Coronavirus Could Threaten Uber, Lyft's Financial Outlook as Travel Nosedives

Anecdotal evidence suggests that demand for ridehailing will plunge as more Americans stay home. The outbreak will also highlight important distinctions between Uber and Lyft's business models, and reveal which is more resilient.
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Ridehailing services Uber and Lyft are both gunning for profits, but the spread of coronavirus in the U.S. may threaten those plans.

As the outbreak wreaks havoc on financial markets, and threatens to upend the economy, a chunk of ridehail trips could also fall by the wayside. Uber and Lyft closed 13.8% and 17.6% lower on Thursday, respectively, as the Dow Jones Industrial Average plummeted 2,352.60 points in its worst single-day crash since 1987.

Neither Uber  (UBER) - Get Report nor Lyft LYFT have issued a specific revision to their financial forecasts owing to the health crisis, but with work-from-home orders and quarantines escalating in the U.S., plenty of circumstantial evidence points to a drop in demand for as long as the outbreak lasts.

“When the virus was getting going, it seemed like people were shifting to Lyft or Uber from other modes. But things have really intensified,” said Harry Campbell, who operates The Rideshare Guy, a blog dedicated to ridehailing and the gig economy. “We’ve heard from a number of Bay Area drivers who say it’s much slower than normal.”

On March 4, Lyft CFO Brian Roberts said at an investor conference that the prior week was the “single biggest week in [Lyft’s] history in terms of both revenue and rides.” He suggested that avoidance of public transit was driving more people to Lyft. Meanwhile, Uber’s CEO Dara Khosrowshahi said during the same week that coronavirus was “not material” because geographies affected at the time made up only a small fraction of its overall business.

But a lot has changed since then.

The World Health Organization (WHO) declared coronavirus a global pandemic earlier this week, and contingency measures in the U.S. are ramping up at a breakneck pace. Widespread school closures, event cancellations, work-from-home mandates and other initiatives are all but certain to increase -- to say nothing of a 30-day travel ban from many European countries announced by President Trump on Wednesday evening. The ban applies to trips to and from most parts of Europe, and Trump is reportedly considering restricting travel in and out of California as well.

Uber, for its part, says that 15% of trips on its platform are airport rides. If plummeting demand for flights serves as a rough indicator, airport trips would see a corresponding dramatic drop in demand. United Airlines reported a 70% drop in domestic bookings over the last several days, while the CEOs of JetBlue and Southwest likened the impact of coronavirus to 9/11, which triggered a severe drop in demand for flights lasting several months.

It’s a supply problem as well as a demand problem, Campbell pointed out, with drivers also wary of being in close quarters with passengers in their cars.

“This past week, drivers have been telling me that they’re trying to stop doing rideshare; others are telling me they’re switching over to delivery,” he added. “The impression is it’s less risky --you’re grabbing a bag of food, you can wear gloves if you want, or there’s a a no-contact feature where you can drop deliveries off at the door.” Postmates, Instacart and others have introduced no-contact delivery options for customers.

Although no one knows for certain how long it will take for coronavirus to run its course in the U.S., any material hit to Uber or Lyft’s 2020 financial results carries the potential to shove profitability timelines a bit further down the road.

In early February, Uber moved its profitability target to end of 2020. Lyft has targeted the end of 2021 to get in the black, and both companies are riding a fine line between increasing capital efficiency while growing top-line results.

The coronavirus crisis could also have the effect of highlighting the differences between the two companies, which are frequently lumped together but have important distinctions in their business models. 

While Lyft sells personal mobility services -- offering car, scooter and bike trips in the U.S. only -- Uber offers food delivery, Uber Eats, and a freight logistics division, Uber Freight. In a note this week, Mizuho Securities analyst James Lee wrote that an uptick in demand for food delivery could offset any coronavirus-related EBIDTA losses for Uber's core ridehailing service. 

Investors will likely learn more soon about how coronavirus has affected the two companies specifically, but for now, they have acknowledged the risk is there.  

In its annual report published on March 2, Uber noted that a “pandemic or an outbreak of disease or similar public health concern, such as the recent coronavirus outbreak” could materially affect its results. Likewise, Lyft disclosed in its annual report that epidemics or other disasters could affect its operations, and noted that the coronavirus had led to production delays with bikes, scooters and automobiles tied to its platform.