Why Uber and Lyft Shares Are Stuck in the Slow Lane
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. Some investors had hoped that shares of Uber and Lyft would be cruising the express lane after going public. Instead, they're stuck in reverse. The Journal's Heard on the Street team has a few theories on that. We'll hear from them in a moment. First, these money and market stories you should know. Laws passed in 2009 made it more difficult for credit card companies to recruit college students, and that's resulted in a decline in the number of young people with cards. But that trend has reversed in recent years, and we're at a point now where credit card delinquency rates among people aged 18 to 29 are at their highest since 2011.
The Federal Reserve says about 8.1 percent of credit card balances held by young people were delinquent by 90 days or more in the first quarter of the year. And that could hurt their credit scores and could make it more difficult for them to take out mortgages or small business loans in the future.
Why have Uber and Lyft shares struggled since their IPOs?
Interest rates on those credit cards are also moving up, further squeezing struggling borrowers. Now, the Fed says delinquency rates among older people are slowly rising as well, but they're below the rate for the youngest borrowers. Rates on credit card accounts where interest is charged hit 16.91% in the first quarter of the year. That's the highest rate since at least 1994. And a class action lawsuit's been filed against TurboTax by lawyers who say the tax software company cheated customers out of free tax prep services. Last month, allegations were put forth that TurboTax diverted customers away from its free file services, which provides free tax prep to any taxpayer with less than $66,000 a year in income.
TurboTax initially disputed those allegations, but has also acknowledged that it made certain websites easier to find. TurboTax is alleged to have used website code to direct customers looking for its free file program away from the TurboTax website.
Uber was one of Wall Street's most widely anticipated IPOs, but after going public on May 10th, the stock has struggled to trade near its $47 IPO price. And that may be because of future plans the company has, which include a lot more than driving passengers from point A to point B. And Wall Street Journal Heard on the Street columnist Dan Gallagher is on the line with us to explain. So Dan, just to catch everybody up, Lyft went public in March and Uber went public earlier in May. It's been a struggle for both those companies.
It has. I mean, both have come down a lot from their IPO prices. And, you know, there's a lot of concerns that investors have with kind of the business model of ride-hailing. It's not just one single thing. But one big part of that model is that these companies are expecting that they will grow into profitability in part by keeping – by kind of lowering the cost they're paying for drivers or capping the incentives. There's various bits of language in there. And from what we can see, it's hard to actually see driver costs going down.
There's a lot of moving parts here. Labor is expensive and very tight. Amazon says it's going to be launching a box delivery program, paying drivers for that. And then, like you pointed out, Uber says that profitability might hinge on not being too generous with drivers. That could result in them having a revolving door of talent.
Yeah, and that's already a problem because the journal reported earlier there's been a lot of churn in ride-sharing because what a lot of drivers find is that once you minus out the cost they have to pay, that a lot of them are netting incomes that are kind of near minimum wage or sometimes lower.
How are driver costs and labor shortages hurting ride‑hailing profitability?
This is already a problem. And then you've got – yeah, we had this interesting announcement from Amazon yesterday. It's a program – they've been trying to build up their own delivery force. What they announced yesterday was essentially some incentives that they're trying to get some of their own employees – Obviously, people are probably working in the warehouses to quit Amazon and set up their own businesses as independent contractor drivers for the company.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–1:00
2
Why have Uber and Lyft shares struggled since their IPOs?
1:00–3:46
3
How are driver costs and labor shortages hurting ride‑hailing profitability?
3:46–4:46
4
Could Amazon and delivery rivals drive up driver wages for Uber and Lyft?
4:46–6:35
5
Why are investors worried about Uber and Lyft branching beyond ride‑hailing?
6:35–7:18
6
How does the Google/Alphabet comparison explain investor skepticism?
7:18–7:23
7
What needs to happen for Uber and Lyft to reach sustained profitability?
7:23–7:29
Speakers
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