The results are in for the sharing economy. They are ugly.


By Kate Conger and Erin Griffith
OAKLAND: The coronavirus pandemic has gutted the so-called sharing financial system. Its Most worthy firms, which began the 12 months by promising that they’d quickly grow to be worthwhile, now say client demand has all however vanished.

It shouldn’t be more likely to return anytime quickly.

In earnings stories this week, Uber and Lyft disclosed the depth of the monetary harm. The firms mentioned their ride-hailing companies all however collapsed in March, the final month of the first quarter, as shelter-in-place orders unfold by way of Europe and the United States.

The pink ink extends past journey hailing. Home-sharing firm Airbnb, which traders valued at $31 billion, had deliberate to go public this 12 months. Instead, the firm has slashed prices and raised emergency funding, and Tuesday it laid off 1,900 staff, about 25% of its workers. It additionally lowered its income forecast for this 12 months to half of what it introduced in final 12 months.

“While we know Airbnb’s business will fully recover, the changes it will undergo are not temporary or short-lived,” Brian Chesky, Airbnb’s chief govt, wrote in a memo to staff.

The firms, based on the notion that they need to grow to be as large as potential as shortly as potential and fear about making a revenue someplace down the line, now face an unsure future. And their timelines for turning a revenue seem — for now — to have been tossed apart.

Even when folks return to the workplace and begin touring, the pandemic might change how they behave for years to come back. Thirty p.c of gig-economy income might disappear over the subsequent one to 2 years, with a portion of it unlikely to return, mentioned Daniel Ives, managing director of fairness analysis at Wedbush Securities.

“Based on our analysis of the gig economy and the overall pie of consumers, unfortunately, there’s a slice that — until there’s a vaccine — will not get in a ride-sharing vehicle or use an Airbnb,” Ives mentioned.

On Tuesday, there was one other risk to Uber and Lyft: California’s lawyer basic sued the firms, claiming that they misclassified their drivers as impartial contractors. If the lawsuit is profitable, the firms might need to pay a whole lot of tens of millions of {dollars} in civil penalties and again wages for drivers.

Airbnb faces a distinct problem. How will hosts — most of them providing leases as a facet enterprise — take care of virus security? In an effort to bolster confidence in its listings, the firm introduced a set of latest cleansing requirements for its leases in April. Guests also can choose for a 72- or 24-hour emptiness interval earlier than they enter.

There shouldn’t be a lot to stay up for in the present quarter for the firms, based on monetary analysts. Ives mentioned he anticipated Uber’s income to contract 69% and Lyft’s 66% throughout the interval, which covers April by way of June.

Lyft mentioned rides on its service fell practically 80% in late March and remained down 75% in mid-April. In May, passengers started to return cautiously to Lyft, however rides have been nonetheless down 70%, Lyft executives mentioned on a Wednesday earnings name with monetary analysts.

If passengers continued to avoid the service at comparable charges, Lyft predicted it could lose practically $360 million on an adjusted foundation, which excludes stock-based compensation and different bills, throughout the present quarter. Its adjusted loss in the first quarter was $97.four million.

“These are the hard truths we’re facing,” Logan Green, Lyft’s chief govt, mentioned Wednesday. In late April, Lyft laid off 17% of its staff. Executives took a 30% pay minimize, and worker pay was trimmed 10%.

On Thursday, Uber mentioned income in the first quarter grew 14% from the identical quarter final 12 months, however the firm’s losses ballooned 190% to $2.9 billion. That deficit was largely pushed by a $2.1 billion loss attributable to its investments in worldwide ride-hailing companies, like Grab and Didi, that are additionally experiencing low demand due to the virus.

“I won’t sugarcoat it. COVID-19 has had a dramatic impact on rides,” Dara Khosrowshahi, Uber’s chief govt, mentioned Thursday in a name with traders. Use of Uber’s journey service was down 80% in April, he mentioned. But Uber noticed a vivid spot in its meals supply, which grew 89% since the earlier 12 months, excluding India.

Although Uber has not but given a brand new date by which it expects to grow to be worthwhile, Khosrowshahi mentioned the pandemic “will impact our timeline by quarters, not years.” Before the outbreak, Uber mentioned it could be worthwhile, excluding some prices, by the finish of this 12 months.

Uber laid off 14% of its staff Wednesday because it minimize 3,700 folks from its recruiting and customer support organizations.

Khosrowshahi won’t take a wage for the remainder of the 12 months. He mentioned in an electronic mail to remaining staff, seen by The New York Times, that the firm continued to look for methods to chop prices and will remove extra jobs over the subsequent two weeks.

While Uber Eats, the meals supply service, has skilled elevated demand and restaurant sign-ups in some markets, the firm additionally shut down Uber Eats in a number of worldwide markets the place it had been burning money and laid off 50 staff from that division.

Financial analysts anticipate the firms to start to recuperate as customers return to work. They are nonetheless sitting on some huge cash. Uber has $9 billion, and Lyft has greater than $2 billion. Before the virus, Airbnb had $Three billion in money on its stability sheet; since then, it has raised $1 billion in funding and secured a $1 billion time period mortgage.

Despite the downturn in enterprise, Lyft’s inventory was up greater than 20% on Thursday because it exceeded traders’ expectations for income in the first quarter and reassured them with its layoffs final month that it could minimize prices. Uber’s inventory was up greater than 8% in after-hours buying and selling Thursday.

But traders nonetheless query the firms’ claims that they may grow to be worthwhile as they faucet the $1.2 trillion that Americans spend annually on transportation prices like automobile possession and upkeep.

Although Uber and Lyft mentioned they offered a preferable transportation possibility over public transit, some analysts frightened that buyers would select to drive themselves slightly than share a automobile with a ride-hail driver and danger spreading the virus.

“All investors are trying to figure out industries that the pandemic will permanently transform for the better or permanently transform for the worse,” mentioned Tom White, a senior analysis analyst with monetary agency D.A. Davidson.

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