November 12, 2019 / 8:57 PM / 23 days ago

Breakingviews - Uber’s success relies on CEO’s defensive driving

Uber CEO Dara Khosrowshahi speaks to the media at an event in New Delhi, India, October 22, 2019. REUTERS/Anushree Fadnavis

SAN FRANCISCO (Reuters Breakingviews) - Defensive driving skills will come in handy at Uber Technologies. Chief Executive Dara Khosrowshahi steadied the troubled firm and took it public in May. But Uber’s future depends in large part on his reaction to rivals in car-hailing and food delivery.

Khosrowshahi’s level-headedness was a blessing for Uber after months of drama that culminated in the ousting of co-founder Travis Kalanick in 2017. He helped set the company up for its initial public offering. Having seen the subsequent implosion of the IPO attempt by WeWork’s parent, another heavily money-losing venture, that’s a bigger achievement than it seemed. Still, Uber’s share price has fallen by about 40% since it went public.

One problem at the $46 billion company is continued heavy spending on incentives. The car-hailing market has become more rational of late. Smaller U.S. rival Lyft cut marketing spending by 32% in the third quarter from a year earlier. The easing of competitive pressure helped Uber report more than 50% growth in what it calls rides adjusted EBITDA in the third quarter.

The reduction in hostilities may not last long, though. Last week, Lyft said it was offering $250 in ride credits in three cities to people selling cars through an online auto retailer. Uber also faces tough competition in South America and elsewhere.

Meanwhile, Uber is still pushing into restaurant delivery. Even though sales growth fell from a 90% year-on-year pace in the first quarter to a 64% increase in the third quarter, competition remains cutthroat. Analysts at Cowen estimate that Uber Eats is operating at a net loss of $4.12 per trip.

Investor SoftBank Group could help rationalize the U.S. food delivery market where it has also invested in DoorDash, the industry leader. But until that happens, it’s a terrible business. Grubhub Chief Executive Matt Maloney says customers aren’t loyal, and the costs to woo them almost wiped out his second-placed firm’s profit in the third quarter.

Khosrowshahi says it’s not worth being in a sector if Uber isn’t at least No. 2. He recently pulled Uber Eats from South Korea, and Uber also gave up on China ride-sharing in 2016. The CEO said last week he expects Uber will be profitable in 2021. The question is whether that’s within his control.

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