Lyft Vs. Uber Is No Longer The War We're Interested In

On Wednesday, Lyft Inc LYFT reported its second quarter results for the period that ended on June 30^th. This was its first full quarter during the pandemic that ended the life we knew practically overnight. Not surprisingly, Lyft reported a dramatic revenue drop of 61%.

The Full Fury Of The Pandemic

The second quarter parked more than 17,000 airplanes as April passenger volume dropped 90 percent. Skies were empty, but so were streets and hotels. Hotel occupancy fell to 24.5 percent, which is a record low in the U.S. World cities were quarantined. Bars, restaurants, cinemas, theatres, and all popular destinations such as Walt Disney Co's DIS theme parks were entirely shutdown. Companies were managed from home, so employees had no need to commute by rideshare. Business travel, a growing part of the rideshare industry, is predicted to drop over 35 percent this year.

Lyft's Results

During the second quarter, Lyft delivered a net loss of $437.1 million. The company at least managed to beat Wall Street expectations of 99 cents per share with adjusted losses of 86 cents. Revenue of $339 million also exceeded Refinitiv's estimate of $336.8 million. With 8.7 million active riders, it achieved a revenue per rider of $39.06. Although it did not offer any guidance, Lyft expects to achieve profitability on an adjusted basis during the fourth quarter of the following year.

Unlike its primary competitor, Uber Technologies Inc UBER, it does not have a food delivery, freight or investments and operations overseas to help it make up for losses in travel and transportation. Thanks to Uber Eats that doubled during the pandemic, Uber managed to exceed analyst expectations. Revenue did decline, but the increased demand for its diversified services greatly amortized the blow.

But a rare bright spot for Lyft is that rides in July increased 78% compared to April. This figure provides a glimmer of hope for the undergoing quarter. But despite the good news, these 8.7 million active riders will now need to be classified as ‘employees' which brings a whole new set of issues.

The Battle In California

Uber and Lyft's war against California is far from over, but they lost the first battle. On Monday, San Francisco Superior Court judge issued a preliminary injunction requiring the gig-economy companies to reclassify their drivers as employees. This means that their drivers will be entitled to minimum wage, unemployment insurance, workers' compensation and paid sick leave.

President and co-founder of Lyft, John Zimmer, said during the earnings call on Wednesday that the company may need to suspend its ride-hailing operations in California which makes about 16% of its rides starting on August 21 if a court does not overturn the ruling which enacted the Assembly Bill 5, commonly known as the ‘gig-workers bill'.

Reclassification of independent contractors to employees would result in higher prices, fewer available rides, and hundreds of thousands of drivers losing their jobs. The resulting wages and benefits would also cost both companies, neither of which are profitable, hundreds of millions of dollars.

The Future After The Pandemic

Like with many travel-related industries, the demand for rideshare seemed to have disappeared into thin air back in April with Lyft and Uber seeing a severe drop between 70% and 80%. Although things are improving with eased social distancing measures, we are still far from winning the battle against COVID-19. The underlying concern is whether the fear of infection has forever changed the demand for the rideshare model? Only one thing is certain – we're in for an entirely ‘new normal' even once we put this pandemic behind us. Moreover, no one knows exactly how will this new normal look like.

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