© Reuters. File photo: On May 13, 2020, a sign at San Diego State University in San Diego, California, USA marks the meeting place for Lyft and Uber users. REUTERS/Mike Blake/File Photo
Tina Belon and Akanksha Rana
(Reuters)-Ride-hailing company Uber Technology (NYSE:) Inc and elevator Inc (NASDAQ:) promised to Wall Street that they will return to profitability and growth when they announce their second-quarter results this week due to cost cuts to survive the pandemic.
Now, concerns about the continuing driver shortage and the spreading Delta variant cast a shadow over the prospects for profitable operations this year.
The core business of ride-hailing companies is closely related to broader economic activity and provides insights into the comfort of Americans and Europeans as they resume pre-pandemic activities. Uber has been expanding into merchandise and food delivery to reduce its dependence on ride-hailing services.
In the second quarter, many countries reopened their economies, and analysts expect Uber and Lyft to report a revenue rebound.
But the rapid spread of the more contagious Delta variant has prompted some health authorities to re-impose some restrictions. The US Centers for Disease Control and Prevention issued an alert on Friday, reporting that the Delta variant is as contagious as chickenpox and can be spread by vaccinated people.
Forrester analyst James McQuivey said: “The ongoing uncertainty in the trajectory of the pandemic will inhibit the supply and demand of ride-sharing services until we see the death toll of the Delta variant.”
Based on adjusted earnings before interest, taxes, depreciation and amortization, the Delta variant complicates the two companies’ efforts to achieve profitability this year. These adjustments do not include one-time costs, including stock-based compensation.
Lyft said it will achieve this goal by the end of the third quarter, and Uber will achieve this goal by the end of this year.
Lyft said in May that as more and more passengers return to the platform, it will use its more streamlined cost structure to make more money each time it rides. Uber also said in May that it will achieve profitability in the second half of 2021, requiring the company to quickly reduce its losses.
Driver shortage persists
In the second quarter, when the coronavirus threat appeared to be fading, Uber and Lyft focused on attracting drivers back with high salary incentives.
KeyBanc Capital Markets analysts said in a report that these incentives have proven effective in attracting more drivers on the platform, allowing the company to start strategically recovering additional wages.
KeyBanc said its proprietary data showed that from June to mid-July, the guaranteed fare per ride dropped by 5.5% to $14.78.
Public data from regulators in Chicago and New York City, the two companies’ largest markets, show that travel and vehicles have continued to grow in recent months.
According to the New York City Taxi and Limousine Commission, the number of online ride-hailing vehicles in New York City increased by more than 20% from February to June. However, the total number of vehicles in New York City in June was still more than 30% lower than the highest level in March 2019.
Several analysts said they expect passenger demand to continue to exceed the supply of drivers in the coming months.
Uber analyst Susannah Streeter said: “Uber has experienced ups and downs in the pandemic, but it is expected that there will be new signs in future data that it is becoming smoother.” Hargreaves Lansdowne (LON:).
According to data from Refinitiv, Lyft announced after the close on Tuesday that it expects an adjusted EBITDA loss of nearly US$50 million and revenue of US$697 million in the second quarter. On average, analysts expect Uber to announce after the market closes on Wednesday, with an adjusted EBITDA loss of US$319 million and revenue of US$3.7 billion.
Uber also took advantage of the pandemic to double its delivery business, with orders from Uber restaurants offsetting travel losses. The company has further expanded into the distribution field through the acquisition of liquor delivery company Drizly and cooperation with US grocery giants Albertsons Companies Inc and Costco Wholesale Corp (NASDAQ:).
Investment.com analyst Jake Sherman (Jake Sherman) said: “After the pandemic, this change in consumer behavior may continue, thereby increasing the depth of Uber’s business model.”