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Technology

As Uber spends big to compete with Lyft, profitability in the U.S. is not in sight

Smartphone Apps, Kaarst, Germany - 08 Nov 2017
Eight years after its founding, Uber is still unprofitable in the U.S.
(Sascha Steinbach / European Pressphoto Agency)

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 ride-hailing 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.”

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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.

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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.

tracey.lien@latimes.com

Twitter: @traceylien


UPDATES:

2:05 p.m.: This article has been updated with a statement from Lyft.

This article was originally published at 10:05 a.m.

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