Uber sees more red ink in U.S.

Los Angeles Times - - BUSINESS BEAT - By Tracey Lien tracey.lien@la­times.com Twit­ter: @traceylien

Fierce com­pe­ti­tion from Lyft is hold­ing Uber back from achiev­ing prof­itabil­ity in the United States, Uber Chief Ex­ec­u­tive Dara Khosrowshahi said Thurs­day.

In one of his first ma­jor in­ter­views since tak­ing the helm at Uber in Au­gust, Khosrowshahi said ride­hail­ing com­peti­tor Lyft’s heavy spend­ing on sub­si­dies to keep the cost of rides ar­ti­fi­cially low has forced Uber to con­tinue do­ing the same, lead­ing to fi­nan­cial losses.

“The U.S. is very com­pet­i­tive right now, be­tween us and Lyft, so I don’t see the U.S. as be­ing a par­tic­u­larly prof­itable mar­ket for the next six months,” he said.

When asked what will hap­pen af­ter six months, Khosrowshahi said: “It de­pends on where the com­pe­ti­tion goes. Right now, we have a sit­u­a­tion where Lyft is spend­ing very ag­gres­sively to gain share.”

Lyft took is­sue with Khosrowshahi’s char­ac­ter­i­za­tion of the com­pany. “Since Lyft was founded, Uber has at­tempted to stop Lyft’s mo­men­tum by sub­si­diz­ing and spend­ing to gain mar­ket share,” Lyft spokes­woman Alexan­dra LaManna said in a state­ment. “It hasn’t worked. More and more pas­sen­gers and driv­ers are choos­ing Lyft be­cause they be­lieve ethics mat­ter and they value a great ser­vice ex­pe­ri­ence.”

Fi­nan­cial doc­u­ments for Uber and Lyft that have been leaked over the years have shown that, de­spite bring­ing in enor­mous rev­enues from mil­lions of car rides, both San Fran­cisco com­pa­nies con­tinue to op­er­ate at a loss be­cause they spend heav­ily on sub­si­dies.

Sub­si­dies are one of the main ways ride-hail­ing com­pa­nies can gain mar­ket share. Driv­ers will typ­i­cally work for the com­pany that of­fers the best fi­nan­cial in­cen­tives, while pas­sen­gers flock to the ser­vice that charges the least.

In China, Uber met its match in Didi Chux­ing, the in­cum­bent ride-hail­ing com­pany that out­spent its ri­vals to at­tract driv­ers and pas­sen­gers. Uber sold the China arm of its busi­ness to Didi last year in a deal that val­ued the joint en­tity at $35 bil­lion.

In the United States, though, nei­ther Uber nor Lyft has shown in­ter­est in con­ced­ing.

Uber re­mains the mar­ket leader, and its war chest is also larger; to date, it has raised about $15 bil­lion in debt and equity at a pri­vate val­u­a­tion of about $70 bil­lion.

Lyft, mean­while, re­ceived a $1-bil­lion fund­ing in­jec­tion last month in a round led by Al­pha­bet Inc.’s in­vest­ment arm, Cap­i­talG, which val­ues the com­pany at $11 bil­lion.

The ul­ti­mate goal for both com­pa­nies is to cut back on sub­si­dies. In some over­seas ar­eas Uber has been able to do this, Khosrowshahi said, lead­ing to prof­itabil­ity in those mar­kets. With Lyft nip­ping at its heels in the U.S., though, it could be a while be­fore Uber is in the black.

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