Why Ride-Hailing Apps Are Focused on Diversification
By: James Flippin · October 04, 2022 · Reading Time: 3 minutes
Looking at Lyft
Many on Wall Street were excited about Lyft (LYFT) several years ago due to its highly-focused approach. The company is and was a mostly North American business focused on the US market. By comparison, rival Uber (UBER) is much more global and has invested in numerous revenue streams beyond just rideshare.
The thinking was that by maintaining a more narrow business model, Lyft would be able to become profitable more quickly, without distractions or potential downturn in other business lines. Now, following the impact of the pandemic, Uber is enjoying a boom in its food delivery business. In this respect, and given certain trends in the rideshare sector, Lyft is now branching out and attempting to diversify.
The Big Two
One of the diversifying steps Lyft has already taken is the creation of its media division, known as Lyft Media. This involves the sale of rooftop ads for vehicles, as well as in-car digital advertising. This allows Lyft to directly compete with Uber, which has been selling digital ads via Uber Eats for several years. For both of the sector’s major players, digital advertising is becoming increasingly important.
Thinking about Uber’s success in food delivery, some industry observers see Lyft as a potential purchase target for a larger player in the delivery space. This could include DoorDash (DASH) or Delivery Hero (DELHY).
Uber, which is a few steps ahead in terms of diversification, isn’t satisfied on that front. It’s expanding into grocery and alcohol delivery, travel bookings, and taxis.
Reevaluating Rideshare
Looking at revenue growth, it would appear Uber has benefited from its more diverse approach. Analysts predict the rideshare giant will grow its sales by more than 80% this year. That’s compared to an estimated 27% jump for Lyft here in 2022.
Broadly stated, it seems the ride-hailing sector isn’t soaring to the heights some previously predicted. While proponents hyped apps like Uber and Lyft as a viable alternative to car ownership, data suggests otherwise. Asset management company AB Bernstein estimates only the top 65% of earners can afford to use rideshare on even a semi-regular basis. When you take into account hybrid work schedules and diminished community needs, it’s not surprising the sector’s biggest names are focused on diversification.
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