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Home / Business / Uber and Lyft IPOs mean that the cheap rides come to an end

Uber and Lyft IPOs mean that the cheap rides come to an end



Uber Technologies Inc., like its competitor Lyft Inc., has no path to profitability unless it does one of two things: Get rid of drivers or increase prices.

Expect that the Giant Deer try both, now Uber

UBER, + 0.00%

and Lyft

LYFT, + 4.29%

are public companies that face pressure from Wall Street every three months. But considering how long it will take for autonomous robot axes to dominate our roads, price increases are more likely and can be largely masked by companies.

Uber, which has settled its shares on Thursday night and begins trading on Friday morning's highly anticipated Silicon Valley IPO since Facebook. And while many investors were impressed by the sheer size of its business compared to the size of its competitor Lyft, which is mainly in the US and not so diversified yet, Uber's losses are just as amazing. In 201

8, Uber reported revenues of $ 11.3 billion, an operating loss of $ 3 billion. The cumulative deficit reached nearly $ 8 billion at the end of last year. Uber said in its "Roadshow" presentation that the Ebitda losses will rise in 2019 as investments continue to rise.

Both Uber and Lyft have been subsidized by venture capitalists and other individuals over the last decade or seven years by investors who were willing to bet on the promoters and whose funding allowed the experiments to grow at low rates. But as a listed company, this phase of their lives ends now.

Also read: About IPO: 5 Things You Must Know About the Potentially Biggest IPO for Years

"Right now they are both in the mode" Let's Market Share taking & # 39; and the bottom line is less important than achieving revenue and market share growth, but once you become a public company and have to publish your profits every quarter, people will monitor their profits very closely, "said Reena Aggarwal, financial professor and director of the Center for Financial Markets and Policy at McDonough School of Business, Georgetown. "Much will focus on that. They will have to raise prices because of the pressure.

For an example of how this has evolved in technology, see Streaming Media Companies like Netflix Inc.

NFLX, -0.44%

NFLX, -0.44%

While Netflix was involved in the DVD rental business, Netflix offered its customers the option of making videos for free with their DVD to stream subscriptions as an experiment. As streaming began, Netflix began the prosecution, first with his unfortunate efforts by Qwikster, but then by separating the streaming business from DVD rental.

The biggest burdens include Uber's relationships with his drivers, who went on strike worldwide Wednesday to protest the company's business model before the IPO. Drivers argue that Uber's business model enriches the company's executives at the expense of its low-paid drivers, who are contractors, rather than full-time employees with benefits (this issue is at the heart of several complaints in which drivers should be considered workers). Uber offers incentives for riders to join in, further hindering the end result and discounts for drivers. Company S1 said that drivers' incentives and promotions increased in the first quarter to maintain their competitive position in the market, and they expected driver relationships to deteriorate.

"Aiming to reduce drivers' incentives to improve our business We expect the driver's dissatisfaction to increase in general," the company said. It also found that investing in self-driving cars "can over time contribute to the driver's dissatisfaction, as this can reduce the need for drivers."

"Benefiting from the compression of costs will even cause additional problems with the high turnover rate among drivers and challenge the new drivers to expand," said Larry Mishel, a distinguished staff member at the Economic Policy Institute in Washington. " There are big contradictions at the core of their business model. "Last year, Mishel was working on a study on Uber drivers and came to the conclusion that her W-2 equivalent hourly wage is lower than that earned by 90% of US employees "Our results show that Uber riders earn low wages and compensations, and the total hours and compensations in the gig economy account for a very small portion of total hours and compensations in the economy as a whole," Mishel's study said.

Uber has made no predictions about when it may be profitable, but some investors are banking on their fleet n of self-driving vehicles on profitability, which would eliminate some costs of paying drivers. However, self-driving cars are still in their infancy, and even if they are fully self-driving, Uber will still cost the technology and possibly the cars themselves.

"The idea that they can wait until there are autonomous vehicles [before they become profitable] is foolish, of which we are many years away. It's not clear that Wall Street and investors will wait so many years to become profitable, "Mishel said.

EquityZen, a platform for employees to sell their private shares, is targeting Uber 2023 to achieve profitability, but has the disadvantage of gross bookings of $ 145.6 billion and sales of $ 26.4 billion US dollar is a rate below its sales of about 26.2 billion US dollars. Uber's cost of sales represents the largest expense item that analysts at EquityZen will not expect much as it continues to invest in growing services such as Uber Freight and new mobility products.

"We expect Uber to experience losses for at least the next few years, but investors should be more patient with Uber's investments as their leadership position will contribute to a better long-term competitive position," said Wedbush Securities analyst Ygal Arounian and Dan Ives wrote a note last week about the launch of Uber.

This week, Lyft's first quarterly results released bookings from its financials, a move that had attracted investors to the company's roadshow. Nevertheless, the relocation removes the necessary data and price increases could be harder to detect. In his roadshow video, Uber has not said if Uber will continue to provide this data, but Ives believes the company will do so.

"Bookings and acquisition costs are key to investors, and we continue to believe that Uber will be transparent on metrics and growth," Ives said in an email on Thursday. "Lyft dropped the ball because he did not specify those metrics, and Uber should learn from those mistakes."

Both companies have been in a difficult situation. Their business models are far from profitable, and there is only one safe way to get there. However, raising prices for consumers could have a significant impact on travel volumes and reduce competitiveness compared to taxis in urban markets. In any case, Uber's IPO is a difficult sell for investors with a long and uncertain path to profitability.

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