Ride-hailing companies Lyft Inc. and Uber Technologies Inc. are starting to give investors what they want, which is gradually showing up in their earnings results, but consumers are paying the price.
It may not be immediately obvious in the financial results of the two rivals over the past two days, but the price war between them appears to be gradually abating. Both companies showed higher-than-expected take rates, and both showed slight reductions in their hefty marketing expenses.
On Thursday, Uber UBER, +8.24% reported a whopping net loss of $5.2 billion for its second quarter, as a result of $3.9 billion in stock-based compensation expenses and another $298 million for driver-appreciation awards. But excluding those costs, on a non-GAAP basis, Uber’s adjusted loss of $656 million was slightly narrower than the $659 million expected by Wall Street, according to FactSet. Even so, Uber’s shares tumbled 6% after hours.
On Wednesday, Lyft LYFT, +3.00% had an even crazier roller-coaster ride after it beat on revenue, but told investors there would be more insider selling soon. Shares swung wildly, then stabilized in the extended session after the company acknowledged it had slightly raised its pricing and that its third-quarter guidance included “modest price adjustments” that went live in June. Lyft also cut its sales and marketing to 19% of revenue in the second quarter, down from 35% a year ago.
“We expect that these changes will accelerate Lyft’s path to profitability, and further we believe these price adjustments reflect an industry trend,” Lyft’s Chief Financial Officer Brian Roberts said Wednesday. On Thursday, Lyft shares jumped 3% after two Wall Street firms wrote positive notes about the improvements in the quarter, and Wedbush Securities upgraded the stock.
On Thursday, Uber executives also confirmed slightly higher pricing in the quarter. “We did increase our core ANR [adjusted net revenue] take rates to 19% versus 18% in Q1 this year, reflecting more favorable economic condition in U.S.,” Uber Chief Executive Dara Khosrowshahi told analysts on a conference call. When asked later by an analyst for more details on take rates, he said Uber’s competitive tactics are improving. “I think that’s a generalization that is true in most of the markets out there in the rides category. And that is translating into take rates that are an improvement quarter-on-quarter.”
Uber said it was going to be more efficient with its marketing spending, and is restructuring its marketing team following layoffs last month.
As some have predicted, now that Uber and Lyft have gone public, their pricing has to get higher, as the two giants need to appease investors and start showing profits. Khosrowshahi noted that some of the poorer neighborhoods in New York City are not growing in usage because consumers cannot afford the higher prices, but added that Uber is growing fastest in areas of the city where consumers can afford significantly higher prices.
Price hikes will help both companies eventually achieve much-needed profitability, but such moves could also weaken their usage among consumers. How each company deals with that issue will be something to watch. But as investors’ demands for profits steer the companies’ direction, Lyft and Uber customers may ultimately not see much price advantage compared with taxis.
Source: Read Full Article