Car sharing giants Uber and Lyft burned through $4 billion of cash last year but have still attracted massive support for going public.
But the sad truth is if you had bought $1,000 of Uber shares in last week’s debut on the stock exchange, you would only have $821 left – a loss of 18% in double quick time.
Last year, Uber reported an operating loss of $3 billion on revenue of $11.3 billion, with the accumulated deficit reaching nearly $8 billion at the end of last year. This is set to grow as the company forecasts more losses in the bid to grow by investing more.
Lyft is more US-centric but presents figures that are almost as mind-blowing for investors as Uber’s.
Lyft lost nearly $1 billion in 2018 and is sitting uncomfortably in the red without any signs of profitability soon.
Automation to overtake ride-sharing blueprint
A $1,000 invested in the Lyft IPO is now worth a paltry $661 – 34% down.
Both are now locked in a fight for market share with the battle playing out under the watchful eyes of market analysts and private investors who are looking for big buck profits rather than venture capitalists who have taken a punt on high risk returns.
The concept of cheap ride-sharing looks to be overtaken by automation.
Google, Tesla, apple and other tech companies are queuing up to be first to the market with driverless cars.
Unless Uber and Lyft work out a way to invest in their own fleets, their business model of flooding cities with cheap taxis will grind to a halt.
That investment will involve raising huge mountains of cash.
“In the long run they want to transform transportation, which will take significant investment,” said Reena Aggarwal, professor at Georgetown’s McDonough School of Business. “But when you become a public company there’s also a quarter-by-quarter scrutiny that comes with it. It’s great to grow market-share, but eventually people start asking what’s the bottom line? Where are the profits?”
So how can Uber and Lyft create more money?
Raising fares, cutting driver pay or slashing the amount the companies take from each fare would all help.