LYFT Lyft Inc

By Tim Higgins and Parmy Olson 

Uber Technologies Inc. is cutting about 14% of its workforce and, along with smaller rival Lyft Inc., is looking for more ways to save money as their ride-hailing businesses have dropped dramatically amid the coronavirus pandemic.

The pandemic has challenged the very business model that supercharged Uber and Lyft into some of the world's most valuable startups. The the San Francisco-based ride-sharing companies now face questions about consumers' willingness to participate in the sharing economy at a time when health experts and government officials are recommending sheltering in place and avoiding contact.

In addition, before the pandemic, both companies had been trying to improve their profitability as investors grew increasingly worried about hefty losses they were incurring in their rush to grow.

Wednesday, Uber said Wednesday that it was cutting about 3,700 workers and that Chief Executive Dara Khosrowshahi agreed to waive his base salary for the rest of the year. Last week, Lyft said it was cutting 17% of its workforce and putting some employees on unpaid furloughs as well as trimming salaries.

Mr. Khosrowshahi, in a memo to employees, hinted at more cuts to come, telling workers that Wednesday's job reductions were part of a broader exercise to adjust the company's cost structure and that he expected a further and final update on that effort within the next two weeks.

"We are looking at many scenarios and at each and every cost, both variable and fixed, across the company," he said in the memo. "We want to be smart, to move fast, to retain as many of our great people as we can, and treat everyone with dignity, support and respect."

The CEO acknowledged the pain of the action in his Wednesday memo: "Days like this are brutal."

Lyft on Wednesday posted a loss of $398.1 million on sales of $995.7 million. The company's net loss of $1.1 billion in the year-ago period included an $859 million hit from stock-based compensation tied to its initial public offering in March 2019. The loss figure for the first three months of this year missed Wall Street's scaled back expectations even as sales came in stronger.

Uber reports its earnings Thursday.

Lyft ridership still grew 3% in the three months through March 31 from the year-ago period, but the first quarter also gave an early hint at the impact of the Covid-19 outbreak. The company said the number of active riders taking a Lyft trip declined to 21.2 million in the first quarter from 22.9 million in the October through December period. It marked the first sequential drop in ridership since the startup became a public company.

The company has since suspended its full-year guidance because of uncertainty about the business effects from the pandemic and shelved a commitment to post its first profitable quarter on an adjusted basis by the end of next year. Lyft reported a loss before interest, taxes, depreciation and amortization on an adjusted basis of $85.2 million compared with a loss of $216 million on that basis in the year-earlier period.

"We are responding to the pandemic with an aggressive cost reduction plan that will give us an even leaner expense structure and allow us to emerge stronger," Lyft co-founder and CEO Logan Green said in a statement.

The company said cost savings measures it is implementing will reduce annualized expenses about $300 million by the fourth quarter of this year compared with previous projections. Lyft said it would incur $28 million to $36 million in costs related to the job cuts that would largely book in the current quarter. The company also has furloughed some staff and cut pay for others.

Lyft said it ended the quarter with $2.7 billion of cash and other funds it can quickly tap.

Meanwhile, expectations for the three months through June are worse.

Analysts expect Lyft's sales in the current second quarter to total $560.8 million, half of what was expected in this period by analysts at the end of February and down 35% from the year-ago quarter, according to FactSet. Uber's current-quarter sales are only projected to drop 7% year-over-year to $2.93 billion, but that same estimate was at $4.26 billion at the end of February, FactSet said.

"The impact on the sharing economy will be enormous, even devastating," said Stephanie Balaouras, a vice president at Cambridge, Mass.-based Forrester Research Inc. who studies tech operations.

Uber's share price, off 5.6% in 2020 through Tuesday, has held up better than Lyft's, which is down 38% this year, in part because of its food-delivery operations. Online ordering from grocery stores and restaurants has surged since the U.S. declared a national emergency in March.

Analysts will be looking closely at Uber's results to better understand what an increase of its Eats food-delivery business means to the bottom line. Gross bookings of Eats deliveries may rise 42% in the first quarter from a year ago, according to the average estimate of analysts surveyed by FactSet, while staying roughly in line with the fourth quarter.

Mr. Ives, the Wedbush analyst, said pressure on fees from restaurants and local governments could offset any increase in demand because of Covid-19.

Before the pandemic, Uber was spending heavily to grow Eats as it faced heavy competition from DoorDash Inc. and Postmates Inc. In the fourth quarter, Uber said Eats' adjusted loss from operations widened by 66% to $461 million from the year-earlier quarter.

Uber and Lyft have faced pressure from regulators and lawmakers over how their drivers are classified, and on Tuesday California sued the companies, citing the state's gig-economy law that became effective Jan. 1. The state said the ridehailers' decision to classify drivers as contractors rather than employees has deprived them of rights such as paid sick leave and unemployment insurance -- two issues made more visible during the pandemic.

As shutdown orders lift, Uber and Lyft may benefit from customers choosing a ride to work because they are wary of returning to the close quarters of public transportation.

"When you're [packed] against people and you hear distant coughing, I think there's nothing worse in terms of the human psyche right now because there's just so much fear," Brian Roberts, Lyft's chief financial officer, said in March.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Parmy Olson at parmy.olson@wsj.com

(END) Dow Jones Newswires

May 06, 2020 16:27 ET (20:27 GMT)

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