The coronavirus pandemic has gutted the so-called sharing economy. Its most valuable companies, which started the year by promising that they would soon become profitable, now say consumer demand has all but vanished. It is not likely to return anytime soon.
In earnings reports this week, Uber and Lyft disclosed the depth of the financial damage. The companies said their ride-hailing businesses all but collapsed in March, the last month of the first quarter, as shelter-in-place orders spread through Europe and the United States.
The red ink extends beyond ride hailing. The home-sharing company Airbnb, which investors valued at $31 billion, had planned to go public this year. Instead, the company has slashed costs and raised emergency funding, and on Tuesday it laid off 1,900 employees, about 25 percent of its staff. It also reduced its revenue forecast for this year to half of what it brought in last year.
“While we know Airbnb’s business will fully recover, the changes it will undergo are not temporary or short-lived,” Brian Chesky, Airbnb’s chief executive, wrote in a memo to employees.
The companies, founded on the notion that they should become as big as possible as quickly as possible and worry about making a profit somewhere down the line, now face an uncertain future. And their timelines for turning a profit appear — for now — to have been tossed aside.
Even when people return to the office and start travelling, the pandemic could change how they behave for years to come. Thirty percent of gig-economy revenue could disappear over the next one to two years, with a portion of it unlikely to return, said Daniel Ives, managing director of equity research at Wedbush Securities.
“Based on our analysis of the gig economy and the overall pie of consumers, unfortunately, there’s a slice that — until there’s a vaccine — will not get in a ride-sharing vehicle or use an Airbnb,” Ives said.
On Tuesday, there was another threat to Uber and Lyft: California’s attorney general sued the companies, claiming that they misclassified their drivers as independent contractors. If the lawsuit is successful, the companies could have to pay hundreds of millions of dollars in civil penalties and back wages for drivers.
Airbnb faces a different challenge. How will hosts — most of them offering rentals as a side business — deal with virus safety? In an effort to bolster confidence in its listings, the company announced a set of new cleaning standards for its rentals in April. Guests can also opt for a 72- or 24-hour vacancy period before they enter.
There is not much to look forward to in the current quarter for the companies, according to financial analysts. Ives said he expected Uber’s revenue to contract 69 percent and Lyft’s 66 percent during the period, which covers April through June. Lyft said rides on its service fell nearly 80 percent in late March and remained down 75 percent in mid-April.
In May, passengers began to return cautiously to Lyft, but rides were still down 70 percent, Lyft executives said on a Wednesday earnings call with financial analysts.
If passengers continued to stay away from the service at similar rates, Lyft predicted it would lose nearly $360 million on an adjusted basis, which excludes stock-based compensation and other expenses, during the current quarter. Its adjusted loss in the first quarter was $97.4 million.
“These are the hard truths we’re facing,” Logan Green, Lyft’s chief executive, said on Wednesday. In late April, Lyft laid off 17 percent of its employees. Executives took a 30 per cent pay cut and employee pay was trimmed 10 percent.
On Thursday, Uber said revenue in the first quarter grew 14 per cent from the same quarter last year, but the company’s losses ballooned 190 percent to $2.9 billion. That deficit was largely driven by a $2.1 billion loss caused by its investments in international ride-hailing businesses, like Grab and Didi, that are also experiencing low demand because of the virus.
“I won’t sugarcoat it. Covid-19 has had a dramatic impact on rides,” Dara Khosrowshahi, Uber’s chief executive, said on Thursday in a call with investors. Use of Uber’s ride service was down 80 per cent in April, he said. But Uber saw a bright spot in its food delivery, which grew 89 per cent since the previous year, excluding India.
Although Uber has not yet given a new date by which it expects to become profitable, Khosrowshahi said the pandemic “will impact our timeline by quarters, not years.” Before the outbreak, Uber said it would be profitable, excluding some costs, by the end of this year.
Uber laid off 14 per cent of employees on Wednesday as it cut 3,700 people from its recruiting and customer service organisations. Khosrowshahi will not take a salary for the rest of the year. He said in an email to remaining employees, seen by The New York Times, that the company continued to look for ways to cut costs and may eliminate more jobs.
Despite the downturn in business, Lyft’s stock was up over 20 per cent on Thursday as it exceeded investors’ expectations for revenue in the first quarter and reassured them with its layoffs that it would cut costs. Uber’s stock was up over 8 per cent on Thursday. But investors still question the firms’ claims that they will become profitable as they tap the $1.2 trillion that Americans spend each year on transportation costs like car ownership and maintenance.