With Lyft and Uber ridership dropping between 70% and 80%, the severe reduction in travel clearly had an impact. But with the uneven “opening” process around the U.S. and the world, demand may have picked up during the spring.
Will the fear of infection will forever change the world's adoption of the rideshare model? More likely, the companies are in ‘survive until they can thrive’ mode, as local, leisure and business travelers would return to the convenience of rideshare. Meanwhile, transit systems across the US have been hit hard by the pandemic, with up to 90% drops in ridership. The free rides offered to essential workers and an aversion to crowded public transit may accelerate the trend for passengers to switch to rideshare.
Uber and Lyft have so far reported only first quarter numbers, which only reflect part of the pandemic. While the first U.S. COVID-19 patient was identified on January 20, 2020, by the end of the quarter March 31 there were “only” 3,900 deaths and 189,000 confirmed cases in the U.S.
The second quarter brought the full fury of the pandemic. Airlines parked 16,000 airliners as April passenger volume dropped 90%. Hotel occupancy fell to 24.5%, a US record low. World cities quarantined, with bars, restaurants, cinemas, clubs, and shows, all popular rideshare destinations, shut down. Companies went to a work at home model, with no need to commute by rideshare. Business travel, a growing part of the rideshare industry, is predicted to drop over 35% in 2020.
To be honest, another major reason for the ridehare passenger decline was fear of infection, which the rideshare companies made an effort to address. Lyft, for example, purchased masks and hand sanitizer in bulk for its drivers. Still, one survey, “Americans Stay Away from Ridesharing During COVID-1” by Car Gurus found that almost 40 percent of Americans wanted to use taxis/rideshares less or not at all, while 49 percent said they would instead use their own vehicle more.
On May 7, Uber reported a $2.9 billion loss during the pandemic in the first quarter, a per-share loss of $1.70. The $2.9 billion loss marked a 163% increase over its $1.1 billion loss in the fourth quarter of 2019. Revenues were $3.54 billion, while the number of trips dropped from 1,907 million to 1,658 million.
On the other hand, Uber Eats has been going like gangbusters to today’s home-alone crowd. In the first quarter of 2020, Uber Eats revenues grew over more than 50 percent, to $819 million. Uber Freight grew revenues 57 percent to $199 million. Uber also launched a grocery delivery service (partnering with grocery delivery startup Cornershop) in July of 2020, as man does not live by greasy takeout alone.
What does the second quarter look like? According to an average of 30 analysts, estimates for Uber's second quarter average were -.86 share, with third quarter estimates showing some improvement at -.66. Estimated earnings for 2020 are -6.81. versus last year’s -3.63. .
Although Lyft lost a more modest .398 billion in the first quarter, (loss per share: $1.31) on revenues of $956 million, ridership similarly declined.
Logan Green, Lyft CEO and co-founder, said in an earnings conference call in May “in mid-March, we began to experience a sharp decline in rides as various authorities across North America issued guidelines and orders for residents to minimize time spent outside their homes and apartments. For the month of April, rideshare rides were down 75% year-over-year.”
At the beginning of May, Lyft laid off 17% of team members and furloughed another 300. Lyft also noted that due to the “significant reduction in rides, we paused driver onboarding and established a wait list for new drivers in late March.” Uber announced it would lay off 3,700 or 14% of employees, and that CEO Dara Khosrowshahi will forgo his base salary of $1 million.
For Lyft, followed by 16 analysts, estimates are that the company will lose -0.98 per share in the second quarter, improving to a loss of -0.58 in the third quarter. Estimated earnings per share for 2020 are estimated -2.23 versus - 11.44 in 2019.
The two companies seem to have different strategies, according to one analysis. For Lyft, it’s a tight focus on “building a P2P marketplace focused on transportation.” For Uber, Pyments.com saw an effort to build a broader platform “where transportation is just one offering among many, and where users and drivers can pivot from one service to another as demand shifts.” Services like Uber Eats, Uber Freight, and grocery delivery offer diversification of revenue streams.
With the drastic decline in passengers, and no doubt some fear of infection, some 58% of drivers are not driving for Uber or Lyft during the pandemic, according to a poll of 1000 rideshare drivers by Harry Campbell, The Rideshare Guy,
Campbell says “Many are actually getting $600-$1,000 a week right now in PUA and UI benefits. Drivers are doing pretty well, especially as most are part-time working 10-20 hours a week or less. So they're actually getting paid more by not driving than by driving!”
That may change soon as PUA expired July 26. It’s unclear if the government will extend it, or if it will be a reduced amount. Meanwhile, the Rideshare Guy says that for the 37% of those who are driving, “there's a large imbalance of supply and demand.”
For Uber and Lyft, business will obviously improve as states and countries open (and remain open.) The Rideshare Guy even found one driver who earned more than $4,000 in a week. He did it by driving 84 hours in a week (12 hours a day), making roughly $48 per hour including ride earnings, tips and bonuses. It helped that he chose the week Arizona reopened to work max hours.
The rideshare giants have other issues in addition to the pandemic. Uber has faced questions in regard to passenger safety. Both companies have been sued by the state of California (and Massachusetts) over the company’s classification of drivers as independent contractors. California’s controversial AB5 law states that many independent contractors are “misclassified” and should be employees. Yet a recent Rideshare Guy poll of 1000 drivers reveals that despite the pandemic, 71% wanted to remain independent contractors, while just 17% wanted to be employees.
Rivals Lyft and Uber have united with other gig economy companies (DoorDash, Instacart and PostMates) to put Proposition 22, the “App-Based Drivers as Contractors and Labor Policies Initiative,” on the California ballot this fall. A "yes" vote supports this ballot initiative to define app-based transportation (aka rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies. So far more than $110 million has been spent on the initiative.
The rideshare “unicorns” faced profitability questions before the pandemic. COVID-19 has certainly added to the challenge, with cities locked-down under quarantine, with limited travel, business, retail or leisure activities. But as cities fitfully come back to life, Lyft and Ube may as well.