As Uber spends big to compete with Lyft, profitability in the U.S. is not in sight
As Uber spends big to compete with Lyft, profitability in
the U.S. is not in sight
By Tracey Lien November 9, 2017 2:05 PM
Fierce competition from Lyft is holding Uber back from
achieving profitability in the United States, Uber Chief Executive Dara Khosrowshahi
said Thursday.
In one of his first major interviews since taking the
helm at Uber in August, Khosrowshahi said ride-hailing competitor Lyft’s heavy
spending on subsidies to keep the cost of rides artificially low has forced
Uber to continue doing the same, leading to financial losses.
“The U.S. is very competitive right now, between us and
Lyft, so I don’t see the U.S. as being a particularly profitable market for the
next six months,” he said.
When asked what will happen after six months, Khosrowshahi
said: “It depends on where the competition goes. Right now, we have a situation
where Lyft is spending very aggressively to gain share."
Lyft took issue with Khosrowshahi’s characterization of
the company. “Since Lyft was founded, Uber has attempted to stop Lyft’s
momentum by subsidizing and spending to gain market share,” Lyft spokeswoman
Alexandra LaManna said in a statement. “It hasn’t worked. More and more
passengers and drivers are choosing Lyft because they believe ethics matter and
they value a great service experience.”
Financial documents for Uber and Lyft that have been
leaked over the years have shown that, despite bringing in enormous revenues
from millions of car rides, both San Francisco companies continue to operate at
a loss because they spend heavily on subsidies.
Subsidies are one of the main ways ride-hailing companies
can gain market share. Drivers will typically work for the company that offers
the best financial incentives, while passengers flock to the service that
charges the least.
In China, Uber met its match in Didi Chuxing, the
incumbent ride-hailing company that outspent its rivals to attract drivers and
passengers. Uber sold the China arm of its business to Didi last year in a deal
that valued the joint entity at $35 billion.
In the United States, though, neither Uber nor Lyft has
shown interest in conceding. Uber remains the market leader, and its war chest
is also larger; to date, it has raised about $15 billion in debt and equity at
a private valuation of about $70 billion.
Lyft, meanwhile, received a $1-billion funding injection
last month in a round led by Alphabet Inc.’s investment arm, CapitalG, which
values the company at $11 billion.
The ultimate goal for both companies is to cut back on
subsidies. In some overseas areas Uber has been able to do this, Khosrowshahi
said, leading to profitability in those markets. With Lyft nipping at its heels
in the U.S., though, it could be a while before Uber is in the black.
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