. The stock has recovered from the low of $32.92 that it had fallen to earlier this month. The stock is performing way below its $45 list price. In May this year, Uber had gone public and raised $8.1 billion at a valuation of $82.4 billion, making it the biggest IPO of the year. Some were expecting Uber’s valuation to be $100 billion when it went public.
Its current valuation is a far cry from that estimate and has continuously been dropping from its pre-IPO days. Prior to going public, Uber had raised $25 billion from investors including Saudi Arabia’s Public Investment Fund, Morgan Stanley, AITV, Baidu, Benchmark, Bennett Coleman and Co, BlackRock, CrunchFund, Cyan Banister, Data Collective, Fidelity Investments, First Round, Foundation Capital, Founder Collective, Garrett Camp, Goldman Sachs, GV, HDS Capital, Innovation Endeavors, Jeff Bezos, Kleiner Perkins, Lone Pine Capital, Lowercase Capital, Menlo Ventures, Microsoft, New Enterprise Associates, Sherpa Capital, Summit Partners, Techstars Ventures, TPG Growth, Tusk Ventures, Valiant Capital Partners, and Wellington Management. As a privately held company, Uber had seen valuations soar to as high as $70 billion in 2017.
Lyft Remains Uber’s Competition
Meanwhile, Uber’s prime competitor Lyft is faring marginally better. Revenues for the quarter grew 72% over the year to $867 million, ahead of the market’s forecast of $809 million. Net losses of $644.2 million more than tripled over previous year’s losses of $178.9 million. Adjusting for stock-based compensation and related payroll tax expenses, adjusted net loss was $197.3 million or $0.68 per share compared with $176.5 million a year ago and the market’s forecast of a loss of $1.74 per share.
Among key metrics, Lyft reported that active riders during the second quarter grew 41% to 21.8 million, compared with 21.1 million expected by the analysts.
For the current quarter, Lyft expects revenues of $900-$915 million. It expects to end the current year with revenues of $3.47-$3.5 billion and EBITDA losses of $850-$875 million.
Lyft’s Expansion Plans
Like Uber, Lyft too is expanding its offerings. Earlier this year, it released Shared Saver product – a lower priced option available to riders who are willing to wait a little longer or walk a short distance. During the recent quarter, it expanded this service into six new markets, bringing the total coverage to nine markets. It also increased focus in the public transit hubs. It has integrated real-time transit data into the Lyft app in eight markets to allow riders to see how best to integrate ride sharing with public transportation. Users can also use ride sharing bikes and scooters to cover the different legs of a trip form these transit hubs.
Lyft has expanded beyond cars to other vehicles. It owns and operates the leading bike share programs in nine markets, including Citi Bike in New York, Blue Bike in Boston, Divvy in Chicago, and Bay Wheels in the San Francisco Bay area. It recently announced plans to expand the Citi Bike program to double the service area and triple its fleet size in New York between now and 2023. Its scooters are now live in 16 markets as well, and Lyft hopes to increase both active riders and revenue per active rider from these segments.
Its stock is trading at $51.68 with a market capitalization of $15.1 billion. It had touched a high of $88.60 around its IPO, but tumbled soon after. It has recovered from the low of $47.17 that it had fallen to in May this year. Lyft went public in March this year when it raised $2.3 billion by selling shares at $72 apiece at a valuation of $24 billion.
Before going public, Lyft had raised $4.9 billion from investors including Capital G, Icahn Enterprises, Rakuten, Coatue Management, Andreessen Horowitz, Founders Fund, Mayfield Fund, FLOODGATE, K9 Ventures, and fbFund. At its peak, Lyft was valued at $11 billion.
Despite their efforts, both Uber and Lyft are caught in a difficult situation. Because of the competition, they can’t increase prices. Attempts to improve profitability from the ride-share business will mean hurting the drivers. But with wage rates on the increase, this is not a feasible option either. They will have to look at alternate options to gain control of their bottom-line. Till they do that, the markets will continue to question their valuation.
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