In Focus: Ride-sharing: Is it Dying or Changing?
Updated: Jun 27
Market research firm Edison Trend reported that customer spending on Uber and Lyft increased 30% from February to March. However, customers have been experiencing longer wait times due to a lack of drivers.
Uber and Lyft drivers that pulled away from the platform for a host of reasons during 2020 have yet to return in full force, which has caused the driver shortage.
For the drivers that are working, they're seeing higher earnings than they were before the pandemic. Uber reported that median hourly earnings have been around 25% to 75% higher than before the pandemic for drivers spending 20 hours online per week, and that's after Uber's fees, but it hasn't been enough to lure all of the company's drivers back.
Safety has been cited as a major concern for drivers, and Uber is trying to address this with mask mandates and a vaccination partnership with Walgreens (WBA).
Death or Change?
Last year, companies that operated in the gig-economy space like Uber and Lyft had their hands full. In addition to trying to maneuver the effects of the coronavirus in 2020, they also had to contend with Prop 22 and other legislative threats that could turn both company's business models on its head.
Money may be the number one reason drivers have permanently turned off their Uber/Lyft apps. During the pandemic the demand wasn't there, making the earnings received for the hours worked not worth it for drivers. For some drivers, driving for Uber and Lyft was a struggle financially before COVID-19 arrived.
With all that's been going on I've been wondering is ridesharing as we know it dying or changing?
If Uber and Lyft have to pay a reasonable wage, then sh!t gets realer than people care to admit. In an area where there are 50 Uber drivers, Uber may decide to only employ 30 drivers by capping its hiring or telling drivers when they can be on duty. Long wait times for customers will become the norm, and fares would have to increase to accommodate higher employee wages and benefits. In this scenario Uber and Lyft would no longer be tech companies that are going to upend the traditional taxi business, they'll become traditional taxi businesses killing ridesharing as we currently know it.
As a long time Uber bull my investment thesis has been to ride with the company until they figure out how to use technology to become profitable, which is vague. To be more blunt, I'm invested in the company with the hope that the rise of automation will make the company extremely profitable in the future, there I said it, autonomous vehicles in, paid drivers out.
Currently the future of Uber and Lyft is clouded to me. I would love nothing more than to have everyone make a living wage, but I also know that isn't possible for every company at every time. If forced to increase driver pay while still keeping fares relatively low, how long until investors start hitting the sell button?
I don't fear Uber going out of business, it's collected too much information to be worthless, my concern is if it will be the $600 to $750 billion enterprise I think it can be or a $30 to $50 billion enterprise. Uber currently trades for $107 billion.
Expectation Over Results
There is a lot of expectation baked into the current value of Uber and Lyft. Investors like myself still believe that one of these companies will morph into the Amazon (AMZN) of transportation, but the way it's looking, Uber and Lyft could become the XM and Sirius Radio (SIRI) of transportation.
If you're not familiar with XM and Sirius Radio, they were satellite radio companies that competed against each other. Both promised to be the next great step forward in radio. They delivered a lot of hype, and a lot of hope, but very little else. Eventually the two companies merged in 2008 because the satellite radio market didn't need two players.
Nonetheless, this is a story that Uber and Lyft investors should keep an eye on. Will drivers come back to the platforms? What will it take to bring them back? Money solves a lot of problems, but how much is Uber and Lyft willing to part with to keep a viable workforce? I remain bullish on Uber because I'm a long term investor, which is another name for a glutton for punishment.