Lyft needs more than good results to catch Uber
The two ride-hail companies are no longer playing in the same league
Both Uber and Lyft recently reported Q2 results, and both did pretty well. Uber made headlines with its first-ever operating profit ($326 million), but the other numbers were good too. Net income of $394 million (largely due to paper gains on its equity investments), adjusted ebitda of $916 million, $9.2 billion in revenue, $1.1 billion in free cash flow. Speaking to analysts, CEO Dara Khosrowshahi dismissed the critics who claimed Uber would never make any money. “We knew they were wrong about Uber,” he said.
Over at Lyft, the numbers were also solid. Revenue rose modestly, boosted by strong rides growth. Net loss ($114 million) narrowed from the same period last year ($377 million) and prior quarter ($188 million), proof that new CEO David Risher’s cost-cutting regime is paying off. Lyft forecast $1.13-1.15 billion in revenue for the next quarter, better than expected. “Our customer obsession and focus on strong execution is really paying off,” said Risher, showing his stripes as a former Amazon exec.
The problem for Lyft is that good results aren’t enough. Uber and Lyft are no longer playing in the same league, and it’s increasingly unclear whether Lyft can ever catch up.
Lyft today looks more or less the same as it did 10 years ago. It’s still primarily a U.S. ride-hail service. It’s still number two to Uber. Other lines of business failed to take off. It wound down car-rentals. Bikes and scooters, while popular, never generated meaningful revenue but did increase costs; the system may now be up for sale. Lyft’s best asset is the feel-good brand it cultivated against the bad-boy persona of Uber’s Travis Kalanick, something Risher is well aware of. “Drivers’ preference for Lyft in part is based on how we treat them, but it’s also based in part on our values and how we’re perceived in the marketplace, and that’s true with riders as well,” he told analysts last week. “I don’t find a lot of people in love with our competitor,” Risher added. “But I do find people in love with us.”
This sort of brand affinity shouldn’t be discounted. I have friends who still prefer Lyft to Uber because they think it treats drivers better, an opinion that formed years ago and stuck. But brand affinity alone isn’t much to compete on, especially against Uber. I’m also not sure there is such a thing as an ethical ride-hail company: Sometimes Lyft treats drivers better, sometimes Uber, depending on various factors like funding availability and regulatory climate, but they are all part of the same gig work system. If you want to feel good about your transit choices, ride a bike or take the subway.
While Lyft kept things close to home in every sense, Uber did the opposite. It expanded around globally and into other services. Some failed, like Uber’s attempt to break into China, or the defunct UberRush courier service. Others were deemed distractions and sold off, such as Jump Bikes and the self-driving car unit. But a couple have stuck and became pillars of the broader Uber business. Uber Eats, the restaurant delivery service that carried Uber through the pandemic, accounted for nearly half its bookings ($15.6 billion) in the most recent quarter. Uber Freight, while smaller, keeps chugging along, with $1.3 billion in bookings in the same period.
Having more markets and more lines of business has given Uber more options. Eats allowed Uber to build a presence in markets that were still sorting out rules around ride-hailing, a sort of advance guard of delivery couriers. It kept drivers working through pandemic periods when they didn’t want people in their cars but were ok with your takeaway order. The Eats infrastructure is helping Uber expand into things like grocery, a segment the tech industry has long considered promising because of its bigger basket sizes and predictable order frequency. Uber is also working on a concept it calls “add-ons,” in which it offers you the option to add extra items from nearby stores (e.g., beer from a 7-Eleven) to your existing order. All of these things are ways of getting new users into the Uber system, and existing users into it more often.
The benefits of this diversification became obvious during covid. While lockdowns grounded Lyft’s rides, Uber was able to pivot to food and grocery delivery. Both companies faced a worker shortage coming out of the pandemic, but Uber rallied faster thanks both to more aggressive incentives and the flexibility that having both deliveries and rides gave its ‘earners.’ Getting its labor pool back faster gave Uber all sorts of other advantages: a more liquid labor supply means faster ETAs, more reliable service, and more competitive pricing. It creates the advantages that make it hard for other companies with fewer workers, longer ETAs, and higher prices to catch up.
Having more services also means more ports of entry to the Uber system on both sides of the platform. Workers can come in via rides or delivery. Customers can come in for food, groceries, rides, e-bikes (via Lime), as well as new modes Uber is adding, like taxis (lol) and train and bus tickets. The vision is for Uber to be something of a travel super-app, anchored by the core rides business but with enough options to suit all of your transportation needs. The longer Uber can keep you in the system and on its platform, the better.
Lyft, under Risher, is taking a back-to-basics approach. It’s cutting costs and pursuing a “pure play on ride share.” In other words, this is the opposite of what Uber has done, and it will be interesting to see if it works. A sign of the times is that Uber is bringing back shared rides (now “UberX Share”) after a prolonged pandemic pause, while Lyft, the company arguably most affiliated with the “share” in ride-sharing, has abandoned shared trips in favor of an option to wait longer for a cheaper fare.
On the one hand, there are benefits to making sure your core business is stable and running smoothly before you branch out into anything else. On the other, if your main competitor has a bunch of ways of getting people into its system, it’s probably good if you have that too. Anecdotally, for instance, I’ve heard from friends and readers who were disappointed that Lyft might sell bike-share, as they subscribed to the company’s Lyft Pink membership program primarily for its bike-share benefits. If Lyft jettisons bikes, it will likely lose those paying members as well.
Ride-hail is a commodity business. The cars are the same; the drivers are the same. There’s no cost to downloading multiple apps, so most people have a couple and are in the habit of checking both before booking a trip. One way out of commoditization is to offer a service that is clearly superior; another way is to provide a bucket of services that make it easier to stay with a single platform than to toggle between several. It’s hard to see Lyft pulling off the former, and it is actively turning away from the latter. Uber simply has so much more going for it—who knows if Lyft will ever catch up.
Elsewhere:
Uber and Lyft are threatening to leave Minneapolis if the city votes Thursday to pass an ordinance on setting minimum driver pay at $1.40 a mile plus $0.51 a minute.
Several Cruise driverless cars stalled and another got stuck in wet concrete in San Francisco, wreaking havoc and causing backups just days after the state Public Utilities Commission voted to let driverless ride-hail services expand across the city. San Francisco officials may sue the state over the decision.
In the meantime, people are having sex in the robotaxis, a problem the companies have yet to solve for.
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