Is the gig economy sustainable?
The poor IPO debuts of Uber and Lyft have reinforced concerns about the transformational potential of the on-demand economy.
Uber, touted as one of the biggest IPOs in U.S. history, went public Friday at the low range of expectations and closed down eight percent on its first trading day. The stock lost another 11 percent on Monday as the market tumbled over trade war fears. Lyft has fallen 40 percent since going public in March.
Much like Amazon.com and other digital disruptors, Uber and Lyft are bleeding cash to build their customer base and are not expected to be profitable for years. Subsidized by ample venture capital funding over the years, both charge less per ride than what the fares cost in order to hook riders on low rates. Ordinary investors may not be as patient to reward growth over profits.
“If Uber cannot deliver profits over time, it spells real trouble for the gig economy,” Aswath Damodaran, a professor at New York University’s Stern School of Business, told The Washington Post.
At least until autonomous cars are plentiful, keeping labor costs under control and reducing high turnover will be critical factors to reaching profitability.
But the fact that Uber and Lyft drivers were able to hold a global strike last Wednesday across major cities with only social media was seen to some as a new investor risk. Presidential candidates are also calling for minimum wage and other protections for gig drivers. In SEC filings, both Uber and Lyft warned that any regulatory threat to their independent contractor model would hamper their ability to grow.
Uber CEO Dara Khosrowshahi on Monday reminded employees that Facebook and Amazon had rocky starts post-IPO. Pitching itself as “Amazon for transportation,” Uber may yet fulfill its promise to tap data from its already 91 million average monthly users to dominate a broad range of logistical services, including meal deliveries and freight shipping.
But prospects for a number of on-demand delivery services, including Instacart, Postmates and Doordash, all expected to go public and also believed to be unprofitable, would be dimmed if Uber and Lyft fail to recover.
- Uber’s first day of trading ended deep in the red over gig-economy fears – The Washington Post
- Uber opens below IPO price in disappointing Wall Street debut – CNN
- Uber faces a long road to profitability — if it gets there at all – Financial Times
- Los Angeles Uber drivers join cities across the U.S. in strike ahead of much-anticipated IPO – Los Angeles Times
- Uber isn’t screwed. There are a ton of ways it could become a profitable monster. – Business Insider
DISCUSSION QUESTIONS: Are the challenges facing Uber and Lyft representative of the broader hurdles facing the overall on-demand economy? Should retailers be rethinking their partnerships with and investments in on-demand services?