Uber and Lyft’s initial public offerings could result in customers paying more for their rides.
That’s according to the Wall Street Journal, which reported that as public companies Lyft and eventually, Uber — which is slated to go public in May — may not be as inclined to slash prices for the sake of market share. Investors are wary of companies that don’t make a profit and the pressure placed on the likes of Uber and Lyft could result in higher prices, the news outlet noted. The two ridesharing firms have for years slashed prices and offered perks to steal market share from taxi companies and each other. Both have seen revenue surge but also have mounting losses.
“You have shareholders who want you to generate profits,” Mitchell Green, founder of Lead Edge Capital, an investor in Uber, said in the report. “There are lots of different levers, and one of them is pricing … These companies have more pricing power than people think.”
The paper noted that if investors are OK with the ride-hailing companies continuing to lose money to pursue growth, then the cheap fares will remain in place. After all, they can afford it. Lyft raised $2.3 billion in its IPO and Uber is expected to raise as much as $10 billion. Lyft has signaled that it won’t continue to lodge losses, telling investors that it expects to be profitable in the next few years. Analysts told the newspaper that may be hard to achieve if the current prices remain in place. The report noted that with its IPO, Uber will likely face pressure to turn a profit, particularly as revenue growth has slowed down. In the fourth quarter revenue from ride-hailing was $2.31 billion, flat with the third and second quarters of last year.
To cut costs, Uber and Lyft are looking at ways to reduce expenses associated with insurance and making routes more efficient for drivers. The companies expect costs to be reduced as more drivers and riders use their platforms, noted the paper. Still, analysts say it will take higher fares and fewer driver incentives to truly stop the losses. It’s a sentiment shared by Paul Hudson, founding partner at Glade Brook Capital Partners, an investor in both Lyft and Uber. He told the Journal that both firms will probably reduce rider discounts and improve their point programs to boost loyalty.