Question

In 2019 two ride-sharing companies - Lyft and Uber - went public.Whats are the risks that these companies are facing? Are these risks similar or different for both companies?

Answer 1

Uber which went public in 2019, had a valuation of about $100 billion. Uber has horizontal ambitions, which are going beyond rides, going into freight, driverless car technology, food deliver and air taxis. It generates its revenue from three business units, categorized as Personal Mobility, Uber freight and Uber eats.

Risks faced by Uber:

• The toxic culture at Uber due to lack of transparency, mismanagement, siloed teams was all mentioned when its IPO filing was done. Uber states the “Delete Uber Campaign” which caused many customers to cancel their accounts. This created cultural and operational challenges.
• Uber faced challenges in getting access to the “most popular restaurants”, as such Uber Eats was less appealing to the restaurants and customers.
• Uber generated about 15% from its booking to and from trips to airport. The future prospects and financial health of Uber will suffer if operations in metropolitan areas restrict the links to airport.
• Uber was on nerves while fighting for the drivers to keep them classified under contractors instead of employees, as this will help them in restricting the additional expense which comprises healthcare benefits, minimum wage law and paid time off.
• Uber has been associated with instances where the riders has been raped, assaulted, harassed or in some way harmed by the drivers. This has adversely affected the reputation, brand and business of Uber. This has also lead to huge financial loss in terms of paying penalty.

Lyft is the ride-hail company which focuses on transportation and has faced unique risks while going public.

Risks faced by Lyft:

• The platform is supported and hosted by the ‘Amazon Web services’, implying that it has no control which leads to interruptions, delays, cyber security attacks, natural disasters and various other acts of misconducts.
• Lyft has put restriction on both the riders and the drivers from going to court, instead permitting them to go to arbitration. Such provisions lead to rise in public security, which has been made as an exception, thus permitting the sexual abuse or misconduct to be taken to court.
• Lyft faces challenges due to its inefficient autonomous vehicle technology and its growth in future.
• Lyft is using open source software, which leads to exposure to legal risks if the licenses are been interpreted by the courts in some unexpected procedures.