August 8, 2019 / 11:44 PM / 11 days ago

Breakingviews - Uber-Lyft price-war truce will be temporary

An Uber and Lyft car is seen in San Diego, California, U.S. May 18, 2018. REUTERS/Lucy Nicholson

SAN FRANCISCO (Reuters Breakingviews) - The unofficial price-war truce between Uber Technologies and Lyft may soon be a distant memory. Both ride-hailing firms say they’re being more rational with incentives while user growth was steady. But expenses are rising. And a record $5.2 billion quarterly loss and drags from freight and food delivery put Uber under more pressure. Cutting prices may be a tempting way to boost core rides.

The two San Francisco-based firms say pricing pressure has eased after fierce competition in rider coupons and driver incentives. Still, $73 billion Uber reported on Thursday that its sales and marketing expenses went up by about 70% in the second quarter compared to the same period last year. A day earlier its $18 billion rival said its costs were up by just 3%.

Each managed to increase users despite price increases, though Uber’s growth slowed. Its ride-sharing gross bookings rose by a fifth in the second quarter, leading to a 14% bump in overall revenue. Lyft had 41% more users as sales rocketed by almost three-quarters. Neither company would say how much they raised fees. 

But costs at both firms continue to rise, particularly because of more spending on research and development. Lyft’s net loss came in at $644 million, some 2.6 times more red ink than in the second quarter last year. Uber spent nearly 10 times more on R&D in the second quarter, totaling almost $3.1 billion.

Uber in particular is under pressure because of the extra drag from businesses Lyft does not compete in. Uber Eats faces intense competition from DoorDash, which is now No. 1 in food delivery, and others. It’s also pushing to grow its trucking business at a time when freight demand is softening.

The diversification could help Uber in the long run, but for now those investments are causing some pain. While revenue in both those divisions increased, driver incentives ate into about half of the food-delivery unit’s sales while the contribution loss from the division that includes trucking rose by more than 300%. Global competition in Latin America and elsewhere also took its toll.

These make keeping the growth engine humming all the more enticing – and rider and driver incentives are one of the most useful fuels. A more than 10% drop in Uber’s stock in after-hours trading on Thursday may make coupons and other gimmicks look more attractive again. That would force Lyft to drive in the same lane.

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