Emil Michael Reveals the Future of Ride-sharing on CNBC’s ‘TechCheck’

During a Nov. 3 interview with CNBC’s TechCheck, Uber’s former Chief Business Officer Emil Michael said incentives for ride-sharing drivers could be more important than ever, especially in light of a chaotic fourth fiscal quarter. 

“The fourth quarter is a very different, interesting quarter for ride-sharing companies because they’re used for a lot of holiday parties, going out at night, and all the things that happen late in the fourth quarter,” Emil Michael said. “The wild cards are, ‘What’s the weather going to be? Are we going to have an Epsilon virus?’ And frankly, fuel prices matter to drivers a lot.” Emil Michael, who has taken a market-driven approach to raising capital, is fascinated by the trend he’s currently seeing with Lyft. 

The interview was recorded shortly after Lyft reported robust Q3 earnings, including an adjusted EBITDA profit of $67.3 million, which sent its stock surging 12% after the Nov. 2 bell. Still, Lyft reported a slight decrease in active riders (18.9 million versus a predicted 19.7 million).

“Lyft is now showing with fewer active users, they did a lot more revenue and more EBITDA, so those are pretty good metrics to think about how maybe this higher-priced model can drive more EBITDA,” Emil Michael said. “Lyft’s EBITDA went up about $40 million to get to $67 million this last quarter, so that’s pretty compelling. It’s the first big reasonable cash flow quarter that Lyft has had, and I hope you see that at Uber as well.”

Emil Michael says that if the same ride-sharing trends continue, some weird behavior in supply and demand curves will be an inevitable side effect. As fuel prices continue to soar, Emil Michael believes Lyft and Uber will have to reconsider plans to ease up on incentives for ride-sharing drivers. 

“Three months ago, a $20 fare yielded a driver $12, and now that costs have gone up by $2-per-ride or $1-per-ride, and the economics are different, then you have to adjust accordingly,” Emil Michael said. 

During Q3, Lyft had fewer active users, but prices were higher, and this appears to be the lingering trend Emil Michael foresees for post-pandemic ride-sharing.

“That might be what the new world is,” said Emil Michael, who raised more than $15 billion in equity capital during his time at Uber. “Prices are higher. In a lot of cities in the U.S., they’ve regulated a minimum wage per hour, and for drivers, when a company doesn’t hit that minimum wage, they have to make sure they’re paying the driver at least up to that.” 

As Uber falls under more significant pressure with Lyft delivering their service with more efficiency, all eyes remain on the ride-sharing giants. While both Lyft and Uber offer an alternative to traditional taxis and food delivery services, the brands differ in popularity and usage. 

Uber plans to subsidize many of its drivers who are switching to Teslas. Although Tesla brokered a deal with Hertz to add 50,000 cars to Uber’s fleet of vehicles by 2023, Lyft was technically first to commit to an all-electric future by 2030. Lyft’s Co-founder John Zimmer told Yahoo Finance Live his company plans to dive into its $2.4 billion cash stash to make the eco-friendly vision a reality. Lyft has also been adding different price points since the pandemic started, according to a report Zimmer gave CNN Business. Despite Lyft’s rider number increasing by 11% in Q3, the brand’s ridership is still 35% below pre-pandemic peak levels, as reported by CNN. Zimmer also said many drivers are willing to wait longer for a ride with the option to save a little money. 

“Uber’s whole ride business globally does about three times what Lyft’s ride business does in one country. It’s inefficient,” adds Michael. “If Uber doesn’t fix that, the multiple it’s going to trade at is just going to be below Lyft’s at some level.”

“At Door Dash, with the interim numbers you get from the credit card companies that release the data, it looks like Uber is losing market share to DoorDash in the U.S., so those are not great trends we’re seeing, but we’ll see what happens tomorrow. Maybe they’ll pull a rabbit out of a hat.”

Well, kind of. When Uber released its Q3 earnings on Nov. 4, it reported its first profitable quarter on an adjusted net basis—a first in its 12-year history—with its two cash cows: ride-sharing and food delivery. But that news was overshadowed by its bottom-line loss of $2.42 billion, up from $1.1 billion in the previous quarter, largely driven by its investment in beleaguered Chinese ride-sharing company, Didi. 

With Uber’s stock price trading around its IPO price and Lyft’s trading well below its IPO price, the value proposition for an investor could require a game-changer.

“The catalyst could be that we don’t have a COVID situation more broadly next year, and drivers come back and normalize. Uber and Lyft both do better pricing, so they hit a sweet spot where they’re not high, but they’re not losing money because they’re priced too low and fighting for that last inch of market share. So, if they can do that, the synergies with food delivery, even if they’re behind in the U.S. on that [it] could be a nice business. But it’s about time.”