LYFT Lyft Inc

By Tim Higgins and Parmy Olson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 7, 2020).

Uber Technologies Inc. and smaller rival Lyft Inc. are bracing for a new reality in ride-hailing: fewer passengers for the foreseeable future.

Uber said Wednesday it is cutting about 14% of its workforce and smaller rival Lyft, which cut about 17% of its staff last week, is responding to the coronavirus pandemic with aggressive cost cutting to ride out the exceptional challenge to their businesses.

Lyft reported first-quarter earnings Wednesday that seemed resilient to the worst of the pandemic, but they only incorporated a couple of weeks of the impact, through the end of March. In April, as global travel ground to a halt and local governments ordered people to shelter in place, ridership plunged 75%, the company said.

"Even as shelter-in-place orders and travel restrictions are modified or lifted, we anticipate that continued social distancing, altered consumer behavior and expected corporate cost cutting will be significant headwinds for Lyft," Chief Executive Logan Green said during a conference call with analysts. "Rider demand on our platform will be down for the foreseeable future."

The pandemic has challenged the very business model that supercharged Uber and Lyft. They grew into some of the world's most valuable startups shuttling people to and from restaurants, offices and airports by connecting customers with drivers. The San Francisco-based ride-sharing companies are now facing existential questions about what life will look like after the pandemic and whether people will still want such services and can afford them.

Lyft posted its first sequential drop in quarterly ridership since becoming a public company last year. The business threat comes as both companies, before the pandemic, had been trying to improve their profitability to appease investors that had grown increasingly worried about the hefty losses they were incurring in their rush to grow.

Wednesday, Uber said 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 more than 900 jobs 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 the 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 memo: "Days like this are brutal." Uber reports its earnings Thursday.

Lyft posted a loss of $398.1 million on sales of $955.7 million. The better-than-expected sales figure helped to lift beaten-down Lyft shares in after-hours trading. The stock, down 39% in 2020 before the results, rose 19% to $31.10 in late trading Wednesday.

Lyft ridership grew 3% in the three months through March 31 from the year-ago period, but the number of active riders declined to 21.2 million in the first quarter from 22.9 million in the October through December period.

The company has 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.

"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," Mr. Green said.

Even with the uncertainty over future ridership, Mr. Green said that consumers, in the wake of the pandemic, may choose to avoid public transportation in favor of the products it offers: ride-, bike- and scooter-sharing.

The company said cost savings, including the layoffs and overhead-expense reductions, will reduce annualized expenses by about $300 million by the fourth quarter of this year compared with previous projections. The company also said it slashed capital-expenditure plans for the year to $150 million from $400 million.

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

Uber's share price, off 6.5% in 2020, has held up better than Lyft's, 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. Pressure on fees from restaurants and local governments could offset any increase in demand because of Covid-19, Wedbush Securities analyst Daniel Ives said.

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.

Lyft said Wednesday that it has no plans to enter the food-delivery business.

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 ride-hailers' 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.

Lyft Chief Financial Officer Brian Roberts says cost-cutting measures the ride-hailing company is implementing could ease the path to profitability. Mr. Roberts says measures taken now mean Lyft can be profitable at a ride volume 15% to 20% below what it initially thought. "The actual timing," he said, "will depend on the speed of the recovery. It could be earlier or later."

Corrections & Amplifications Dara Khosrowshahi is the chief executive of Uber. An earlier version of this article misspelled his last name.

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

(END) Dow Jones Newswires

May 07, 2020 02:47 ET (06:47 GMT)

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