In this week’s roundup, senior RSG contributor John Ince covers Uber’s potential plans to sell its self-driving car unit, Lyft’s pivot to delivery, and whether or not delivery will continue to be profitable in a post-pandemic world.
Uber in talks to sell ATG self-driving unit to Aurora [Techcrunch]
Sum and Substance: Eighteen months ago, Uber’s self-driving car unit, Uber Advanced Technologies Group, was valued at $7.25 billion following a $1 billion investment from Toyota, DENSO and SoftBank’s Vision Fund. Now, it’s up for sale and a competing autonomous vehicle technology startup is in talks with Uber to buy it, according to three sources familiar with the deal.
Aurora Innovation, the startup founded by three veterans of the autonomous vehicle industry who led programs at Google, Tesla and Uber, is in negotiations to buy Uber ATG. Terms of the deal are still unknown, but sources say the two companies have been in talks since October and it is far along in the process.
My Take: Uber is in selling mode? This sale would follow a pattern for the company as they narrow their focus. Goodness knows, Uber ATG has seen its share of drama during its short life. The former head is now in jail. Maybe best to just get rid of it.
What’s the Bull Case for Uber, Again? [MotleyFool]
Sum and Substance: Ridesharing giant Uber (NYSE:UBER) doesn’t make any money. In fact, it’s not even close to turning a profit. It wasn’t close before the pandemic, and it’s not close now. Through the third quarter of 2020, Uber’s cumulative net loss since the company was founded totaled $22 billion.
Of course, the pandemic has devastated demand for ridesharing. But even before the pandemic, Uber’s dominant market share in the U.S. wasn’t nearly enough for the company to turn a profit. Yes, Uber recently began touting that its ridesharing business was profitable on an adjusted EBITDA basis. But adjusted EBITDA is a meaningless metric. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA,” famed investor Charlie Munger said earlier this year.
With Uber unable to turn a profit despite dominating the market for ridesharing, the bull case for the stock for a long time centered around self-driving cars. Today, Uber takes a cut of the revenue generated from each ride. When self-driving cars eliminate drivers, Uber could take it all.
My Take: This is an article you can’t ignore. What’s the case for buying Uber stock, long term? There isn’t one. Uber is a speculative bet and people who buy the stock only want short term gains.
Uber and Lyft used sneaky tactics to avoid making drivers employees in California, voters say. Now, they’re going national. [WashingtonPost]
Sum and Substance: For Uber and Lyft this election, “yes” meant “no” to labor rights. The two Silicon Valley companies won passage of a gig-worker law known as Prop 22 that exempted them from classifying their millions of California drivers as full employees, denying them a minimum wage and other critical benefits. They joined with other gig companies in spending a record-setting $205 million on the “Yes on 22” campaign, outspending the “No” campaign 10-to-1. Executives from Uber and Lyft say they want to bring similar campaigns to other states to codify drivers’ contractor status.
Only now, some Californians are saying that they have buyer’s remorse — and that they thought a “yes” vote was in favor of giving drivers new benefits they would not otherwise receive. Some California voters have a warning for those who may soon face a similar decision.
“I definitely feel deceived,” said Lindsey Schaffran, 27, of Modesto, who voted in favor of Proposition 22. “We all felt that Prop 22 was going to help the drivers, and Uber and Lyft were going to be paying them more, when really they’re just trying to save their own pockets.”
My Take: Prop 22 wasn’t what it seemed to be, or at least that’s what many voters now feel. How many voters? Who knows? Propositions on the ballot are often difficult to decipher – no matter how much people try. We’ll never know… but other states are on guard now.
Lyft: Key External Challenges [SeekingAlpha]
Sum and Substance: Centered on a platform that provides rides to strangers in vehicles owned by driver-contractors, the coronavirus pandemic is disrupting Lyft’s business model.
With a generic strategy of cost leadership, any post-pandemic recovery will be fundamentally reliant on a return of Lyft’s core customers, long noted for price sensitivity.
Lyft’s ability to adapt its business strategy amidst the many external challenges remains the question….
My Take: This is a long and balanced article. It examines the challenges facing Lyft, and the takeaway is Lyft is facing a lot of uncertainty. It suggests that Lyft may not be a standalone company forever. Whether that happens is subject to the vagaries of the marketplace.
DoorDash Shows Delivery Can Be Profitable—in a Pandemic [Wired]
Sum and Substance: Can the app-based services survive once restaurants reopen and diners aren’t sequestered in their homes?
IN THE BEFORE times, hands sometimes went unwashed, “zoom” was a sound made by Mazda commercials, and food delivery businesses lost lots and lots of money. Four companies—DoorDash, Uber Eats, Grubhub, and Postmates—were duking it out for national supremacy. But diners were fickle, swayed by coupons and promotions, with little brand loyalty. There was no clear winner in sight…
But this spring, as the world began to circle the drain, food delivery apps thrived. Restaurants, many closed by government fiat, had to rearrange their businesses, moving the flourishes and niceties of indoor dining to takeout, and by natural extension, the internet. Workers, suddenly furloughed or laid off and still waiting for government relief, scrambled to sign up as drivers. Diners, some bored at home with little to do, had only the night’s sesame noodles to look forward to.
Documents filed by DoorDash last week as part of its planned initial public offering show the result: The company posted a $23 million profit in the period between April and June. Losses resumed in the third quarter, totaling $43 million. But that fleeting second quarter profit raised the tantalizing question: Can food delivery make money?
My Take: It’s the question of the hour – can food delivery companies make money after the pandemic? It’s the question surrounding Doordash’s IPO going on right now. I tend to think not, but that won’t prevent lots of investors from piling on the opportunity du jour.
Lyft Is Contemplating an Uber Eats-Style Food Delivery Pivot [SFist]
Sum and Substance: The rideshare company thinks it can find a way to deliver food without tacking on high commission fees, which probably involves blowing ever-larger amounts of other people’s money.
In their every-three-month exercise in “How much money are we losing?” known as a quarterly earnings call, SF-based rideshare company Lyft reported losing about $240 million in the third quarter of 2020, according to Reuters. (That is considered “good” in Silicon Valley terms, and Lyft stock is up since.) But the more interesting revelation on the call, as Eater SF picks up, is that Lyft is contemplating jumping into the food delivery game.
It’s not surprising, given that the Uber Eats spinoff has been Uber’s only financial bright spot during the pandemic. And Silicon Valley investors do love copycats. But there are already zillions of third-party food delivery options, so it seems unlikely that adding yet another one is going to somehow power Lyft to profitability. …
My Take: So Lyft is thinking about getting into food delivery. But what’s the twist? How will they make money? They’ll figure that out later – after they’ve already lost millions.
Readers, what do you think of this week’s roundup?
-John @ RSG