Is ride-hailing finally a profitable business?
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Profitable at last
To the cheers of its investors, Uber delivered its first profitable quarter after a decade of losses on Thursday, announcing an adjusted profit of $8m.
Even with caveats, that’s quite a turnround story for a company whose $91bn valuation has long been questioned.
Here’s what Uber’s path to profits looked like before the latest results.
But what of its peers? After a pandemic that has seen ride-hailing businesses pour millions of dollars into incentives to get both drivers and passengers back on the road, plus a fair bit of legal wrangling over drivers’ rights, we at #techFT are curious about the health of the wider ride-hailing industry.
Earlier this week Lyft announced it had made a profit for a second quarter in a row, reporting adjusted earnings of $67.3m, beating Wall Street estimates of $33m.
Its co-founder and president John Zimmer told Bloomberg that airport rides, which were up threefold compared with a year earlier, coupled with a rise in weekend and evening trips, were positive signs that customers are reverting to pre-pandemic habits. However, the company’s still missing the 4m more active riders it had in 2019.
It’s not just US ride-hailing groups reaching profitability
Ola, which has a majority share of India’s ride-hailing market, reported an operating profit of 898.2m rupees ($12m) for the fiscal year that ended in March 2021.
Could there be better times ahead? Like Uber, it has also taken Ola 10 years to turn a profit, and it couldn’t come at a better time considering Ola is seeking to list in the next few months.
Grab, meanwhile, which started out as Asia’s answer to Uber and morphed into a super app that provides everything from food delivery to digital payments, recorded an adjusted profit of $90m for the second quarter. It’s now south-east Asia’s most valuable start-up and announced a record merger deal with a special purpose acquisition company in April, which valued the business at $40bn and will lead to it being listed in the US later this year.
The challenges of narrow margins
The costs to consumers are rising though, and this could squeeze profit margins in the future.
You’re not imagining it, rides are getting more expensive. The cost of a ride from a ride-sharing app such as Uber or Lyft increased 92 per cent between January 2018 and July 2021 in the US, according to research firm Rakuten Intelligence.
The business model of most ride-hailing companies relies on narrow margins, but rides are becoming more expensive as more costs come for the companies. Keeping prices down will be even less sustainable if drivers win full employee rights. Both Uber and Lyft have already had to offload their self-driving divisions and slash costs via lay-offs to reach profitability.
Ola, which has a majority share of India’s ride-hailing market, has also gone on an aggressive cost-cutting mission to reach profitability. It has cut 1,400 jobs, a third of its workforce in India, wound down its ride-sharing option and reduced driver incentives.
Didi is the exception
China’s leading ride-hailing app, Didi Chuxing, is a whole other story. Yes, it recorded net income of Rmb5.5bn for the first quarter of 2021. But, as we reported earlier this year, the company’s IPO triggered a fierce backlash by Chinese regulators, which banned the company from signing up new customers while they carried out an investigation into how it handles personal data.
Didi reported in September that its daily users had fallen by 30 per cent since its IPO in June. That’s nothing though compared to its share price, which has plummeted more than 40 per cent since its IPO, when shares sold for $14 a piece. Even before it was ensnared by Beijing, Forbes was raising questions about Didi being overvalued.
Didi’s woes struck at the heart of Uber’s balance sheet too, with the company forced to write down the value of its approximately 11 per cent stake in the Chinese company — wiping $3.2bn off its bottom line
Yet, despite these issues, no other Chinese ride-hailing company has come close to challenging Didi’s dominance in the Chinese market.
Is diversification the answer?
There’s a growing trend of ride-hailing companies expanding into food delivery and other “on demand” services, but competition is fierce and no one’s found the magic formula yet.
The Internet of (Three) Things
1. Alphabet has launched an AI company to discover new drugs
Isomorphic Labs will build on its sister company DeepMind’s research to accelerate drug discovery and will share the same chief executive, Demis Hassabis. Back in the summer, scientists were awed when DeepMind unveiled how its AlphaFold2 technology could be used to predict the shape of every protein in the human body with almost perfect accuracy.
2. Airbnb’s profits offer good news for pandemic-hit travel sector
Airbnb’s net income of $834m is 280 per cent up on the same quarter last year. It looks even more impressive when you see it’s a 212 per cent increase on the same quarter in pre-pandemic 2019 and that analysts had expected $475m. Here’s what Airbnb says is behind its record earnings.
3. Ignore China’s new data privacy law at your peril
The Personal Information Protection Law, China’s equivalent of GDPR, gives authorities the power to impose huge fines and blacklist companies. But here’s why the biggest impact may be felt outside the country.
I never thought I’d see a “smart” lipstick, but here we go. A new flask-shaped gadget and its accompanying smartphone app by Yves Saint Laurent uses augmented reality to show you how lipstick will look on your mouth and then, at the press of a button, mixes you the best shade to complement your complexion. The Yves Saint Laurent Rouge Sur Mesure Powered by Perso is not cheap at £250, but you probably know someone who has spent more on hair and beauty (the Dyson Airwrap anyone?). How To Spend It’s Jamie Waters reviews more beauty gadgets here.
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