Uber lays off 3,700 as coronavirus upends sharing economy
In a world where the coronavirus pandemic has turned social distancing into a new way of life, companies whose business models bank on people's willingness to share their personal space are now struggling.
Uber said Wednesday it's cutting 3,700 full-time workers, or about 14% of its workforce, as people fearful of infection either stay indoors or try to limit contact with others to minimize risk when they do venture out. Its main rival Lyft as well as home-sharing service Airbnb have likewise announced cuts because of falling usage.
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“Consumers are going to be more worried about getting into Ubers and Lyfts than into taxis, and they’re going to be more worried about going to who-knows-who’s house or apartment under Airbnb than they will be about going to a Hilton or Holiday Inn," said Erik Gordon, a professor at the University of Michigan Ross School of Business. "If you look at lodging, if you look at rides, the sharing platforms face a bigger customer confidence hurdle than the traditional players, probably for the first time in years."
Ride-hailing companies were already struggling to demonstrate a path to profitability well before the pandemic began. And no one knows whether the companies that rely on sharing backseats and living rooms will survive after the pandemic is over.
“We cannot predict the trajectory or timing of the eventual recovery, but it’s clear that macro trends will continue to negatively impact our business," said Logan Green, co-founder and CEO of Lyft, in a conference call with investors Wednesday.
Uber's layoffs and related costs like severance will cost about $20 million for the San Francisco-based company, which had already imposed a hiring freeze. Uber has offered up to 14 days of financial assistance to drivers and delivery workers who were diagnosed with the Covid-19 disease, or placed in quarantine.
Those ride-hailing drivers still on the road are trying to avoid infection and patch together enough fares to put dinner on the table even as ridership plummets.
“A lot of us are living on the razor’s edge of homelessness," said Jerome Gage, 28, who drives for Uber's rival Lyft in Los Angeles. “We have to work or we don’t eat."
Gage, who as a contract worker does not have paid sick leave or health insurance, has seen his income plummet as the number of rides he provided fell about 75%. He got one disposable mask and a few small bottles of sanitizer from Lyft, but said it's not enough to keep him safe.
“Any trip, you could contract the virus," Gage said. "So every single day we’re on the road we’re in harm’s way."
Lyft announced last month it would lay off 982 people, or 17% of its workforce in the face of sinking ridership. The San Francisco company expects to spend $28 million to $36 million on expenses related to employee severance and benefit costs.
In the first quarter, which only captured the beginning of the outbreak, Lyft's revenue grew 23% to $955.7 million, the company said Wednesday. But there was a sharp decline in rides in mid-March, and in April Lyft's rides were down 75% compared to last year, Green said.
“The virus is testing our everyday way of life and is having a profound impact on our customers and our business," he said. “We expect that rider demand for our platform will be down for the foreseeable future. At the same time, with record unemployment, we expect driver supply to outstrip rider demand."
The number of active riders grew just 3% in the quarter, the company said Wednesday. Lyft lost $398.1 million, which was better than the year-ago loss of $1.1 billion when the company had higher expenses related to its IPO.
Ride-hailing companies are facing pushback from drivers who want to be classified as employees instead of independent contractors, which some say would speed the process of getting unemployment benefits. California sued Uber and Lyft on Tuesday, alleging they misclassified their drivers as independent contractors under the state’s new labor law.
Both Uber and Lyft are trying to conserve cash so they can weather the pandemic’s fallout, in part by emphasizing deliveries of food and other goods. Lyft, which in the past touted its singular focus on transportation, started a temporary service called “Essential Deliveries" last month to deliver goods such as groceries to food banks and senior centers. Uber is expanding Eats, its restaurant delivery service, into 20 international markets this year.
But the success of their businesses depends on people being willing to open up their cars, and drivers in some parts of the country can make more money collecting unemployment benefits, said Stephen Beck, managing partner of cg42,a management consulting firm.
The psychology of riders' decision-making is also shifting, Beck said. Ride-hailing companies were banking on people deciding they would rather hitch a ride than own a car, a belief that has changed for some consumers during the pandemic. Riders also will be making decisions about what's safest, and would have to trust that a shared vehicle less risky than a bus or train.
“It’s really difficult for us to speculate on how consumer behavior might change on the other side of the crisis," Green said. Affordable transportation is going be critical for consumers, and people will reconsider high fixed costs such as owning a vehicle, he added.
“We do think that consumers may also choose to avoid public transportation in favor of ride sharing and bike and scooter sharing," Green said.
Airbnb is slashing staff as the thought of opening living spaces to strangers begins to feel like an anachronism.
On Tuesday, Airbnb announced it was cutting a quarter of its workforce, some 1,900 people. The San Francisco-based company expects its revenue to drop by more than half this year.
It was not so long ago that Airbnb was poised to cash in on a soaring stock market with its highly anticipated public offering. But with the market now reeling and few people looking to anywhere but home, Airbnb is reportedly racking up millions of dollars in losses.
When consumers eventually resume traveling, Airbnb CEO Brian Chesky anticipates they will spend less and stay closer to home. Earlier this year, after the company told guests they could cancel their stays without penalties, it agreed to pay furious hosts $250 million to make up for some of their lost income.