Liking Lyft, not liking Uber

benfell

Wall Street has decided it likes Lyft and that it doesn’t like Uber. I am not saying by any means that this is fair or even warranted, rather the contrary.[1] But a couple “analysts” think Lyft could turn a profit within a couple years.[2] For Uber, that goal appears nowhere in sight.[3] If this “analysis” has been published, the Wall Street Journal does not appear to have linked to it. For now, I think these analysts are seeing what they want to see, which they admit, by the way, puts them “significantly ahead of consensus,” which is to say that other analysts have not (yet anyway) reached such an optimistic conclusion. The analysts, while praising Lyft’s price increases,[4] neglect that Lyft has also apparently been cutting the percentage of those fares it pays drivers.[5]

Because Lyft really faces many of the same challenges that Uber does,[6] I still see no reason to believe Lyft has a path to profitability other than Uber going out of business, allowing Lyft a near-monopoly (excluding minor rideshare competition, excluding taxis, and excluding other public transportation) within the rideshare market, that in turn allows it to raise fares and cut driver pay further.

Even so, based on what I saw in the taxi business, I doubt it will ever be spectacularly profitable: I think there is a floor to aggregate demand in that some people are unable to drive, that some people won’t want to deal with traffic on the way, that some people won’t want to drive for other reasons, and that some will never accept parking problems at destinations, but that demand is nonetheless somewhat “elastic,” meaning that if fares increase enough, demand will decrease.[7]

One reason Lyft does relatively well in the Pittsburgh area is that passengers perceive that its fares are lower than Uber’s. One reason Lyft doesn’t do so well in the summer here is that some people feel they can take the bus.[8]

Which is to say that the only real path to profitability means taking yet more money out of drivers’ pockets. Which they can do to some extent because some folks like me[9] can’t find any other employment. And which, by the way, is pretty much the same as for the taxi business.[10]

  1. [1]David Benfell, “Uber appears to be going down,” Not Housebroken, August 11, 2019, https://disunitedstates.org/2019/08/11/uber-appears-to-be-going-down/; David Benfell, “Proof of investor irrationality: The case of Uber (and Lyft),” Not Housebroken, August 22, 2019, https://disunitedstates.org/2019/08/22/proof-of-investor-irrationality-the-case-of-uber-and-lyft/↩
  2. [2]Michael Wursthorn, “Lyft Shares Rally on Hopes Price Increases Will Drive Profit,” Wall Street Journal, August 26, 2019, https://www.wsj.com/articles/lyft-shares-rally-on-hopes-price-increases-will-drive-profits-11566845457↩
  3. [3]Rich Alton, “Basic economics means Uber and Lyft can’t rely on driverless cars to become profitable,” MarketWatch, August 12, 2019, https://www.marketwatch.com/story/basic-economics-means-uber-and-lyft-cant-rely-on-driverless-cars-to-become-profitable-2019-08-12; Eliot Brown, “Uber Wants to Be the Uber of Everything—But Can It Make a Profit?” Wall Street Journal, May 4, 2019, https://www.wsj.com/articles/uber-wants-to-be-the-uber-of-everything-11556909866; Richard Durant, “Uber’s Profitability Problem Is Structural,” Seeking Alpha, August 21, 2019, https://seekingalpha.com/article/4287055-ubers-profitability-problem-structural; Ryan Felton, “Uber Is Doomed,” Jalopnik, February 24, 2017, https://jalopnik.com/uber-is-doomed-1792634203; Yves Smith, “Uber Is Headed for a Crash,” New York, December 4, 2018, http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html; Stephen Wilmot, “Uber’s Long Road to Profits,” Wall Street Journal, August 22, 2019, https://www.wsj.com/articles/ubers-long-road-to-profits-11566471068; Julia Carrie Wong, “Disgruntled drivers and ‘cultural challenges’: Uber admits to its biggest risk factors,” Guardian, April 12, 2019, https://www.theguardian.com/technology/2019/apr/11/uber-ipo-risk-factors↩
  4. [4]Michael Wursthorn, “Lyft Shares Rally on Hopes Price Increases Will Drive Profit,” Wall Street Journal, August 26, 2019, https://www.wsj.com/articles/lyft-shares-rally-on-hopes-price-increases-will-drive-profits-11566845457↩
  5. [5]Dhruv Mehrotra and Aaron Gordon, “Uber And Lyft Take A Lot More From Drivers Than They Say,” Jalopnik, August 26, 2019, https://jalopnik.com/uber-and-lyft-take-a-lot-more-from-drivers-than-they-sa-1837450373↩
  6. [6]David Benfell, “Watching the ridesharing shit go down the toilet,” Not Housebroken, July 30, 2019, https://disunitedstates.org/2019/07/30/watching-the-ridesharing-shit-go-down-the-toilet/; David Benfell, “Uber appears to be going down,” Not Housebroken, August 11, 2019, https://disunitedstates.org/2019/08/11/uber-appears-to-be-going-down/; David Benfell, “Proof of investor irrationality: The case of Uber (and Lyft),” Not Housebroken, August 22, 2019, https://disunitedstates.org/2019/08/22/proof-of-investor-irrationality-the-case-of-uber-and-lyft/↩
  7. [7]See N. Gregory Mankiw, Principles of Economics, 6th ed. (South Melbourne, Victoria, Australia: Cengage, 2012).↩
  8. [8]At least, this is what they tell me.↩
  9. [9]David Benfell, “About my job hunt,” Not Housebroken, n.d., https://disunitedstates.org/about-my-job-hunt/↩
  10. [10]David Benfell, “What Uber and Lyft get right,” Not Housebroken, February 12, 2019, https://disunitedstates.org/2019/02/12/what-uber-and-lyft-get-right/↩