Never waste a good recession - Uber and Lyft as exemplars of the Gig Economy in the Vaccine Economy

With inflationary and recessionary pressures all round, how’s the Gig Economy faring in the Vaccine  Economy? With lockdowns lifted and more of a shift back to commuting and travel in general, Uber and Lyft provide some indication of how 2022 is panning out - and what lies ahead in 2023.

Yesterday Lyft turned in Q3 numbers that showed that the firm is attracting fewer customers, although it also reported its highest ever quarterly revenues on the back of jacking up its prices. Revenue per active rider hit a record high of $51.88, up 14% year-on-year, but net losses rose from $99 million last year to $422 million this year.

The firm last week told employees that it would be laying off 13% of headcount, around 700 people, in the face of the challenging macro-economic climate. According to CEO Logan Green:

In anticipation of continued economic headwinds and rising insurance costs, we've been taking prudent and decisive action…Earlier this year, we significantly slowed and then froze new hiring. Last week's action reflected a continuation of our commitment to carefully manage our team size and expenses in this environment. One focus was to remove management layers to accelerate decision-making and execution. It was a hard decision, but we're confident that it's the right step for the business…we're confident in our ability to continue navigating near-term headwind to deliver strong, long-term business results. Time and time again, we've proven our ability to make hard decisions and overcome difficult challenges.

He added that the decision was needed for flexibility to changing or uncertain conditions:

We wanted to be equally prepared for any scenario that we encountered in '23, whether it's the growth scenario or the recession scenario. To try to put the scale of the reduction in force in context, we had started to invest in headcount growth in late 2021 and the first half of 2022 before we slowed and then froze hiring, preparing for a larger, faster post-COVID recovery. The reduction in force effectively takes us back to the same team size that we were at in Q3 of last year. And broadly speaking, I believe having a lean team is always important.

We try to focus these cuts on cuts that would help us increase our velocity. So, one of the areas that we focused on was reducing layers of management, increasing span of control, helping the organization operate faster. One of the particular areas that we've been spending a lot of energy on additionally is how we support our drivers. So today, we have both virtual online support through SMS channels and phone support. Part of the reduction in force was focused on closing the majority of our in-person support centers. We had seen through testing over the last six months or so that by offering premium driver support through our virtual channels, we're able to produce a great experience for drivers at a lower cost point, and we felt like it was important for us to double down on that and focus on the virtual support experience. 

There will be increased focus on operational efficiency, added President John Zimmer, citing Lyft Maps as a case in point:

Approximately 25% of our ride-share rides are now powered entirely by Lyft's in-house mapping and navigation. And on average, each ride that leverages our mapping technology can produce more than $0.10 of incremental value for Lyft, and there's more ahead. We are leveraging Lyft Maps to optimize our routing. This can save drivers and riders time and add to our marketplace efficiency.

This is helping us solve last-mile problems that ride-share drivers encountered daily. For example, when ride requests lead to closed apartment complexes, we can route drivers to public entry points, solving a pain point that couldn't be addressed with traditional mapping tech. And in markets like Dallas and Atlanta, up to 20% of weekly pickups and drop-offs can occur under these circumstances. So, this routing improvement can have a meaningful impact.

We've also integrated Lyft Maps with Android Auto and CarPlay. This integration is one of the most requested over the past few years and can make driving safer by reducing dashboard clutter and result in a better overall driving experience. Since launching in September, drivers have given nearly 1 million rides leveraging this integration. We're excited to be the first ride-share company to bring this to market and expect it to continue scaling in the months ahead.

Uber rising 

Meanwhile over at Uber, business is looking good with Q3 mobility - which includes ride-hailing - revenues up 72% year-on-year to hit $3.8 billion. The firm is averaging 21 million trips per day as total journeys during the quarter rose 19% to 1.95 billion. Net loss across all Uber business segments was $1.2 billion on total revenues of $8.3 billion.

CEO Dara Khosrowshahi acknowledged macro-economic headwinds, but insisted:

Right now, frankly, we're not seeing any signs of consumer weakness. Part of it is that consumer spending is strong, and not only is consumer spending strong, but shifting over from retail to services and we are the beneficiary of that. So on mobility, we've looked at our mobility consumers from an income basis to see if there's any delta in behavior. We're not seeing any kind of jumps one way or the other. Seasonal trends remain the same. Even lower income riders continue to have higher trips per rider as things are opening up, showing absolutely no signs of slowing down. We've also specifically looked at Europe with inflation with the European economies leading in terms of weakness as far as the Western world. Again, we looked to see if there's any weakness and we're not observing any weakness.

He argued that the macro-economic situation is actually helping on the driver side of the business:

The average driver in the US making $36 per engaged hour, those are very, very healthy earnings levels. And in the US at least, over 70% of our drivers who are coming on-board now said that inflation did play a role in their decision to sign up, right? It helps them afford their groceries, be more comfortable in an environment where real wages are fairly weak as it relates to the inflationary environment. So we do think the macro-environment is helping, although I do think that the investments that we made both in technology and behind driver incentives are also a pretty important factor as well.

Overall, he concluded:

If I were to generalize on mobility, our category position is very strong. We are at close to, if not at, all time highs in US, Australia, the UK particularly is very, very strong with us.

My take

Such is the volatility of the global economic situation that it’s difficult to be confident about what’s round the next corner, to borrow a driving analogy. Lyft is clearly being cautious about what comes next, whereas Uber is, currently, far more buzzed-up. The return of air travel and the consequent ‘ride to the airport’ business coming back into focus is undoubtedly helpful to both firms, and Uber in particular is benefiting from the cross-sell opportunities between its mobility business and its Uber Eats arm. Khosrowshahi’s argument about the business model benefiting drivers in a recessionary environment is an interesting one, although one that’s bound to fuel pushback from critics of the company.