It has been a tough earnings season for the technology industry, and markets more broadly.
Big Tech companies failed to convince Wall Street that their massive investments in artificial intelligence are paying off. Growth in their core businesses underwhelmed. Their results, combined with broader concerns about the health of the US economy, triggered a meltdown that, at one point, had erased some $6.4 trillion from global stock markets.
“Much More Habitual” Behavior
The companies’ robust bookings suggest that ride-sharing and food delivery are both entrenched habits that consumers have already baked into their budgets. And demand for food delivery in particular has remained resilient even since the Covid-19 pandemic, when people were largely forced to cook for themselves or order takeout.
Uber Chief Executive Officer Dara Khosrowshahi said of Uber Eats customers that consumer behavior is “much more habitual” than many previously thought. DoorDash CEO Tony Xu said the same on his company’s earnings call.
“We’re seeing really strong demand on the consumer side,” Xu said. “We’re not actually seeing some of the challenges that you may be hearing about or reading about in other headlines.” DoorDash, which holds a commanding lead in the US market over rivals Uber Eats and Grubhub, has staved off skittishness around consumer spending to deliver better-than-expected results, analysts said.
If anything, this earnings season suggests that consumers consider travel a discretionary expense, with companies such as Airbnb Inc. and Booking Holdings Inc. signaling soft demand, particularly in the US. Airbnb shares suffered their biggest intraday loss after the company delivered a weak forecast for a third straight quarter.
Walt Disney Co. similarly reported tepid demand at its theme parks with pressure on attendance expected to linger “for the next few quarters.” Lower-income guests are “a little stressed and shaving a little bit off their time at the parks,” Disney Chief Financial Officer Hugh Johnston said in a call with investors, while higher-income customers are taking vacations overseas instead, he added.
Instacart in particular has also withstood a broader industry slowdown in advertising. Although some of its brand partners have been pulling back on ad spend — an easy cut to make during economic downturns — the company has “more than offset” it by adding new advertisers, Chief Financial Officer Emily Reuter said Tuesday on a call with investors.
Everyone is Diversifying
Just as important as habit-building, the delivery companies have been able to increase their bookings by expanding into new growth areas. DoorDash has been expanding its marketplace to add stores that sell groceries, beauty products and sporting goods. The company announced new partnerships in the second quarter with Ulta Beauty Inc. and Michaels Stores Inc., among others.
London-based Deliveroo in November similarly unveiled a shopping section of its app where users can buy toys, electronics, home improvement items and cosmetics.
Uber has been diversifying across both its rideshare and delivery businesses. Over the past year, it’s added more transportation options to its platform in the US and abroad, including shuttles, lower-cost shared rides and motorcycle taxis. It’s also struck deals with new Uber Eats merchants such as Costco Wholesale Corp. and The Vitamin Shoppe, allowing it to expand beyond restaurants. And in May, it partnered with Instacart, which is mainly focused on groceries, so that Instacart users can place Uber Eats restaurant orders from within the Instacart app.
A Unique Position
Gig-economy companies may also benefit from trends that other firms consider headwinds. Uber’s Khosrowshahi said the company has experienced efficiencies during recessions. When the labor market is slow, more people may seek positions as drivers and couriers, which can reduce fares for consumers.
“While our consumers tend to be higher-income, we’re not seeing any softness or trading down across any income cohort,” Khosrowshahi said on an earnings call with analysts. “We’re confident that Uber can perform well because of the counter-cyclical nature of our platform.”
In contrast to tech giants like Apple Inc., Alphabet Inc. and Microsoft Corp. that have seen a market backlash, gig-economy companies were less likely to have been overhyped in the first place, said Harvard Business School professor Malcolm Baker.
“Uber has not had the same sort of momentum that some of the bigger tech companies have had, and so perhaps it is less prone to the forces of reversal that we are seeing right now,” Baker said.
These companies also aren’t facing comparable pressure to invest in AI, allowing them to either take risks elsewhere or cut costs. AI momentum has been more about producers of AI models and infrastructure than about AI users like Uber, Baker said, adding that the rideshare firms’ existing tech is already up to the task of handling the needs of ride-hailing apps.
A Lone Exception
Unlike its gig-economy peers, Lyft Inc. reported weak bookings and guidance that fell short of Wall Street’s forecasts. Lyft’s stock tanked as much as 18.6% on the news — its biggest drop in over a year.
Although the ride-hailing firm is Uber’s biggest US competitor, Lyft’s market share is about three times smaller. Despite the two companies’ parallel business models, their difference in scale has put them on different paths, according to analysts from Melius Research.
“Although Lyft has plenty of growth potential ahead of it, the macro weakness still impacts the business,” the analysts wrote in a Wednesday report. “In fact, on the margin airport pick-ups / drop-offs grew slower than non-airport rides, which is notable given the cyclicality of air travel. Uber’s scale allows them to mask those headwinds in the US, Lyft’s does not.”
