Lyft has finally gone public. After a hot debut, its stock price has begun sinking. What’s the deal?
By Hamilton Nolan (Splinter News)
When a company goes public, though, there are lots of bothersome reporting requirements and big investors who want to see annoying things like “profits,” and all the early VC guys have already waltzed off with their money, and suddenly things can get very grim. Which brings us to the famous ride sharing companies. Lyft and Uber, its larger and more successful rival that also plans to go public soon, have a few things going for them: They’re everywhere! Everyone knows them! And they have successfully revolutionized transportation in America! All major accomplishments. There is only one drawback, from a “business” perspective: both of these companies lose a shocking amount of money.
Indeed, from a “business” perspective, it is fair to say that Lyft and Uber’s main function is to take money from the world’s savviest investors and use that money to offer everyone subsidized rides. Lyft lost nearly a billion dollars just last year, and Uber’s losses are even more staggering. And this is with the benefit of being able to exploit drivers by treating them as contractors rather than employees—something that could very well change one day, and which would raises costs considerably. And the companies’ plan to turn this black hole of losses around is: Do what we’re doing now, but more!
You do not need to be a financial genius to see that the only real path to profitability for Lyft and Uber is to raise prices so that rides actually bring in more money than they cost.