Uber shares slip on price war fears Business

Uber shares fell to their lowest level since the start of the pandemic as the ride-hailing app faced the prospect of a brutal price war with its US rival.

Shares of the company fell more than 10% after Lyft, which competes with Uber in North America, said it planned to spend heavily to recruit more drivers amid a shortage of available rides.

Uber’s downfall came despite its financial results beating Wall Street forecasts as its key passenger transportation business recovered to pre-pandemic levels.

After demand for rides plummeted during Covid restrictions, chief executive Dara Khosrowshahi said ride activity in April surpassed levels for the same month in 2019.

This helped Uber more than double its revenue in the first quarter of the year. It also expected to generate “significant positive cash flow” for the first time in 2022 – a major milestone after more than a decade of burning through investor cash.

However, the positive numbers were marred by dismal results from US rival Lyft on Tuesday.

Uber’s biggest rival in North America issued a disappointing financial forecast for the three months ending in June. He said rising fuel prices and a shortage of drivers meant he would have to spend big on incentives such as bonuses to keep drivers on the road.

Uber and Lyft compete fiercely for drivers and the prospect of heavy spending by Lyft has spooked Uber investors, although the company said it doesn’t expect to have to spend more on incentives . The prospect of a costly driver war threatens to further delay companies’ paths to profit.

Lyft shares plunged a third to a record low after earnings were released after Tuesday’s bell.

CFRA Research’s Angelo Zino said, “Lyft came out and said it should spend aggressively to improve the driver supply. There could be a belief that Uber may eventually have to do the same, or if Lyft is successful there is a negative impact.

Dan Ives of Wedbush Securities added: “The battle for drivers continues, which is a race to the bottom according to Street. We believe Dara [Khosrowshahi] and co. are doing the right things, but the street is worried about new cracks in the business model to come.

Uber is also facing challenges in the UK, where it has been forced to raise prices, charge VAT on rides and spend on driver rewards such as holiday pay and pensions after losing a legal battle last year.

Uber shares have now fallen 40% this year, with the drop coming amid a tech selloff partly caused by rising interest rates.

The company said first quarter sales rose 136% year-on-year to $6.9bn (£5.5bn). Revenue from its amusement rides business has overtaken its Eats food delivery division for the first time since the pandemic began.

However, Uber posted a loss of $5.9 billion due to a $5.6 billion write-down on key investments such as Asian counterpart Grab, self-driving car company Aurora and Chinese app Didi. .

Unlike Uber, Lyft doesn’t have a food delivery business, meaning it has struggled more than its biggest rival during the pandemic, when surging take-out orders boosted sales.

Recent petrol price increases caused by the war in Ukraine have led Uber and Lyft to add a surcharge for passengers in the US, although Uber has not done the same in the UK.

However, prices have increased due to the growing demand for rides which is not being met by enough drivers on the road. Uber raised prices again in March after being forced to start charging passengers VAT. British competitors such as Bolt and Ola are expected to follow suit.

Transport for London recently renewed Uber’s license for two and a half years in a major victory for the company after years of dispute with the regulator.

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This notice was published: 2022-05-04 16:21:27

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